Posted on 08/07/2005 5:43:06 PM PDT by xjcsa
In the airline industry, 9-11 is a dividing line as profound as the K-T boundary in paleontology. The asteroid impact 65 million years ago which caused the Cretaceous-Tertiary Mass Extinction event ended the reign of dinosaurs. In the future, 8-21-2005 may be viewed as even more significant for the airline industry, and possibly the entire US economy than 9-11.
August 21, 2005 is likely to be the first day of operation by Northwest Airlines (NWAC) after imposing 26% pay-cuts on its mechanics. Northwest claims that it has enough replacement mechanics lined up so that its’ flight schedule will not be disrupted, if as expected, the AMFA union strikes when the cuts are imposed.
The Northwest – AMFA confrontation is somewhat of a special situation. Negotiations will continue until the expiration of the mandatory 30-day cooling-off period that began on July 20th. Northwest is insisting on cutting the pay by 26% and firing 50% of the mechanics. It has been made fairly obvious that a pay-cut of 25.99% and firing 49% of the mechanics is not acceptable to Northwest.
For their part, the AMFA has replaced other unions by winning representation votes on a platform of “no concessions – EVER”. Even if the AMFA leadership was willing to agree to the cuts demanded by Northwest, it is unlikely that the rank and file mechanics would vote to ratify it. Unlike most other airline employees, mechanics have skills that would allow them to find alternative employment outside the airline industry.
Both sides seem to have made a decision that they would rather die on their feet than live on their knees. The union’s struggle is kamikaze-like. They have no hope of maintaining current wage levels. The “best victory” the union can envision would be to drive Northwest into bankruptcy. In that case the bankruptcy court would impose the pay-cuts.
Northwest’s ability to operate smoothly after replacing the AMFA members has yet to be demonstrated. However, they appear to have made extraordinarily thorough preparations. If a legacy airline like Northwest can replace an entire union with much lower paid employees, this will be a milestone event. This is especially true since the mechanics are highly skilled and require extensive federal licenses.
If Northwest succeeds the ramifications are enormous, and not just for the airline industry. The PATCO strike that was crushed by Ronald Reagan was thought by some to usher in the boom of the 1980s by putting labor “in its place”. The air-traffic controllers worked for the federal government and there was never any questions as to whether the government had the power to crush them, only the will.
If a legacy airline can completely replace a unionized workforce and still operate, it is a whole new ball game. Jim Kramer, the CNBC stock market guru who is a latter day version of a cross between Joe Granville and John Maynard Keynes, was asked his opinion of Jet Blue. He quipped: If I had to buy just one airline- - I would quit the business! Kramer explained that unions have the potential to expropriate any and all shareholder wealth from an airline. He is no right-wing ideologue. He simply stated matter-of-factly that such union power is why the steel and auto industries are similarly disadvantaged.
Who are the dinosaurs of today? The answer is not as simple as one might think. Revisiting the K-T extinction event analogy it should be remembered that the dinosaurs were mighty beasts that ruled the planet. They could go anywhere they wished and take food or anything they wanted away from the puny mammals. Today, the mighty beasts who can do whatever they want in the airline business, are the low-cost carriers like Jet Blue and Southwest. If they want to enter a market, the legacy carriers cower like small mammals facing a Tyrannosaurus Rex.
If Northwest beats the union, the shareholders and board of every other legacy airline will ask: Why not us? The environment would instantly change. Just as the asteroid impact turned the dinosaur’s advantages into liabilities, a Northwest victory could take away the labor cost advantage of the low-cost carriers.
We will not know for sure until August 21. However, there are already some clues that suggest some may be anticipating the impact of 8-21. Steve A. Cohen who runs the SAC hedge fund complex has recently taken large positions in the Northwest and Delta (DAL). Delta may be waiting to see what happens on 8-21 before imposing another round of pay-cuts. UAL has delayed exit from bankruptcy at the behest of the unsecured creditors. Maybe they want to see what happens after 8-21. Every legacy airline would be very profitable if it could pay Jet Blue levels of wages and benefits. Ford and GM would make money if they could beat their unions also. Will 8-21 be the milestone?
Well written piece.
I've got no dog in the hunt, and I'm hardly pro-union. Having said that, if the members of said union are so stubborn that they'd rather go hungry than work for less wages (and I realize that situations like this don't happen in a vacuum--there are other market forces at work, and yeah, there are probably NWA brass making seven figures) then the union deserves to become extinct.
Great writing, great analogy. Thanks for posting that.
Equating pay cuts and labor disputes to the terror attacks of 9/11 is more than a bit over the top.
poor taste.
I think it goes beyond mere "poor taste." I think it denigrates the sheer horror of 9/11 and trivializes it...as if the murder of 3,000 people was the result of a union bargaining session gone bad.
The more I think about it, the more pissed off I'm getting.
I agree, it's disgusting.
Let me add a few words about NWA.
I'm one of those poor souls who fly out of Detroit-Wayne airport, one of the two hubs of NWA. As such, I've had tons of experiences with NWA.
1. There are some really great people who work at NWA. They try their damnest to get the job done. They are dedicated, and more often than not, deserve battle pay.
2. It is clear that NWA has a history of bad management. Staffing levels are too low to accomodate the crowds. Profitablity lags, especially when compared to other carriers. The most telling symptom is that they've had awful relationships with unions, which is always a management problem.
Could a NWA person tell me if I'll get my peantus back if these new cost-cutting measures take place? Or is this another signpost on a long trip to NWA's death, to be parted out between Southwest et al?
NWA is the only airline that offers regular non-stop between Kansas City and Minneapolis/St Paul. I have to fly up to MSP every other week for business. I'm not taking any chances and instead of a conflicted NWA, I'm switching to Southwest to take me to Chicago(Midway) and ATA to take me from Chicago(Midway) to Minneapolis. It saves me $150, too!
NWA does have some great employees.
However, their highest management levels come up short every time.
Lets see, they propose to cut half their mechanics. How many does it take to call a strike? Just 1 more than half. I would bet those losing their jobs would be all in favor of the strike, and I'm sure they have a few friends at least.
NWA has a history of screwing those who support them.
When the airline had financial difficulties in the 90's, Minnesota bailed them out.
When it came time to build a major hub new terminal, they chose Detroit instead of MSP. Detroit has all the new planes and international gateway flights, not MSP.
When the airline struggled lately, flight attendants, pilots and mechanics took deep pay cuts to help right the ship.
Once again NWA decides to screw the very people who gave a lot to try and help.
I'm happy to fly with anyone else. If the customers bail them out now, they'll only be screwed later, just like all those before them who've tried to help.
Moreover, the concept of "overbooking" on the basis that a ticket is not a contract is outrageous, and, yes, I've had attorneys explain the nuts and bolts of it.
Southwest proves that airlines can be profitable, but it's going to take a lot of work, and probably a lot of the airline jobs that once were very highly paid will have to be restructured.
I don't make the route often, but have flown into Metro over 20 times via NWA. The NWA people at Detroit are not as friendly as the ones in Portland/Westbrook, Maine <g>.
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