/!

,I

L

Ir

The airline industry is indeed in afinancial crisis. During the lasttwo years, the airline industry

has endured almost $6 billion in losses,which is more than all the profits the air­line industry earned throughout its entirehistory. Of the 11 major carriers that ex­isted in the industry at the beginning of1991, 6 are not just in crisis but in extre­mis, and some are dead. Of the 450,000employees in the industry, about 57,000have been laid off or terminated duringthe past year and a half.

The passage of the Airline Deregula­tion Act of 1978 dramatically altered theairline industry, and its ramificationshave been played out ever since. From1979 to 1986, numerous new-entrantcarriers came into the industry bringing atremendous amount of price and routecompetition. But at the same time, 150airlines went into bankruptcy, and 50 air­line mergers took place.

The period from 1986 to the presenthas been marked by industry consolida­tion, which has resulted in the formationof three international giants or "mega­carriers." These really should be calledsurvivor carriers, because they are losingmoney, too; but they are certainly ex-.pected to survive the crisis. Those survi­vor carriers - American, Delta, andUnited - now control 54 percent of theairline market, based on revenue passen­ger miles (RPMs) flown (one RPM isone paying passenger flown one mile).

Recent additional developments thathave exacerbated the problems of theweaker carriers and accelerated the con­solidation in the few strong carriers in­clude the recession, the Gulf War, anddebt. The entire airline industry is over­burdened with debt. hi 1978, airline in­dustry debt totalled about $8 billionwhile equity was about $6 billion. By1990, total industry debt had balloonedto about $47 billion versus equity of $9billion. Even in good years, servicingthat debt would be difficult.

Meanwhile, the U.S. airlines that arethe best positioned for the future have as­sets and attributes that make them almostinvulnerable to serious competition fromthe other U.S. airlines.

I n this volatile and extremely cyclicalairline economic environment, 65percent of the employees in the air­

line industry are unionized. Collectivebargaining is pervasive. The RailwayLabor Act (RLA), which was passed in1926 and governs collective bargainingin the airline and railroad industries, hasone central overriding goal: to avoid in­terruptions in interstate commerce.

The Act was virtually written by therailroad brotherhood and carrier repre­sentatives and was passed by Congresswithout many changes. It has been char­acterized as more like a collective bar­gaining agreement negotiated by theparties rather than a statute foisted on the

parties by Congress. It was applied to theairline industry by amendment in 1936.

Both the parties involved and Con­gress intended the RLA to provide a pro­cess for resolving the three kinds of dis­putes that typically arise in labor rela­tions: representation disputes, collectivebargaining disputes, and grievance arbi­tration disputes.

The Act has an enormous emphasis onstability. Most importantly, the statusquo - meaning prohibition againstunions striking or carriers unilaterallychanging pay, rules, or working condi­tions - is preserved throughout the longand involved collective bargaining pro­cess. That process lasts until the NationalMediation Board (NMB), in its sole, vir­tually unreviewable discretion, deter­mines that the parties should be releasedto use self-help. Self-help usuallymeans, for a carrier, a lock-out or unilat­eral implementation of new wages,hours, and working conditions and, forthe union, a strike.

Collective bargaining under the RLAis a rather insular process. It limits thedisputes to the parties involved. It avoidsthe kind of litigation that is characteristicof the National Labor Relations Act(NLRA) and other labor relations stat­utes. Two of NMB's central functions­resolving representation disputes andaiding collective bargaining through me­diation - allow the Board virtually un­reviewable discretion. Complaints chal-

A COLLECTIVEBARGAINING ANALYSISIn the airline industry financial crisis, has the collectivebargaining process been friend or foe?By Joshua M. Javits, Member, National Mediation Board

26 AIR LINE PD..OT JUNE 1992

,"

carrier does not survive, nice labor rela­tions are irrelevant.

Given the relative security of theunions in the industry, they can and domake concessionary agreements andother accommodations where needed forthe survival of a carrier. But as a practicalmatter, substantial delays in reachingcollective bargaining agreements are notgood for labor relations.

