September 11 and the Restructuring of the Airline Industry
The September 11 catastrophe hit the airlines hard, but it also opened the door for them to accelerate the restructuring already underway.
This article is from the May/June 2002 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/2002/0502ward.html
This article is from the May/June 2002 issue of Dollars & Sense magazine.
at a discount.
On September 11, stunned flight attendants and pilots learned that workplaces just like theirs had been transformed into lethal missiles. Flight workers lucky enough not to be on one of the hijacked planes prepared frantically for orders to land at the nearest airport. Crews then worked to calm passengers and arrange for transportation and lodging. In some cases, school gymnasiums accommodated passengers and crew, while church buses provided rides to the nearest sizeable city.
Through the four-day grounding of the U.S. civilian airlines, airline unions' Employee Assistance Programs worked overtime to provide support for traumatized workers. Crews themselves huddled together in front of TVs, watching as the nightmare unfolded before them, worrying about their friends and future.
As the first flights began again on September 15, some crews refused to fly, not confident of airport security. Those who steeled themselves to work entered a strange new workplace. With no guidance from the airlines or the Federal Aviation Administration (FAA) on how to handle potential future hijackings, flight attendants inventoried galleys for objects they could use as defensive weapons. Shell-shocked passengers sometimes hugged flight attendants as they boarded. Many crewmembers barely contained tears, often hiding in galleys to avoid alarming passengers.
But as airline workers returned to the skies, a new danger loomed: layoffs. On September 15, Continental announced that it would cut 12,000 jobs. One by one, the other airlines followed suit: United and American announced 20,000 layoffs each; Northwest, 10,000; US Airways, 11,000. Delta forecast eliminating 13,000. As the toll topped 140,000, Washington Post writer David Montgomery quipped: "What thanks are flight attendants getting? How does this sound: You're fired."
The September 11 catastrophe hit the airline industry hard, but it also opened the door for airlines to accelerate the restructuring they already had underway. Many airlines, including giants like US Airways, were in bad shape before September 11. And the industry's agenda already included layoffs, mergers, greater restrictions on airline workers' rights, and a global deregulation of air travel. If post-9/11 politics allow the airlines to impose these changes, this will hurt not only airline workers, but also working people beyond the aviation industry.
The Executive Response
Within hours of the September 11 hijackings, an army of airline lobbyists descended on Congress (whose members have received $12 million in airline-industry contributions since 1998). The mission: Demand a massive taxpayer bailout for the industry (as much as $24 billion). If Congress failed to pony up the cash, the airlines would become "a major casualty of war," argued Delta CEO Leo Mullin.
While pleading their case, the airlines neglected to request any aid for the airline workers they were preparing to dump. Both houses of Congress defeated amendments, proposed by House Minority Leader Richard Gephardt (D-MO) and Sen. Jean Carnahan (D-MO), to provide relief to laid-off workers. Greg Crist, the spokesperson for House Majority Leader Dick Armey (R-TX), rationalized his boss's opposition as "focused on getting the airline industry back on its feet and [thus] getting these people back on the job. An expanded unemployment insurance benefit won't do anything to get you back on the job." It took six more months for Congress to provide even meager aid supplements for airline workers. (Even then, the March 9 unemployment extension legislation tacked on $8 in corporate tax breaks for every $1 spent on aid to laid-off workers.)
Rather than simply neglecting workers, however, the bailout does worse—it encourages attacks on union contracts and working conditions. Office of Management and Budget regulations state that airlines getting bailout money should provide a "demonstration of concessions by the air carrier's security holders, other creditors, or employees…." Not surprisingly, it's the employees who are bearing the brunt.
Congress, meanwhile, has handed the airlines $15 billion in taxpayer money: $5 billion in direct grants and $10 billion in loan guarantees. At the depressed prices of airline stocks, the government could have easily bought a controlling interest in the entire industry for $15 billion. In another place or another time, the airlines might have been nationalized under management by airline workers. But this is far from the reality in Washington, D.C., today.
