Baylor University

Aviation Sciences Department

AVS 4310 Aviation Management

Airline Labor Relationships

Reference used Wells, Air Transportation, Chapter 14

The Airline industry workforce

Is significant in terms of size

1991 533,000 of which 435,000 were pilots, flight attendants, mechanics, baggage
handlers etc

Employee costs are over 35% of airline operating expenses

In 1991, average salary was > $46,000

Highly skilled workforce and have a high level of responsibility. 24 hour operation every
day of the year also differentiate the airline industry workforce from other industries

Wages and Compensation needs to reflect these skills, training and working conditions

Over 300,000 of these workers are unionized

The nature of workplace unions

In utopia, workers would put in a fair day’s work, and management would recognize and
reward their efforts with fair wages and compensation, including safe working conditions.

Unfortunately Utopia seldom exists in the workplace, nor in workplace negotiations and
management and worker attitudes to one another
Management has a responsibility to the owners or shareholders to provide a
maximum long term profit and maintain corporate “health” This, by definition, often
puts them in a position of trying to extract from workers the maximum output for the
minimum reward
Workers on the other hand, often see record profits earned on the basis of their
sweat and toil, and wish to receive a greater share of these profits in some form or
another. Sometimes their own health is seen as more important to themselves than the
corporation’s health and so working conditions are part of sharing the profits as far as
they are concerned.
Unions are a collection of workers whose job is seen to be that of protecting its
members best interests. Unfortunately that sometimes means to the detriment of fellow
workers in other unions and demarcation disputes can be particularly bloody.

A culture of “them” and “us” usually exists in most corporations and airlines are no
exception. If the culture could be changed to “us together” working for the common
good, more productive use of work time could be achieved maximizing company profits.
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Unfortunately this is seldom realized in practice, but the example of offering stock
options as part of the fringe benefits paid as is perhaps a move towards this ideal.

Even if the them and us attitudes are absent from an organization, external forces which
are divisive often come into play, sometimes almost requiring one group to more or less
sacrifice itself by taking the major portion of the change. A strong downturn in the
economy could be outside the unions’ or airline management’s control, but could
nonetheless have the effect of reducing demand for airline services. This could translate
into job cuts and acrimonious negotiations to see who goes and who stays. Management
is not always immune from the “who stays” and “who goes” decisions.

Another aspect of labor union activity is certainly ideological and therefore political
because of the socialist nature of this idealism. In some places, high level politicians
have started their career in the labor movement, building popularity with their labor
successes. It would probably be better for all concerned if the politics could be kept out
of the business of work place negotiations.

Union activity in the Airline Industry

The airlines are a special industry from a union participation point of view. The
workforce is highly unionized and the industrial disputes which are typical in aviation are
hard fought and often hostile, possibly as a result of the cyclic nature of business within
the industry, and the excesses each side has enforced on the other while in a position of
power. A study of the history of airline disputes with their workers reinforces this point.

Airline unions are CRAFT UNIONS in that no single union represents all the workforce.
Because a multitude of unions get involved, the actions of one can easily impinge on the
members of another.

Also, by withdrawing their services (i.e. going on strike), the workers impose a more
serious impact on the airlines, because the product is “perishable” in that it cannot be
stockpiled to be sold at a later date, and unions (and management) are well aware of the
bargaining power of this fact. The other tool used by the unions to great effect is the
seasonality of the industry, especially when they threaten to withdraw their labor during
peak traveling seasons such as Christmas or Thanksgiving.

A typical carrier might have a dozen or more contracts, all with different renewal dates,
so the company can find itself in a state of continual uncertainty about its workforce.

History of Unions in the airline industry

This essentially goes back to the mid 1940’s when employee groups with in the airline
industry began to become organized. By 1955, pilots, stewardesses, mechanics, stock
clerks, flight engineers etc were becoming well defined, and the labor movement
recognized the potential membership within this industry and jockey for their position to
“assist” with work place negotiations.

