What the Airline Crisis Shows

A Letter from the Editors

Posted July 10, 2007

THE AIRLINE INDUSTRY is in deep crisis. Losing over 100,000 jobs since September 11, 2001, and suffering major wage and benefit cuts, workers are in shock and looking for new leadership. The recent U.S. invasion and occupation of Iraq, the outbreak of the SARS epidemic and the economic downturn exacerbate the impact of the crisis on labor. Airline workers are in the forefront of discussions about their own industry and more general questions as political and social consciousness changes under the impact of the restructuring crisis. These experiences are valuable for all workers.

While 9/11 and subsequent events greatly worsened the crisis, the dire state of this industry pre-dated the 9/11 attacks. The major carriers were losing millions of dollars and facing possible bankruptcy filings because of broken business models that were no longer profitable. In the capitalist system that generally means businesses fold.

But the airlines are not “normal” businesses. They are part of the transportation infrastructure of a modern capitalist economy. They carry mail, cargo, passengers and troops into wars. Investors know this too. They bet on the seasonal business cycle and high cash flows to turn profits in an industry known for thin profit margins.

The government’s role historically before the deregulation of the industry in 1978 was to ensure the safety of these “bets.” Since then, it became to step in with taxpayers’ dollars to bail out financially troubled airlines — meaning the large investors — or to allow a slow death as with Pan Am and Eastern Airlines. In short, these private corporations depend on government subsidies to maintain an essential national industry.

What’s new is the expanded use of automation, computerization of services, new more advanced jet engines and airframes, just-in-time inventories and better-organized vendors doing outsourced work.

Ideally the owners seek a “virtual airline” — a company that sells seats and a brand name but contracts out nearly all other functions. This is only a goal; the public can quickly turn against an airline if an accident occurs and the maintenance was overseen by third-party companies — as shown by the fallout from the January crash of a US Airways commuter flight serviced by subcontractors. New airlines, nevertheless, are effectively competing against the big network airlines without undermining safety and the transportation infrastructure.

Bankruptcy as a Weapon

Government aid still flows to the airlines, as it did after 9/11. But Wall Street and Washington are pushing the restructuring process. Meanwhile some important facts indicate the depth of the crisis and the challenge facing rank-and-file workers and their unions.

Last summer US Airways, the seventh largest carrier, filed for bankruptcy and began slashing jobs, wages and benefits. It emerged from bankruptcy in the spring as a smaller carrier with lower labor costs than most of its competitors, but US Airways is still not out of turbulent skies. “They’ve basically changed every little thing, and all those little things add up to the employee working more days for less pay,” said one flight attendant.

United Airlines, the second largest carrier, fired or furloughed more than 30,000 employees since 9/11, 34% of its worldwide total. It filed for bankruptcy protection in December and recently forced through a six-year deal with annual concessions on its employees of $2.56 billion. The pacts include outsourcing of all heavy maintenance of aircraft to less costly nonunion facilities.

The new power plants (jet engines) allow smaller regional carriers to use fifty- to seventy-seat jets to fly longer distances. Electronic check-ins (E-Tickets) and the internet are eliminating travel and reservation agents by the thousands. The bottom line is fewer workers and a more flexible workforce, as well as a dummying down of workers’ skills.

United expects to come out of Chapter 11 in 2004. American Airlines, the world’s largest carrier, also used the threat of bankruptcy protection to pressure its unions to accept yearly concessions of $1.8 billion for five years. Yet on May 1, a few days after the concessions were approved, thousands of American Airlines workers received pink slips as management once again began talking about a possible Chapter 11 filing — repeating the tactic of management at US Airways. First win concessions, then file for bankruptcy.

Northwest Airlines, the largest American carrier in the Pacific region, is still financially flush. It has used a legal trick called “force majeure” three times to impose layoffs and other changes on its workforce. At number three Delta, management is pressuring its only unionized workers, the pilots, who are the highest paid in the industry, to accept lower wages and changed work rules.

Meanwhile, executives at the major carriers are as arrogant as ever. They have established private pension funds for top executives that cannot be terminated under Chapter 11.Workers at American were so outraged by the news that the CEO had to resign, yet Northwest continues to reimburse top executives for out-of-pocket health expenses after imposing 20% co-pays for other employees.

Hawaiian Airlines filed for Chapter 11 in March, as did Air Canada in the spring. Internationally, massive layoffs and restructuring are taking place as many protectionist laws are removed to allow more competition.

In 2001 and 2002 airlines posted losses of $17.7 billion. According to the Air Transport Association total net debt rose by $33 billion or 61% since 1999. The eleven largest carriers are more than 90% leveraged. Too many seats are flying empty or being sold below cost. Overcapacity may be between 10-20%.

The few carriers making profits are mainly new and nonunion, including Jet Blue, ATA and regional feeder carriers. Consumers, though concerned about bankruptcies and aircraft safety, generally see the lower ticket prices of JetBlue and Southwest as a benefit of deregulation. Once considered a minor threat, Southwest is the tortoise steadily taking market share from the hares.

