Market Realignment: Labor, Mexico and the U.S. Regionals

Variable Compensation and “Upside Protections”

A commenter on my most recent post wrote:  “Variable compensation?? That implies that you think I trust airline executives to treat me fairly. Their behavior over the past decades clearly shows that they can't be trusted, and you want me to buy-off on a scheme where they CONTROL the data?”

Another commenter wrote quoting AMR CEO Gerard Arpey:  "And again, our hypothesis is that we’re going to continue to work in good faith, cut responsible agreements with our unions and that all of the network carriers in the next 24 months are going to go through the same funnel. And that when we all come out of that funnel, ultimately the market is going to be brought to bear on all of these companies and the market will determine wages and benefits in this industry just like it largely does other industries."

Just what is a responsible agreement? For one, a responsible agreement benefits both sides. It is one unlike those negotiated in the past where companies were forced to ask for concessions in a downturn because they cannot afford the terms of what had been agreed to previously. And for labor, it is one that is sustainable – one that won’t require concessionary bargaining in a downturn and provides protection on the upside to prevent companies from earning outsized profits on labor’s back. 

This is the area where unions have missed the boat in the past.  Too often, labor leaders spend too much time negotiating protections on the downside and ignore similar protections on the upside.  Think back to the period when this was most relevant - between 1995 and 2000 when the U.S. airline industry earned record profits.  Unions had just completed ratified concessionary agreements negotiated during the economic downturn begun in 1991.  As the industry’s fortunes turned, employees did not share in the most profitable period in U.S. airline history.  Rather employees sat and watched because their unions did not negotiate protections on the upside that would have ensured their sharing in the profits – some of which were made possible from lower labor costs.

The industry has been anything but profitable in the years since, so upside protections would have returned little if anything following the negotiations during restructuring.  Instead many employees got performance bonuses when their companies met stated operational goals.  But let’s suppose the U.S. industry now sits on the brink of a profit cycle.  If upside protections had been negotiated then, employees would share in the profits while new collective bargaining agreements are under negotiation. That would send a far stronger signal about the connection between productivity, competitive costs and profitability than has the long and painful cycle of give-some, take-some negotiations.

Can we expect realignment in labor during this round of airline negotiations?   And what will that mean for labor rates by the time every airline makes it through the funnel of negotiations? 

One thing is clear: carriers with relatively expensive labor rates today will need to adjust expectations at a time that industry economics, particularly domestic market economics, do not support outsized increases in flying rates, mechanic rates or most assuredly “below the wing” rates.

Mexicana

Two days ago, Mexico’s largest carrier filed for bankruptcy protection in the U.S. and insolvency proceedings at home.  Precipitating the filing, according to the carrier, was its inability to achieve significant wage and productivity concessions from its flight crews.  When negotiations did not produce the company's desired outcome, the employees were offered the keys to the company for one peso.  The employees said no thank you.  Like bankruptcy filings here in the U.S., the burden of proof will be on the company to make a case that deep concessions are necessary.

Like the U.S., the Mexican market is deregulated.  Like the U.S., low cost carriers (LCCs) fly in major markets throughout Mexico, driving down prices all the while the Mexican economy has suffered more than most around the world.  In fact, Mexicana holds two low cost carriers in its fold (neither of which will be affected by the bankruptcy filing of the larger legacy carrier).  Mexico is a microcosm of what occurred in the U.S. where LCCs grew at the expense of the network legacy carriers, driving prices down because they enjoyed cost advantages.  And like in the U.S., the Mexico domestic market does not produce sufficient revenue premiums for the legacy incumbents to offset their high and out-of-market cost structures.

Might Mexicana’s bankruptcy filing result in liquidation?  It could.  Already planes have been repossessed in anticipation of the filing.  Sounds like the U.S. industry immediately after deregulation but before Section 1110 protections became part of the bankruptcy code.  Today, unions in the U.S. are calling for changes to the bankruptcy code (Sections 1113 and 1114 specifically).  Ever wonder just how many U.S. airline jobs might have been lost if there were no Section 1110 protections?  I digress.

The Mexicana story causes me to reflect on the U.S. domestic market.  The realignment of the U.S. domestic industry is not done.  Mainline carrier presence in the domestic market will continue to shrink unless the labor economics change.  Network carrier presence in the domestic market is now more a function of moving a passenger from Lansing to Lagos than it is Lansing to Los Angeles. 