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The jet age brought with it substantial profits as air travel became the transport mode of
choice for many people due to the speed, and convenience (luxury) it bought. The
employees naturally wanted to share these profits, arguing that without their input, the
profits would not be there to be shared. At times, they went on strike to emphasize their
position. This started a time of strained relationships between management and workers.

A Mutual Aid Pact (MAP) was established between a group of major carriers in 1958 in
an attempt to combat losses incurred when their services were disrupted by strike action.
This agreement was a form of strike insurance in that if one airline was out of business
for a period of time due to industrial action, other airlines in the pact would reimburse
them for those customers carried on their behalf. The reimbursement was not the full
cost of the fare lost because agreed charges were taken out as the cost of providing the
seat and service, but it helped the struck airline through the tough times.

The MAP enraged the unions as it severely lessened the impact of their strike on the
major target, that being their employing airline.

When deregulation took place in the mid 70’s, all mutual aid agreements were declared
void, but during their 20 year history, over $20 billion was shared between the
participating airlines. Deregulation still allows some limited form of MAP or its
equivalent, but severe limitations are imposed on what can and cannot be done. The
extract from the deregulation act of 1978 on page 453 of Wells shows these limitations.

The actions of unions certainly paid off big time for their members as the tables on pages
454 and 455 show.

Airlines argue that if workers wish to share in the profits of an airline, perhaps they
would also like to share the losses incurred in the bad times. Especially in times of pilot
oversupply and a poor economy (which often go hand in hand) the management
negotiating position starts with offering pay cuts and loss of conditions and fringe
benefits to help the company through tough times. Not surprisingly the unions usually
reject these proposals, and are not always able to prevent them from coming through. On
the other hand, during times of pilot shortages when the shoe is on the other foot, the
demands made by pilots are sometimes outrageous. At times, they have put the company
out of business, which is of course, to no one’s advantage.

The Railway Labor Act (RLA) and the Airlines

Labor relations in the airlines are under a special federal law applicable only to them and
the railways – the railway labor act of 1926.

Although revised in 1934 and again in 1936 to specifically include airlines, this act is still
in force, and its provisions include Presidential intervention – a provision which has
seldom been used although a quite recent case involving United Airlines mechanics is
currently underway.

The steps in resolving a dispute are outlined in Wells, pages 454 through 458. in essence,
these include
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 1. Collective Bargaining – to try to resolve differences by conference and
negotiation

2. Boards of Adjustment and Mediation. Two boards have been set up to assist
parties who cannot negotiate a suitable agreement. The National Railway
Adjustment Board (comprising 34 members – 17 from each side) has authority
over pay, working conditions and rules, whereas the National Mediation Board
assists when neutral third party appointments are required. See the RLA section
152 ninth for an example of where the NMB might be called to act

3. Voluntary Arbitration is the next recommended step if the NMB fails to bring
the parties to common ground for agreement

4. Emergency boards are called if arbitration is refused by either side and freezes
the position of each party for 30 days while an emergency board is created. If in
the opinion of the NMB a strike seems likely that will seriously disrupt the
country, it must notify the president who can also create an emergency board with
the mandate to report back to the president within 30 days. If the
recommendations from the emergency boards are refused, a further 30 days must
elapse before any change or action can commence, so the appointment of an
emergency board postpones any work stoppage for at least 60 days.

5. Presidential action is the last resort if all the prior steps fail, and the president is
empowered to either allow the strike to occur, or ask congress for emergency
legislation to prevent it. On at least one occasion the president has “seized the
railways” to keep the country operational, but to this stage, this has not occurred
with the airlines.

Labor Relations since deregulation

Initial Skirmishing

With deregulation came newcomers to the industry. The erosion of the barriers to entry
into the industry (part of what deregulation sought to achieve) allowed small carriers to
start up, usually without unionized labor and often almost as a prerequisite for
employment (carefully worded conditions due to the legality of such a provision). That
aside, the effect is that start up airlines often have significant advantages in terms of labor
costs over the established airlines.

