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Airline deregulation and labor relations.

Airline deregulation and labor relations

Over the past 6 years, the process of deregulation has placed great stress on the system of industrial relations in the airline industry. Numerous commentators have described the scenario by which deregulation has led to an increase in competition in the product market by encouraging new entrants and by allowing existing carriers to expand their routes. Some of the new entrants have successfully operated on a nonunion basis and, as such, have enjoyed significant cost advantages because of lower wages, lower benefit costs, and less stringent work rules.1 This, in turn, has created industrial relations pressure on established carriers with unionized operations to seek significant concessions from unions in order to compete with the nonunion entrants.

Professor John T. Dunlop has properly asserted that the industrial relations problems created by deregulation have been exacerbated by the fact that, prior to deregulation, inadequate consideration was given to the question of how deregulation would impact the relevant labor markets and the process of collective bargaining.2 Initially, the theoretical case for deregulation focused on the need for competition in the product market. Little attention was paid to the fact that collective bargaining in the airline industry traditionally operated as a form of labor market regulation that allowed unions to capture a portion of the monopoly profits generated by regulation of the product market. As a consequence, the disequilibrium that followed the withdrawal of product market regulation was not anticipated.

In examining the impact of deregulation on the airline industry, it is important to remember that much of the process of deregulation occurred during one of the worst economic recessions in recent memory. This economic downturn undoubtedly compounded the industrial relations problems.

Deregulation's early impact

Early in the process of deregulation, the disequilibrium described above presented a severe threat to the traditional economic power of certain airline unions. Additionally, there were events that caused some concern over the continuing viability of the process of collective bargaining under the Railway Labor Act.

The experience at Continental Airlines reinforced these perceptions. On September 24, 1983, Continental, the eighth largest passenger airline in the United States, filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code. Pursuant to its perceived powers under Chapter 11, Continental unilaterally implemented drastic changes in wages, benefits, and work rules.3 In response, the Air Line Pilots Association, the International Association of Machinists, and the Union of Flight Attendants went on strike. Although these strikes dragged on for many months, they did not halt Continental's operations and they eventually were discontinued without a restoration of prepetition wages and benefits.

A surprising aspect of the Continental experience was that significant reductions in wages and benefits were imposed unilaterally and outside the traditional process of collective bargaining. To support the assertion that the Continental case was perceived as a threat to the entire process of collective bargaining, one only need recall the vigor with which both National Labor Relations Act and Railway Labor Act unions sought Congressional action to amend the Bankruptcy Code to prevent repetitions of the Continental initiative.4

Moreover, union setbacks were not limited to bankruptcy context. During late 1983, the Allied Pilots Association, as representative of American Airlines' pilots, agreed to a two-tier wage scale. This scale reduced pay for new hires by nearly 50 percent.5 In addition, the scales at American did not merge at any set time in the future. New hires remained permanently on a separate and lower scale.6 In the wake of the American agreement, Eastern, Delta, Western, Republic, and Pan Am also sought concessionary packages.

More recent developments

Recently there have been significant developments in airline labor relations that may indicate a trend toward stabilization. First, it appears that Chapter 11 no longer exists as an easy method to reduce labor costs without undertaking the rigors of concessionary bargaining. In 1984, Congress amended the Bankruptcy Code by adding section 1113, regulating the rejection of collective bargaining agreements.7 In a review of section 1113, two points are most significant. First, as a prerequisite to the rejection of any collective bargaining agreement, an employer must engage in collective bargaining with its union(s). The new statute specifically requires that an employer seeking rejection must (1) make a proposal to the union; (2) provide the union with information to evaluate that proposal; and (3) engage in good-faith negotiations prior to rejection.8 Second, if this bargaining is not successful, an employer must seek court approval before unilaterally changing the contract.9 In short, the type of swift, unilateral action undertaken by Continental Airlines is now impossible.