Since 2000, network carrier revenues are down 36 percent.  Since 2000, when mainline network carrier domestic Available Seat Miles (ASMs) reached their historic apex, capacity flown by the same carriers has been reduced by 30 percent.  Over the same period, domestic ASMs added by the U.S. LCCs increased by 134 percent.  ASMs flown by the regional sector have increased by 178 percent.

These trends are a function of the economics of flying today.  Labor contracts in the past were based on $30 “in the wing” jet fuel.  Today’s reality is $90.  With domestic revenue generated by the network carriers down more than capacity since 2000, it is uncertain what kind of contracts will come out of that funnel, and whether the U.S. airline industry as we know it today we be able to sustain higher costs.

SkyWest Subsidiary Atlantic Southeast Airlines to Purchase ExpressJet

Another story occurring within the industry that has labor ramifications is the consolidation taking place within the regional industry. One of the catalysts for consolidation within the regional sector is the unknown outcomes of scope negotiations between the mainline carriers and their managements as to what kind of flying will be done by the regional providers tomorrow.  Another catalyst is the known, but yet undetermined, push for new regulations governing how much regional pilots can fly.   

Readers at Swelblog.com know that we have been talking about consolidation and realignment of the regional industry since the beginning.  Does a consolidating network carrier sector need nine providers of regional capacity?  No.  

Given that new, expensive changes to regulations governing regional carriers and their relationships with mainline are expected this year, the network carriers would be wise to look carefully at their regional feed composition. With the merger of Continental and United and new regulation pending, it simply makes sense to realign regional relationships.  United is one of SkyWest’s two major partners and it does business with each Atlantic Southeast and ExpressJet (who is Continental’s primary regional partner).

The SkyWest/Atlantic Southeast announcement comes on the heels of Pinnacle buying Mesaba and expanding its presence under the Delta umbrella.  These types of realignments are now a trend and not one-off and ill conceived acquisitions.  Just like network carriers need scale economics, so do the regional partners in order to minimize labor and maintenance costs regardless of what type of flying they are permitted to perform tomorrow. 

This is healthy consolidation and the idea of scale economics may be what just makes American Eagle attractive.

More to come. 

Buried Alive: Signed Tentative at American Declared Dead

As Gilda Radner on the old “Saturday Night Live” might say, “It’s always something.”

Less than a month ago, the Transport Workers Union (TWU) representing the Fleet Service Group at American Airlines (baggage handlers, freight service workers, aircraft fuelers/de-icers and aircraft cleaners) said it was “suspending” a tentative agreement (T/A)  reached with the company after more than two years of discussion.  Yesterday, after a meeting between American, TWU and the National Mediation Board (NMB), the union pronounced the agreement dead and asked the NMB to release the 11,000 workers in the group into a 30-day cooling off period.

But it’s been a twisting road to this point. When the TWU first announced the agreement, the union said it was strong armed into signing a T/A by NMB member Harry Hoglander.  In a May 28 press release, the TWU said:  “Although the committee cannot recommend the T/A, we believe the membership should have the final say. The decision to bring the T/A was made based on the NMB's premise that there would not be any other meetings scheduled until the end of year or possibly later.” 

The union then went on to say:  “The committee also took into serious consideration that the NMB would not look favorably upon the negotiating committee not allowing the membership to vote on the Company’s final offer.”

By June 3, 2010 the TWU bargaining team had decided to send the agreement to the membership with a “no” recommendation. President Jim Little then jumped in and said that the union would not send the agreement out for a vote without a recommendation to ratify the agreement.  At this point, the union “suspended” ratification of the agreement citing “unresolved Issues.”  

Yesterday the TWU used the same phrase, claiming that ”unresolved issues” with the agreement have created an “impasse” – a legal term under the Railway Labor Act to signal that the sides can’t reach agreement. The release quoted TWU International Administrative Vice President John Conley: “We are now at an impasse with AMR,” Conley said. “We no longer have a tentative agreement and no ballots will be presented to members for a ratification vote. We urge the NMB to promptly grant us release so that we can begin the self-help process.”

My Simple Question

So what exactly changed in the last month? By my read of it, nothing. It appears to me that the NMB won’t likely schedule any new mediated negotiations until 2011. 