Delays are sometimes necessary,however, to permit good-faithbargaining and a thorough re­

view of issues in a serious attempt to findsolutions that both parties can live with.In those situations, delays have a muchgreater beneficial effect than they do ahannful effect, particularly in an industrythat can ill-afford shutdowns at any time.

In these particularly vulnerable trans­portation service industries, having asystem that encourages the parties to "gofor your guns" whenever a dispute ariseswould be bad labor policy.

As to whether collective bargaininghas been a friend or foe in the airlines' fi­nancial crisis, the answer is friend. Interms ofpurely economic results, econo­mists who have studied the issue reportthat, in the airline industry, labor costshave not been the cause of the airlines' fi­nancial crisis to any significant degree.Analyses have shown just the opposite.Labor productivity has vastly increasedsince the 1978 passage of the Airline De-

the parties to use self-help does not nec­essarily result in concessions that ensurecarrier survival. Rather, a devastatingstrike might take place that would, infact, lead to the carrier's demise. In addi­tion, companies subject to the NLRAhave also entered bankruptcy as a resultof a labor dispute. Recent examples arethe Greyhound and the New York DailyNews strikes.

Critics point to another alleged vice ofthe RLA process - that carriers even ingood times are insulated from challeng­ing unions to rationalize excessive costsand inefficient work rules. Of course,one person's excessive costs and ineffi­cient work rules are another person's de­cent living wage and tolerable workingconditions. But in terms of the process,the trade unionists' counter argument isthat unions are often, in fact, worn downby the elongated processes of the Act andnot allowed to use their greatest weapon- the strike - as readily as they would- and do - under the NLRA and thattherefore they settle more cheaply thanthey might otherwise. It is almost a tru­ism that in good times, when the carriersare making money, unions who expect tomake wage gains criticize the RLA pro­cess; and in bad times, carriers who needquick relief criticize it.

Another criticism is that the delays incollective bargaining occasioned by theworkings of the Act breed bad labor­management relations. Of course, if a

"It is almost a truism that ingood times, when the carriersare making money, unions whoexpect to make wage gainscriticize the RLA [Railway Labor

Act] process; and in bad times, carriers whoneed quick relief criticize it."

lenging the representation and collectivebargaining activities of the Board are sel­dom successful because the federalcourts largely defer to the Board.

What happens when a modemairline industry in financialcrisis meets the intricate and

gradual processes of collective bargain­ing under the RLA? The collective bar­gaining process and the needs of the air­line industry are a good match in severalways.

First, the parties have reached agree­ments that respond to the circumstancesof the carriers, and NMB has been instru­mental in the process.

Second, the process provides stabilityto an unstable industry in an extremelyuncertain world. Airlines today, giventheir slim, if any, profit margins, theirhigh debts, and their cyclical ups anddowns, for the most part cannot affordshutdowns. Central to understanding theeconomics of the industry is an under­standing that airlines, like other modesof transportation, cannot inventory prod­uct - even keeping airplanes in storagehas a high cost.

The processes of the Act increase thelikelihood of settlement, which avoidshutdowns. The Act requires the partiesto meet, to talk, to mediate, to "exertevery reasonable effort to settle all dis­putes." The process keeps the partiesworking on resolving their disagree­ments and limits the involvement of thecourts and their endless appeals pro­cesses. The length of time during whichthe parties are required to negotiate alsomay be long and drawn out to encourage

~the parties to make the accommodations ~

necessary for settlements.At the same time, NMB election rules

tend to preserve continuity of union rep­resentatives. This also provides stabilityand makes agreements more obtainable.

What are the criticisms ofthe process?Where a carrier is weak and a conces­sionary agreement is clearly appropriate,the process might delay the carrier fromobtaining vitally needed cost savingsand, therefore, make the carrier morevulnerable to financial collapse. Whilethis may be true, NMB has great discre­tion to operate quickly to make sure car­riers stay afloat - for the benefit of theemployees and the carrier, as well as forthe traveling public.