Southwest Airlines remains the exception to the rule of large airlines. Its business model centers on domestic routes and uses a single aircraft type. Yet it is the most unionized airline in the industry and has never sought international routes or alliances.

Rewriting the Rules

Congress and the White House seek to rewrite labor laws to make it even more difficult for airline workers to protect contracts, including the right to strike. The Railway Labor Act of 1926 is already one of the most restrictive labor laws on the books. Established to drag out negotiations, the RLA makes it almost impossible for workers to strike.

Ironically those same rules make it difficult for management to directly confront the unions and break contracts, which is why the bankruptcy court is a better tool. While most labor militants favor the repeal of the Act, the employers’ attempt to gut it is a sign of the weakness of airline and railway unions.

Other restrictions, e.g. on use of foreign maintenance stations and foreign investment, are now on the table for possible repeal. There is less concern about “national security” in the industry when the U.S. multinationals are so powerful around the world.

Airline workers are paying a dear price as wages, benefits and working conditions are steadily eroded. The unions have been ill-prepared or worse, in bed with management, as changes are imposed by new managers or in some cases bankruptcy court judges.

One set of questions on the table involves the future of airline unionism. Recent moves towards independent mechanics’ and flight attendants’ unions reflect a desire for change. Union organizational forms will vary at each airline; only rank-and-file workers can decide if craft unions for mechanics, pilots and flight attendants are preferable to industrial-type organizations.

Airlines in any case typically have four or more unions. The problem has to do with their policies, more than the specific type of union organization.

Needed: New Strategies

The failure of most labor officials to understand and prepare the workforce for the reorganization now underway is why workers are suffering catastrophic setbacks. The established unions don’t have viable strategies to protect contracts and hard-won gains.

The attack on “high” labor costs and work rules is similar to what occurred in the steel industry in the 1980s. The “minimills” appeared using new technology to make quality steel products from scrap with much lower costs than the big integrated steel companies. Within a decade massive bankruptcies of traditional integrated mills occurred.

Steelworkers are still reeling from the restructuring. The United Steel Workers Union (USWA) — once one of the most powerful unions in the AFL-CIO — failed to prepare its members for the challenges of the minimills.

The USWA leadership’s response was to seek schemes like employee ownership and other concessions to “save” jobs and their dues base. It didn’t work. Today active steelworkers are paying with lower wages and benefits. Retirees and their dependents are losing — or stuck with sharply modified — pensions.

The airline industry is in early stages of a similar process where pensions, health care, wages and working conditions are under attack. While the immediate thrust of these attacks takes place under the guise of restructuring, the end result is weaker unions and demoralized workers.

Not surprisingly, the most powerful union representing pilots, the higher paid skilled workers in the industry who once saw themselves as managers in the sky, are the focus of management’s attack. Pilots at United took a 30% pay cut and must fly nearly double the hours of their previous contract.

The flight attendants are some of the lowest paid workers. Scope clauses (job classification) are being gutted as the Federal Aviation Agency (FAA), the overseer of the industry, stands by idly.

Workers are responding angrily with management and their unions. Flight attendants, pilots and mechanics have tried to fight back. Flight Attendants at Northwest seek an independent union. Pilots at American have a strong caucus challenging their leadership.

Mechanics are the most militant. They voted down initial concessionary pacts at USAirways and United over the objections of the established union leaderships. They nearly did the same at American. At Northwest an independent mechanics union, the Aircraft Mechanics’ Fraternal Association (AMFA), refused to discuss concessions and so far been able to keep the contract intact.

AMFA’s stance at Northwest and Alaska is the exception, however. The policy of the AFL-CIO unions (IAM, TWU, ALPA, AFA, Teamsters, etc.) is to criticize AMFA as being too “inexperienced” for failing to work with management to solve the owners’ crisis.

The AFL-CIO-affiliated officials, instead of telling workers the truth about the restructuring and organizing resistance, promote fear, defeatism and “responsible unionism” — a stronger partnership with top management. At USAirways, United and American the tradeoff for concessions is a seat on the Board of Directors.

The truth is that the entrenched union officials want to join the employers’ team. Their failure is a central reason why rank-and-file workers are beginning to rebel. The strategy of “No Concessions,” advocated by AMFA and others, is the only way to limit setbacks, regroup and prepare for future battles.

A militant labor policy in the airlines means understanding the relationship of forces and linking union and nonunion employees. Central to the unions’ defense is advancing a more rational transportation policy.

Broader issues like national health care, job training, portability of skills and pensions are important too: Social Security was won in the 1930s and Medicare in the 1960s by broad social movements, which are missing today.

Political proposals, including calls for a shorter work week and for nationalization of the airlines — the principle of public ownership of a vital industry, instead of endless subsidies to private owners — are also important to raise, even if they cannot be won now.

[This editorial statement was drafted by Malik Miah, an editor of ATC, airline unionist and supporter of AMFA.]