Downsizing Stock Prices, Downsizing Airlines
September 11, of course, delivered a serious hit to the airlines' bottom line. Troubled Midway Airlines closed up shop on September 12, 2001. (The company has since resumed limited operations, aided by bailout money.) In the following weeks, airplanes flew mostly empty. As the airlines shed workers, they also mothballed planes. Today there are approximately 2,400 planes, about 11% of the world's civilian air fleet, parked in the Mojave Desert.
Airline shares plummeted when the stock markets reopened on September 17. US Airways and America West shares each lost over half their value in just one day. The rest of the airlines suffered declines as well. Recently, some airline stocks have recovered to pre-September 11 levels, but several, like US Airways, are still in the dumps.
Competitive pressure, already at a high pitch, intensified. While big carriers like United, American, and Northwest downsized, Southwest and startup carrier JetBlue refused to lay employees off and began to move into markets the industry giants had evacuated. The economic shockwaves rolled through the aviation industry globally. Sabena and Swissair collapsed. British Airways carried out massive layoffs. British and Japanese carriers sought mergers. Other carriers (including Iberia and Air India) announced capacity cuts and restructurings. So did aircraft manufacturers.
Not All Bad News, If You're An Airline Executive
Not all economic impacts on the airlines have been negative, however. The industry is extremely capital intensive, its two largest costs being airplanes and fuel. Deferrals on airplane orders, the retirement of older and less fuel-efficient planes, and a tremendous drop in global fuel prices have dramatically cut costs. Though labor costs represent a small portion of overall airline costs (flight attendants represent less than 4.5% of operating expenses at United, for example), slashing the workforce also cut airline expenses.
So far, over 300 airlines have collected nearly $4 billion in bailout money. The lion's share has gone to industry giants United, American, and Delta. Also, on March 9, Congress passed a new tax break for the airlines. Airlines are now allowed to claim losses from 2001 and 2002 on their taxes over the last five years, a change that could mean $2 billion in cash for the companies.
In addition, the airlines routinely carry "business-interruption" insurance to cover losses due to weather, strikes, or other unforeseen circumstances. It's not clear how much airlines are collecting on claims stemming from the four-day shutdown of U.S. airports in September. The Baltimore Sun reported that, when asked about business-interruption insurance, US Airways spokesperson David Castelveter replied guiltily, "That's something I don't think we would publicly discuss with anyone." The insurance firm Swiss Re, however, estimated in March that September 11-related business-interruption claims (to all industries) will amount to $3.5Ð$7 billion. Undoubtedly, a big chunk will go to the airlines.
The Aviation World Before September 11
The airline industry's chaotic state is not just a result of the September 11 attacks, but also the culmination of a quarter century of deregulation. Advocates had touted the 1978 Airline Deregulation Act as a way to increase competition and bring down ticket prices. Indeed, deregulation initially enabled upstart carriers to get in the air and made flying affordable for many people who had never flown before.
But that was not the whole story. Since deregulation, service to smaller, less profitable cities has suffered and pricing has become a crazy quilt of discriminatory arrangements. Travel to and from many airports has become monopolized by one or a few airlines. Nonetheless, airlines operate on very tight profit margins compared to other industries. As airline bottom lines have been squeezed, argues author Paul Stephen Dempsey, so has the margin of safety.
Deregulation resulted in a host of problems for airline workers, too. New competitive pressures caused the airline industry to lose more money in a few years than it had made in all the years prior to 1978 combined. These losses led to mergers and bankruptcies, and set the stage for leveraged buyouts. Financier Frank Lorenzo took over both Continental and Eastern, and then used Chapter 11 bankruptcy to break union contracts at both airlines.
Consolidation or death became the choices for many carriers. The competitive carnage destroyed once-great airlines such as Braniff and PanAm, and saw many others gobbled up. USAir bought PSA and Piedmont (ultimately dismantling PSA's entire West Coast operation). Delta swallowed up Western and the remains of PanAm, while Northwest took over Republic. More recently, American Airlines absorbed the venerable TWA. Not only did these mergers lead to route disruptions, but they also destroyed thousands of jobs, as overlapping sections of newly merged companies created "redundancies." The mergers also created challenges for union workforces—how to integrate seniority lists, for example. Conflicts over seniority in the American-TWA merger will likely sow internal union conflicts for years to come.