Additionally, new start airlines have little seniority history, and because salaries in this
industry are so tied to length of service, this provided additional cost advantages for the
fledgling airline.

Add to this they often start with second hand aircraft (ironically, often purchased from an
established airline) and they are able to offer cheaper fares than the airlines they bought
the aircraft from. This can erode the profitability of the established carrier to the extent
that pay cuts might be required to stay in business. On the other hand, a well established
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airline which is properly managed (which means has a healthy balance sheet) can
sometimes match (and even undercut) the cheaper fares to send the newcomer packing.

Elimination of the automatic labor cost pass through means that since deregulation, it is
more difficult for an airline to pass on increased labor costs as increased fares. Before
deregulation, the CAB set allowable fares based on the cost of providing the services and
airlines worked around these fares. They had little incentive to resist excessive union
demands to the point of a potentially expensive strike so they often conceded and passed
on the cost of increased worker benefits to the traveling public.

With the ability to pass on increases through the basic fare structure gone, airlines have
had to look carefully and resist the factors which have a tendency to increase fares.
Increasing fuel costs especially if used with inefficient aircraft, and generous contract
settlements have to be avoided if a carrier wishes to stay in business.

The unrest of the early 1980’s

Highlighted by;
• new entrant airlines,
• negotiated wage cuts in attempts to stave off bankruptcies,
• a severe economic recession which impinged heavily on the airlines,
• an air traffic controllers strike which resulted in 11,000 of them being sacked by
president Reagan (but not before this strike severely disrupted air services and
removed all sympathy from the unionists causes – which spilled over into much of
the rest of the trade union movement)
• further pressure to reduce labor costs because of new entrants operating at much
lower wages (compare labor costs of American and Delta running at about 38% of
operating costs, to those at Southwest and Continental at ~ 22%) * 1986 figures,
and see later note for Continental as a “new entrant” in 1986
• wage reductions agreed to by unions only in return for greater say in the
management of the company, greater access to information on company affairs,
and equality of sacrifice between workers, managers and shareholders

• attempts by ALPA (the pilots’ union) to prevent established airlines from

spawning “new entrant” subsidiaries which operated at lower wage levels. An
example is in 1981 when Texas International who paid their Captains ~ $62,000
per annum for flying around 55 hours per month, starting a new subsidiary, New
York Air and paid the Captains flying the same aircraft for 75 hours per month, a
salary of $30,000 pa. Incidentally the new company was supposedly a non union
airline
• 1982 saw the first bankruptcy of a major airline when Braniff, despite several
major pay cuts by union members, was unable to finance its massive debt from its
income. This would be followed by others
• unions seeing writing on the wall, started to extend existing contracts (instead of
trying to negotiate increases, or worse still, decreases)
• Continental took a different approach when in 1983, chairman Frank Lorenzo
closed the business (how, I’m not sure) and sacked everyone, only to reopen again

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 some 54 hours later with a much smaller company with lower labor costs. All
12,000 employees were fired but only 4,000 were invited back, and at barely half
their original pay – captains dropping from $83,000 to $43,000 per year, flight
attendants from $35,700 to $15,000 and mechanics from $33,280 to $20,800.
Lorenzo dropped his own salary from $267,000 back to $43,000 – the same as his
senior captains.
• A two tier pay scale was introduced during this period – the infamous A scale and
B scale
• Pilots were in plentiful supply so replacements could easily be found for those
who resisted
• Management approached the bargaining table with enormous strength during this
period, and with an agenda to match, but did not always use their gains to return
the airline operation to profitability, but instead, pissed it away in fare wars with
the competition
• Unions eventually worked out a combating strategy whereby they demanded
“returns” for their concessions, usually in the form of profit sharing plans,
representation on the company’s board of Directors, and on occasion the
replacement of top management