In addition to these changes in the applicable legal framework, there have been changes in the labor market, particularly for pilots, that would make it very difficult for another carrier to duplicate the coup accomplished by Continental. One of the keys to Continental's success in the face of the Air Line Pilots Association's strike was its ability to hire outside replacements.10 Today, many airlines are experiencing a shortage of qualified pilot applicants. Indeed, the market is so tight that some carriers have been forced to reduce qualifications and increase pay.11

If a carrier were to attempt to reject its collective bargaining agreement in this type of labor market, the Air Line Pilots Association probably would be able to mount a more effective strike effort. Moreover, the recent experience at Wheeling-Pittsburgh12 suggests that the rejection of a collective bargaining agreement under the Bankruptcy Code may not result in tremendous cost savings if a union is able to conduct an effective strike in the face of that rejection. Therefore, for both legal and economic reasons, it is unlikely that another carrier would be able to duplicate Continental's experience.

Other recent developments in airline bargaining indicate that airline unions may be regaining a measure of their former vigor and that it may become more difficult for carriers to exact cost-saving concessions. For example, since late 1984, the Air Line Pilots Association has undergone something of a transformation. Most significant in this regard is that the international union has attempted to assert greater control over the substance of collective bargaining agreements negotiated by Master Executive Councils, the subordinate Air Line Pilots Association groups existing at each carrier. To this end, the international union has adopted guidelines for crisis or concessionary bargaining.13 The Association also amended its constitution to give its president the right to approve all pilot contracts before they take effect and to put dissident locals into trusteeship. Finally, the Association has undertaken a program to improve communications with members. During the recent strike at United Airlines, the Air Line Pilots Association engaged in a series of nationwide "teleconferences' to keep pilots informed about the latest developments and to secure support for the strike.

Some time ago, Professor John Dunlop predicted that the significant disruptions in airline labor relations caused by deregulation and concessionary bargaining would be concentrated in a transitional period.14 The foregoing discussion indicates that the airline industry may be approaching the end of this transitional period and entering a new stage of relative stability.

1 See In re: Continental Airlines Corp., No. 83-04019-H2-5, slip. op. at 4 (Bankr. S.D. Tex. Aug. 17, 1984). In addition, some new entrants have cost advantages that are not labor-related, for example, lower overhead due to their ability to use secondary airports. See address by John T. Dunlop, National Academy of Sciences, Transportation Research Board (Jan. 14, 1985) (hereinafter "Dunlop Speech').

2 See "Dunlop Speech.'

3 For example, Continental decreased average earnings for pilot captains from $90,000 per year to $42,000 per year. Similarly, "hard hours' for captains were increased from 52 to 68 per month. See In re: Continental Airlines Corp., Findings of Fact 30-38.

4 See Daily Labor Report, No. 193, p. A-6 (Oct. 10, 1983).

5 See Daily Labor Report, No. 217, p. A-7 (Nov. 8, 1983).

6 The system at American Airlines was subsequently changed so that the two tiers of the wage scale merged after 17 years. See "The Pilots Are Finally Throwing Their Weight Around,' Business Week, Oct. 28, 1985, pp. 36-37.

7 See 11 U.S.C. 1113 (1984 supp.).

8 See In re: Wheeling-Pittsburgh Steel Corp., 50 B.R. 969, 975 (Bankr. W.D. Pa. 1985). It is unlikely that the bargaining requirements under section 1113 will be interpreted to require exhaustion of the procedures under the Railway Labor Act prior to the rejection of a collective bargaining agreement.

9 See 11 U.S.C. 1113(f).

10 See In re: Continental Airlines Corp., No. 83-04019-H2-5, slip. op. at 23; see also Alton K. Marsh, "Continental Luring Passengers With Low Fares, Credit Plans,' Aviation Week, Nov. 7, 1983, pp. 31-32 (describing hiring efforts by Continental).

11 The shortage of pilots can be explained by a combination of two factors:

(1) major route expansions and (2) a dramatic reduction in military training activities. See The Wall Street Journal, Aug. 5, 1985, p. 6.

12 See Business Week, Aug. 5, 1985, pp. 26-27.

13 See Business Week, Dec. 31, 1984, p. 49.

14 See "Dunlop Speech.'
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Author:Curtin, William J.
Publication:Monthly Labor Review
Date:Jun 1, 1986
Words:1524
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