Spectacularly inspired mismanagement by airline executives actually deserves much of the blame for the state of the industry. Airline workers frequently complain that they could run the airlines better than the executives. Meanwhile, management jealously guards its decision-making prerogatives against labor input. Who's right? You be the judge.
Over a year ago, the Airline Pilots Association (ALPA), proposed to US Airways management "hedging" on fuel (purchasing options to buy fuel in the future at current prices) while prices were low. This would protect the airline against expected increases in fuel costs. Company management rejected the suggestion. After that, fuel prices skyrocketed and so did a major portion of the airline's costs. Several pilots have bitterly joked to me that the entire pilot group could work for free for a year and a half and still not make up for management's mistake.
In another case, in 2000, United Airlines stonewalled its pilots in contract negotiations to the point that pilots refused to volunteer for overtime. This led to 9,000 flight cancellations that summer. A key demand of the pilots was that the company hire more pilots (who wants exhausted pilots working overtime anyway?). Eventually the company gave in to the pilots' demands, but only after alienating huge numbers of passengers.
Frank Reeves of Avitas, a Virginia airline consulting firm, told the Pittsburgh Post-Gazette that the post-September 11 crisis has given management "a golden opportunity … to write off all the bad decisions they made over the last 10 years."
September 11 and the Airline Labor Movement
Airline management, of course, still has workers—and their unions—to contend with. Despite working under the restrictive Railway Labor Act (RLA), 80Ð85% of airline workers are unionized. This makes the airline industry one of the most heavily unionized sectors in the U.S. economy. The airline unions operate along craft lines, with separate unions for pilots, flight attendants, baggage handlers, mechanics, customer service agents, and flight instructors. The Airline Pilots Association (ALPA) is the largest pilots' union, while the Association of Flight Attendants (AFA) represents most flight attendants. Most mechanics and baggage handlers belong to the International Association of Machinists (IAM).
The most immediate impact of September 11 on workers throughout the airline industry, of course, was massive job loss. Most airline unions have job security or "no furlough" clauses in their collective bargaining agreements. Airline management, however, claimed that since the hijackings were an "act of war," the airlines could activate "force majeure" clauses in the agreements to escape their contractual obligations. Force majeure (literally, "greater power") is a commercial contract law doctrine that releases parties to a contract from their obligations due to circumstances outside their control (an "act of God," act of war, that sort of thing). There is little or no precedent for the use of force majeure in labor contract law. Nonetheless, several airlines invoked the phrase as an excuse to disregard seniority rights, severance packages, and advance notice as they laid off thousands.
The business press dutifully reported airline claims that the union contracts contained "little-known" force majeure clauses. In reality, the alleged "clauses" in union contracts were little known because they did not exist. The airlines are simply trying to use this doctrine in the same way Frank Lorenzo used bankruptcy in the 1980s: to smash union contracts and attack airline workers. Though subsequent uproar has forced airline management to reverse itself on seniority and severance pay, the violation of no-layoff clauses is still working its way through the arduous process of arbitration under the RLA (even "expedited arbitration" can take nine months or more).
Delta Union Election
Airline union elections are different from those in most of the private sector. Under the RLA, ballots only have a "yes" box. If a ballot is not mailed in, for whatever reason, the National Mediation Board (NMB), the body that oversees airline labor relations under the RLA, counts it as a "no" vote. To win, a union must get a majority of the eligible votes. (Under the National Labor Relations Act [NLRA], which governs most workers in the private sector, the union only needs a majority of the votes cast.)
On August 29, 2001, the Association of Flight Attendants (AFA) filed for an RLA election at Delta. Delta management had already been planning a sophisticated campaign of anti-union propaganda and interference in the election. The September 11 attacks, however, gave management the opportunity to claim that now was not the time to talk about a union. Now was the time to save Delta!
