Working in the unfriendly skies
NEWSGRAM: “Mechanics pay reduced 14 percent.”
There is no doubt that the airline industry is in for a long dry spell. After two years of record losses things still don’t look too good. As one pundit put it . . . the problem is simply high costs and reduced income. No kidding! The traditional carriers still don’t get it. Costs are out of line but don’t start by reducing mechanics’ wages that are already too low! Here’s a small part of the problem.
Mechanics and the court
As you might recall, the mechanics and their union at the friendly skies airline were sued back in 2001 during contract negotiations. The company alleged that they were acting in concert to provoke a work slowdown. The mechanics were following FAR’s to the letter of the law. That did slow things down. After all ATC and flight crews do it from time to time to make a point and seem to get away with it. Why not the mechanics?
We all know that, but for the ingenuity and flexibility of our mechanics, the airlines could not operate under the crushing load of regulatory requirements. FAA even admits that. A mechanic puts his license and livelihood on the line every day. He should be compensated accordingly, just like the flight deck people! But that’s another story.
The contract had expired and talks were dragging on for many months. The archaic process of the Railway Labor Act (RLA) was, as usual, providing an advantage to the employer with the law’s extended time procedures that keep workers on the job long after their contract had expired and preventing any immediate strike threat. It can only be called limbo land. All perfectly legal however under the terms of the RLA.
During the dispute the mechanics were communicating with each other via email in order to keep informed of the proceedings. The company said that the communication was designed to implement a work slowdown in violation of the RLA. They sought relief in the U.S. District Court in Illinois to stop it and incident to the lawsuit they sought an order to gain access to the computer files and names of the people who were communicating. The order was granted by the court. Money to fight this action was not available and the individual mechanics knuckled under to the legal pressure by threats of contempt of court action. Several of the mechanics who were thought to be the “ringleaders” were personally attacked by the legal process.
Flight crews had already been granted big time raises in an effort to keep them happy and the mechanics were seeking similar treatment. It did not happen.
Now fast forward to late last year when the company asked for voluntary salary reductions in view of their dire financial situation. Flight crews accepted a 28 percent hit putting them close to where they were before. The mechanics refused to go along with any pay reduction. (And for good reason . . . they did not get any favors from the company in the last go around, indeed, they got sued!)
We all know an airline cannot begin to function without flight crews and mechanics. They are the only people required by FAR’s to join in the release of an aircraft for flight. But, as said recently by a senior FAA person, “ . . . maintenance is the foundation of aviation safety . . .”
Mechanics form the first line of defense on this point.
The company said that it would file bankrupcy unless mechanics agreed to pay reductions. The government loan guarantee department, said that without the mechanics’ cooperation they would not support loans. The mechanics refused. The government said no to loans and the company filed for bankrupcy protection on Dec. 9, 2002. Which, in the opinion of many, was slated to happen anyway. Many believe that the papers and the lawyers were all set to go even if the company got cooperation of the mechanics and loan guarantees from the government.
As soon as the filing was before the court the company asked for and received an order reducing the mechanics pay by 14 percent. There was no serious objection to their request by anyone, which seems odd at least. Action was taken immediately to slash paychecks. End of argument. The reduction is supposed to be temporary. The company stated that they needed this reduction in order to satisfy their lenders and to gain time to negotiate new pay contracts. The company can and probably will, request termination of all the labor contracts and cut wages further if things don’t improve. The so-called short-term cuts in pay are slated to last until May. We’ll see!
Blame the mechanics
The media, the company, and others now find it convenient to suggest that the mechanics are to blame for the bankrupcy filing. (Assuming that’s a bad thing). Not true. Logic argues that the bankrupcy was in the cards long before the mechanics’ refusal and the government action. There was just too much red ink to do otherwise. If they had agreed to the reduction, and bankrupcy happened anyway, a lower base pay would have been lowered further.
One study recently argued that long before Sept. 11 most air carriers were very fragile and weak. Early 2001 already showed a lack of passenger demand. The main effect of Sept. 11 was stated to be an acceleration of existing problems. The understatement of the year! The elements for the companies’ problems were already in place when Sept. 11 happened.
Whether you know it or not bankrupcy can be a convenient and useful tool for corporate managers because it puts a hold on virtually all obligations to pay creditors such as suppliers, owners and leasors of aircraft, and others. Under Chapter 11 proceedings the company continues to operate as before subject to court oversight. Furthermore, it allows companies such powerful economic weapons as the ability to revoke contracts and other agreements, including union contracts. In addition, it stops the progression of any and all legal proceedings that may be filed against the debtor. Thus, critical cash is freed up to continue recovery operations. It’s not a bad deal for the company.
The downside of bankrupcy is the stock of the company becomes almost worthless. So the poor employees and others who own stock in the company take a big hit. We’ve seen a lot of that lately. That’s the sad part!
Some commentators however have the view that bankrupcy in some cases can be useful to the industry. Where we don’t want any more government intervention than necessary, it serves a purpose. Bankrupcy proceedings have kept some airlines afloat by selling off the parts of the company that could not pay for themselves. It does not and will not stop strong companies from effectively running their business. It can tend to complement the hands-off approach of government shown by deregulation. It’s not all that bad! The bottom line however is that it is painful to stockholders and employees. The alternatives are few and far between.
All of our air carriers took a hit because of Sept. 11. Public fear, increased fuel costs, decreased cash flow, and terrorist threats, all forecast trouble ahead.
The government came to the rescue of some but not all of the carriers. When government loan people decided a carrier was a bankrupcy candidate, they refused to spend more money and back their loans. The capital dried up. Some airlines folded and shut down.
What happened on Sept. 11 of course was not foreseeable. The decrease in traffic and increase in fuel costs was foreseeable even before Sept. 11. Many would agree that the airlines were in trouble before Sept. 11. The downturn had already happened. Sept. 11 just made it worse.
The industry faced a similar depression and crisis in 1991. Many carriers went away, i.e. Eastern, Braniff, PanAm, Midway. Some shut down or went the bankrupcy route first. Others barely avoided insolvency, i.e. Northwest, TWA, Am. West, Continental. So history does repeat itself.
If the industry cannot get it together and they all go under without government intervention then maybe it’s time to think about government subsidies again. In the past, the airlines were supported by infusions of government money where the revenue just was not there. We all have seen where U.S. Mail was commonly carried in the early years. Now, much of the mail is carried by one freight carrier under an exclusive contract. They are profitable. Perhaps the time for subsidies has come. We have all seen private bus companies in cities reach a point where they cannot exist on the income they earn. What happens? Simple, government takes over and everybody becomes employed by the government. Railroads? Amtrak. Airlines? Airtrak? Far fetched? Maybe
. . . Just wait and see . . . Amtrak is always broke, Airtrak would always be broke, and the Post Office is never profitable, no matter what they say
. . . Maybe civil service is the answer.
Stephen P. Prentice is an attorney whose practice involves FAA-NTSB issues. He has an Airframe and Powerplant certificate and is an ATP rated pilot.