Nonetheless, the Board's release of

t[

JUNE 1992 AIR LINE PD..OT 27

NMB - a third party, a built-in fall guyor scapegoat. Unions, and also manage­ments, are at least in part political orga­nizations, and blaming agreements on athird party can be useful to the process.• The alternative of allowing for moreconfrontations, which some peopleargue would have "rationalized" carri­ers' cost structures over time, would notnecessarily have been a prescription forfinancial health. For example, EasternAirlines, rather than getting the best itcould in collective bargaining, soughtan early release from the process. Whenit did obtain a release, Eastern could notfly through a strike despite its signifi­cant labor cost savings. Eastern wentbankrupt and ultimately liquidated, re­sulting in great worker dislocation,creditors' losses, and difficulty for thesouth Florida area, where Eastern wasthe area's largest employer.• Despite the financial upheavals thenumerous mergers and buyouts causedin the industry - including those atmajor airlines such as Northwest andTWA, and the several attempted buy­outs ofUnited Airlines -labor stabilitywas maintained, with great help fromthe protections afforded under the RLA.• Even when airlines have made highwage settlements, such as in the currentround of pilot negotiations at the fivelargest carriers, the economic disastersthat strikes might have wrought in pure­ly financial terms might not have beenworth the price of keeping costs down.The proof of that is that the carriers wereunwilling to take strikes. Furthermore.the process pushed the parties to com­promise because collective bargainingitself has an intolerance for strikes.• Finally, if situations in which laborcosts were pushed significantly higherhad led to confrontations, even a strikewould not necessarily have kept costslower. Rather, the carrier might have ul­timately been forced to settle for evenhigher wages, in addition to losing rev­enue during the strike. Critics who as­sume that confrontation will lead tomanagement "facing down" unionsshould be aware that the opposite mightwell occur. +

$1.5 billion in net profits during that pe­riod. This suggests that labor costs do notdetermine profitability. Also, Pan Am,which received extraordinary employeeconcessions, was unable to survive.

The history of the past 12 years sug­gests that the collective bargaining pro­cess has been more friend than foe in theairline industry:• The collecti ve bargaining processprotected weaker carriers from strikesthat might have caused bankruptcies orliquidations. The weaker carriers thatdid go into bankruptcy or liquidationhad much softer landings, and thosestill in bankruptcy are more likely tocome out of it in absence of a cripplingstrike.• The process allowed for all parties toadjust to the new conditions after de­regulation. In the early and mid-1980s,the industry was able to adjust to thenew competitive circumstance in theindustry, driven in large part by the nu­merous new-entrant and low-cost carri~ers, such as People Express and NewYork Air.• Management was able to adjust to thenew competitive pressures without re­petitive labor confrontations. Airlineshad only two strikes between 1986 and1992.• The adjustments and changes thatwere made could always be blamed on

"Despite the financial upheavalsthe numerous mergers andbuyouts caused in the industry ...labor stability was maintained,with great help from the protec..

tions afforded under the RLA."

regulation Act, because the airlines havenot been able to almost automaticallypass on their costs to the traveling publicas they were able to do when the CivilAeronautics Board regulated them.

Also, since deregulation was enacted,the industry per capita compensation hasactually fallen. Unit labor costs have alsodecreased and have represented a de­creasing fraction of capacity costs. Be­tween 1975 and 1989, the real mediangross monthly earnings of the threemajor labor groups in the airline industry- pilots, mechanics, and flight atten­dants - have all decreased.

Labor costs per available seat mile,which is the standard measure ofproductivity in the industry, are

much lower on U.S. airlines than on for­eign carriers, by approximately 15 to 20percent. Labor costs generally cannot besaid to determine an airline's survival orthe destiny of the industry.

Look at this contrast -labor costs fortwo mostly nonunion carriers - Conti­nental and Delta.

Continental Airlines' labor costs aver­aged $34,000 per employee from 1984to 1990. During that period, Continentallost $1.7 billion. By comparison, DeltaAir Lines' average labor costs were$52,000 per employee during that samesix-year period, and Delta registered

1(

This article is adaptedfrom a speechdelivered before the New York State BarAssociation sannual meeting ofthejoint corporate counsel and labor em­ployment law sections, January 3/.

28 AIR LINE Pll.OT JUNE 1992