Delta was afraid to provoke workers by inflicting massive layoffs in the middle of a union campaign. So the airline offered "voluntary" leaves of absence to flight attendants. An estimated 4,000 to 5,000 accepted. In reality, many of the "voluntary" leaves resulted from management threats and harassment, so they might as well have been involuntary. Soon after, a management newsletter incorrectly stated that flight attendants on leave would be ineligible to vote in the union election. Management later corrected itself, but only in an email message to which on-leave flight attendants had no access. The airline also subjected workers to frequent captive meetings devoted to anti-union harangues. Many supervisors implied that union supporters were disloyal, in a time of crisis, to the company and the country.
During the election campaign, union activists spoke to many flight attendants who either said they wanted a union but that now was not the time, or that they just couldn't make up their minds. In the end, 5,609 flight attendants voted for AFA, about 60% of the 9,517 the union needed to win.
The story, however, does not end there. The AFA has filed a case with the NMB alleging illegal interference by Delta. If the board rules in favor of the union, it may order a new election. The board has no power to make Delta management follow the law, so the airline could certainly interfere again. A fairer election solution would be a "Laker Ballot" (named in honor of former British carrier Laker Air, which was once punished for interference with a new, simple-majority election). This would mean an election held along the lines of an NLRA election, with ballots that read "yes/no" and only ballots actually cast counted in the total.
A Blank Check for Concessions
In December, all the airlines turned their attention to United's negotiations with its International Association of Machinists (IAM)-represented mechanics, waiting to see how talks unfolded before demanding concessions themselves. The United-IAM contract, the first big one to be negotiated since September 11, would be the first test of the airlines' ability to extract concessions in the wake of the attacks.
The 15,000 mechanics (and related classifications), represented by IAM Lodge 141M, first voted on a Presidential Emergency Board Recommendation. The proposed agreement included a "linkage" clause, which would require mechanics to participate in any "recovery plan" (meaning concessions) to which other United employee groups agreed, or to make concessions if United declared there was a threat of bankruptcy. The mechanics soundly rejected it—over two thirds voted "no." When the IAM's international leadership endorsed an almost-identical agreement, however, it passed. The contract includes major wage increases for better-paid IAM members. By ratifying the agreement with "linkage" included, however, the IAM basically handed United a blank check for future concessions.
Some 23,000 other United Airlines ground workers (baggage handlers, customer service workers, and others) represented by IAM Lodge 141 still remain without a contract. In March, they requested the NMB formally declare an impasse so they could move towards a strike. The airline said it would conclude negotiations with the ground workers before demanding across-the-board wage cuts. (Union activists believe Lodge 141 and United will come to an agreement before the United board meeting in May.) Meanwhile, the independent Airline Mechanics Fraternal Association (AMFA) has challenged the IAM for representation of United machinists, and some workers at the airline have begun rank-and-file organizing in response to the mechanics' contract. (An excellent analysis can be found in the April edition of Labor Notes.)
Nonetheless, the IAM has set an important precedent for concessions. Other airlines already smell blood in the water. The current US Airways-ALPA contract includes a pay provision (a system demanded by management in the last contract talks) called "parity + 1." This means pilots' wages are adjusted every year to equal the average at other major carriers, plus 1%. Since US Airways adopted the system, pilots at Delta and United have made major wage gains, pushing up pay for US Airways pilots as well. In response, new US Airways CEO David Siegel declared that parity + 1 made no sense for the airline (despite the fact that it was management's idea to begin with). It is the opening volley in US Airways' attack on the unions.
The Challenges for Airline Labor
The long-term trend of airline consolidation continues to the present. American Airlines absorbed TWA in 2000, and United and US Airways proposed to merge. Though the United-US Airways merger was blocked by the Justice Department on anti-trust grounds, the question of consolidation lingered on before September 11. There was serious talk of a merger between Delta and either Northwest or Continental.