However, what comes around goes around

By 1984 the country was coming out of recession

• A pilot surplus became a severe pilot shortage
• Management was forced to review its salary levels even for entering pilots to
recruit sufficient numbers
• In some cases management even rethought its willingness to undertake a strike
• The two tier pay scale, while not immediately abolished was mitigated against by
negotiating a merging of the scales after a specific period – usually 5 years (and
even less in some later cases)
• Unions became experts at long distance mass communications involving family
awareness programs, and satellite teleconferencing to deal with management
actions
• Unions also became expert in corporate takeovers, leveraged buyouts and the like
to combat some of the legal loopholes that were being tried on their members.

A consolidation period from 1986 to ~ 1990/91

For guaranteed profitability an airline needs three things

A strong balance sheet with a strong cash position and low debt to equity ratios
A route structure with dominant hubs and a good feeder system
Access or preferably part ownership in a computerized reservation system

In 1986, very few airlines had all three elements, in fact only three did these being
American, Delta and United. Those that did not have these were looking at ways of
merging with those that did.

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The bargaining trends from 1986 were still showing management negotiating from a
position of strength, with key objectives of pay freezes to very low percentage increases.

For financially unstable airlines like Eastern, further cost reductions were sought and
negotiations again became bitter

However, although there was an industry net profit of $2 billion in 1988, there were signs
of an economic slow down by 1989. In 1990 the bubble burst, the economy slid into
recession and the airline suffered $4 billion in losses in 1990, followed by a further $2
billion in 1991. The $6 billion losses from 1990 and 1991 was more than all the profits
the industry had ever made in its lifetime.

Of twelve major airlines at the beginning of 1991, only American, Delta, FedEx,
Southwest and United had strong balance sheets at the end of 1992. America West,
Continental and TWA were in bankruptcy, Northwest and USAir were in financial
difficulty and Eastern and Pan Am were gone!

The disappearance of these airlines put more highly skilled and qualified personnel on
the job market, shortages became surpluses again and the airline management acted
accordingly with the weakened position of Labor

The cyclic nature of the airline economic environment makes for volatile labor relations.
However, the period since 1991 has seen steady growth in company profits, and a
steadying of the labor force. Continental has made an exceptionally strong recovery,
although TWA is about to go, bought out by United and American.

Well, what about 2001?

Growth of the airline industry has averaged ~ 4% per year for some years now. Pilot
hiring is strong with over 12,000 pilots hired each year for the past three years and this
hiring is forecast to remain at these levels or higher for the next several years.

Due to imminent retirements of a large group of pilots hired in the early 70’s and 80’s
along with the military employing fewer pilots and keeping them longer with strong
reenlistment incentives, a shortage of pilots is upon the industry, and the first signs of
union strength flexing its muscle and threatened strike action is again evident.

Match that up with a seeming slowing of the economy again which could be the precursor
of another “bubble burst”, and you guess the next cycle in airline union relationships.

In these times of uncertainty, airline management and union officials alike will need to
work proactively to keep the industry from falling in a hole. Greater levels of
cooperation are needed, but the history books show this could be difficult to achieve.

Well, what about 2003!!!???

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Since these notes were first drafted in the spring of 2001, there have been monumental
changes in the airline and aviation industries, especially since 9/11. The comments
regarding the growth of the industry and the forecast of continued growth alluded to
above have not only not come to fruition, but there has been a devastating downturn as
well. Before 9/11 there were indications that the health of the industry was declining
rapidly, and the airlines used the bailout money available after the world trade center
attacks to patch up an already sinking ship, although this was definitely made worse by
the attacks.

As an exercise, chronicle the “growth” of the industry since 2001, noting the bankruptcies
and probable bankruptcies, along with those emerging from bankruptcy. Look too at the
labor costs and strength, and give an opinion about what you think is necessary to bring
about recovery in this troubled industry.

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