Staying Legal: Mergers & Acquisitions

Smooth flying, collision course, or government intervention? Mergers come at a difficult time for mechanics

The airline deregulation act of 1978 49 USC 1301-1552 was designed to promote more competition in the industry, bring down fare prices, and provide more convenient travel options for the public. This was the case for the short term after deregulation. Mergers and acquisitions however tend to do exactly the opposite. We have seen how airline schedules are built around major hubs and the traffic problems it creates. I believe many of the current major airlines would welcome re-regulation in the hope that it would solidify their market and profits. The fact of the matter is that there is little profit and some would say none, in carrying passengers, especially when operating costs go out of sight. Like the railroads, who finally went to the government, the air carriers may someday go the same way. Look also at the car manufacturers and perhaps the oil business among other candidates for what might be called semi-nationalization.

One commentator said that the act was … “ a revolution as profound and far-reaching as the revolution upon which our nation was founded …” There is little doubt, at the very least, that the airline business was changed forever. Many now feel that there should be some re-regulation to stabilize the business.

Some history

In 1926 the Railway Labor Act (RLA) (45USC 151-163) was enacted by an almost unanimous Congress. Later, railroads were encouraged to consolidate in order to maximize economies of scale and eliminate wasteful duplication of services. This of course has finally developed into the establishment of a single passenger carrying railroad, paid for by the U.S. taxpayers. Eventually, we may see an Amtrak of the Air, if costs keep going the way they are.

I would not be at all surprised to see a single passenger airline carrying all domestic and maybe foreign traffic, supported by the taxpayers. Perhaps the present Administration may have an opportunity to propose “the Air Passenger Service Act” and consolidate most if not all domestic air carrier activity … all we need is another so-called “crisis” like we have had in the automobile industry … and now in the oil business, with the obvious threat of massive layoffs.

Labor costs and contract provisions have in the past become so costly where mergers are concerned that they tended to outweigh the economic benefits of the merger. Sometimes the intent of the merger has been to acquire new and broader route structure … or in some cases to acquire a larger and mixed collection of aircraft and or gates. It could well be that the acquired additional employees and their unions might be considered to be negative assets rather than positive.

The change in voting

A significant method to advance labor’s cause is to make changes in the way air carrier employees, including mechanics of course, vote for union representation. A key issue is how the vote is accomplished. The National Mediation Board, which is the RLA created governing body that handles this issue, has recently decided to effect a change in the way these elections are held.

The board now has two labor-oriented members and one management-oriented member. Presently, the system allows for a 50 percent plus one vote to decide the election and the vote of those who do not vote are counted as “no” votes. So under the present rule, simply by not voting an employee casts an automatic no vote. The proposed change in voting by the two labor members, does not appear to be a drastic change. It simply says that only the votes that are cast can be counted. Simple enough. This means that employees who do not vote would not be counted. Pretty logical. But, the reverse has been the rule for the past 70 years or so and has been seen by both political views as a way of keeping the railroad and airline business stable.

Although there is the usual opposition to any change in the rule it would appear that it is going to be changed. This new rule will be scheduled to go into effect on June 30. This date will have already passed by the time these comments are in print, but nonetheless, I believe it will pass with little difficulty.

The objections to the change cite that there was no evidentiary hearing process held as is required by the rules, and also that the notice of proposed rulemaking was published improperly. These are common objections that are routinely ignored.

In addition, the Air Transport Association (ATA) has filed a complaint with the D.C. Circuit Court of Appeals in order to get the court to declare the change in voting invalid. No decision on this complaint has appeared to date.

Airline RLA jurisdiction

One has to remember that labor issues at airlines have been under the Railway Labor Act since early 1938 following its application to the railroads. This act was established for the railroads because of the grave necessity for stability within the most important transportation system we had at that time. Along came airlines and it was seen as important to apply to the airline transportation system as well.

We Recommend