Delta CEO Leo Mullin spent last fall and winter parading around the country declaring that the government must shed its aversion to big airline mergers. Rumors now abound about new mergers in the works. According to Holly Hegeman of the business-news website TheStreet.com, Delta and America West may be in serious negotiations. Even if large-scale mergers fall through, it is likely that larger airlines will gobble up small to medium-sized carriers. Further consolidation would certainly result in layoffs for large numbers of airline workers.
Merger discussions have even contemplated treaties to allow international consolidation. Presently, U.S. regulations limit foreign ownership of airlines, as well as landing rights for foreign carriers. Some proposals to change this are bilateral, like the Transatlantic Common Aviation Area, which would allow mergers between airlines in the United States and the European Union. More ambitiously, the International Chamber of Commerce argues that the world airline industry should be deregulated all at once by including commercial aviation in the proposed General Agreement on Trade in Services (GATS). In addition to allowing global airline mergers, this would likely introduce the "flag of convenience" status for airlines. Carriers could formally register themselves in any country, potentially choosing those with lax labor laws and low wages (as cruise ships do).
Airline workers also face more direct attacks as part of the current industry restructuring. A chorus of industry voices has gone up advocating reforms to the Railway Labor Act. Though the RLA, through a maze of waiting periods, makes it extremely difficult for airline employees to strike, even this is too much for some in management and in Congress. Legislation sponsored by Sen. John McCain (R-AZ), proposes a binding arbitration system that would virtually eliminate airline workers' right to strike. Delta, United, and Federal Express are among the companies championing the legislative attack. Not surprisingly, all three are major contributors to both parties. Fedex made a $5,000 contribution to McCain in the 1999-2000 election cycle.
Airline unions are not quite ready for the challenges coming their way. Though the industry is highly unionized, the unions are extremely balkanized. For example, five different unions represent flight attendants (including the Teamsters at Northwest, the IAM at Continental, Transport Workers Union at Southwest, and the Independent Association of Professional Flight Attendants at American).
Moreover, while unions representing different work groups have formed coalitions, the craft structure of the unions and the dramatic pay disparities between different work groups represent barriers to building solidarity. Pilots represent the elite of the airline workforce, with jumbo-jet pilots at mainline carriers making up to $200,000 a year. Yet junior pilots at "regional jet" carriers (RJs) can make as little as $15,000 a year, hardly an elite salary. The mainline-RJ disparity also exists, to a lesser magnitude, for flight attendants. Even within the same bargaining units, mechanics get higher pay than other ground workers. Customer service agents, meanwhile, are among the lowest paid of all airline workers. Just go to any airline-worker electronic bulletin board to witness the sniping about pay differentials. This only gets worse among workers at different airlines.
The good news is that a coalition of flight-attendant unions has fought, in the wake of September 11, for safer workplaces, federal whistleblower protection for airline workers, and relief for laid-off airline workers. Within some airlines, coalitions of airline unions from different work groups are forming united fronts against management concession demands.
But much of the coalition building, even among union locals, takes place only within the leadership. Membership meetings at airline unions are rare—the constant travel inherent for pilots and flight attendants certainly contributes to this problem—and rank-and-file participation is generally reserved for contract-negotiation times. Rank-and-file members, meanwhile, generally regard their unions as service providers for negotiations and grievances. Many members assume that this is what they pay dues for and expect the union to function, in the words of one veteran activist, as "a giant grievance machine."
This "service" model, however, is completely inadequate in the current crisis. To build the necessary capacity for struggle, the unions need to become social movements again. We need greater rank-and-file participation, more member education, and greater mobilization (not just at contract negotiation time). We need more solidarity among different work groups, between workers at different airlines, among airline workers from different countries, and between the airline unions and the rest of the labor movement. And we need to fight for labor-law reform that makes it easier, not harder, to organize and strike.
Unless we rise to these challenges, we will see far worse than just the decline of the airline unions. The airline industry has been a bellwether for the labor movement as a whole since Reagan fired striking air traffic controllers in 1981. If management succeeds in weakening the unions and eroding working conditions in such a densely unionized industry, it will encourage further attacks on unions and workers far beyond the airlines. What happens next will depend upon how well airline workers and their unions understand these threats, and on the potential power of their solidarity.