But there is no evidence that the two sides are at an impasse.  Rather they are immersed in a political quagmire in which one side cannot convince its members that there must be some “give” in the agreement to make possible the “gets” the union wants in terms of wage increases and other contract enhancements. An impasse is declared only when the two sides cannot agree after exhausting the mediation process.

In this case the sides agreed to the economics – that was the basis of the tentative agreement that, if ratified by TWU members, would result in a new collective bargaining agreement.

A Conundrum in This Case

Let’s be clear: the company’s proposal would put more money in the pockets of fleet service workers. Now they will be forced to wait until negotiations are scheduled to reconvene yet again.  I do appreciate that there was a perception of layoffs associated with the agreement.  That is simply not the case – rather AA agreed that no TWU employee would be furloughed as a result of the company’s efforts to be more competitive, much the same guarantee AA has made in negotiations with other workgroups.

The conundrum is twofold.  First, the concessionary negotiations concluded during the restructuring round has resulted in a "mark to market" scenario that is no longer uniform among employee groups.  Remember that the bankrupt carriers took multiple "bites at the apple" by first reducing cash compensation; then achieving productivity gains that reduced headcount; and then reducing pension and health and welfare expenses.  American’s 2003 concessions were based mostly on that first bite, which means American’s labor costs remain higher than those airlines that restructured through bankruptcy - and it is different by work group.

Second, current negotiations are complicated by the increased use of outsourcing throughout the airline industry, which serves to fundamentally alter the comparisons of similar work from one airline to another.  This fact is most prevalent in “below the wing” work that most other airlines now outsource at significantly lower wages.

Today’s market for fleet service employees is not the fault of the Transport Workers Union per se.  But the union does have a responsibility to read the marketplace and negotiate an agreement that takes into account the economic realities out there. This is no impasse.  Rather it is a union’s misguided act in taking a live proposal that includes improved economics for its members and burying it alive.  Once again, the line workers see nothing in their pockets while the union lets a business agenda of maximizing headcount win the day. 

This is one tough round. 

Mirror Mirror on the Wall: What about American after All?

This week AMR CEO Gerard Arpey and CFO Tom Horton are taking their “look at American” story to Wall Street. The AMR Investor Presentation starts and ends with the company’s Flight Plan 2020 – a plan that frames the company’s strategy around 5 tenets:  Fly Profitably; Strengthen and Defend Our Global Network; Invest Wisely; Earn Customer Loyalty; and Be a Good Place for Good People.  It’s not uncommon for Wall Street to be skeptical of this kind of strategic framework. Consider, for example, the sharp-tongued response of JP Morgan analyst Jamie Baker during AMR’s 1Q earnings call with Arpey and Horton. Referring to Flight Plan 2020 and its bullet-pointed strategy, Baker asked:

“Is this really all you have got?”

But Baker didn’t stop there. “I don’t want to beat around the bush here,” he said during the Q&A with analysts. “You have the highest costs. You have the lowest margins. You are the only major airline expected to lose money this year. Your year-to-date equity performance has trailed that of your peers. In other businesses I can think of when there is a company standing out like this you sort of expect a major overhaul and it isn’t clear to me that Flight Plan 2020 is that plan.”

In many ways, Baker’s question is a fair one for a company that appears more plodding in its strategy than what we’ve seen elsewhere in the industry during recent years of bankruptcies, mergers and acquisitions. I think American is looking at anything that flies and assessing whether the benefits of the combination outweigh the costs of combining.  And there’s no doubt that American is taking stock of how Delta’s merger with Northwest and the proposed merger between Continental and United will hurt AA sales in key US and global markets.  It is the ability to sell to corporate customers that may be the ultimate arbiter of whether to merge or not.

In its investor presentation, AMR rightfully focuses on its network and the expected approval of both its transatlantic and transpacific joint ventures..  It talks about its focus on the largest population centers in the US – New York, Los Angeles, Chicago, Dallas/Ft Worth and Miami.  It talks about AA and oneworld’s focus on the largest population centers around the globe – New York, London, Los Angeles, Tokyo and Hong Kong.  The AA/oneworld strategy clearly targets the STAR Alliance with United and Continental and its focus on the largest population centers in the US, but pays less heed to the SkyTeam network with more small cities in its route portfolio. I am not saying that oneworld is ignoring SkyTeam at all and New York is but one example.

Let’s Talk Network

My review of the latest available origin and destination data offers some surprises about where AA is strong relative to other carriers.  The markets are listed in descending order of American origin and destination passengers for the first quarter of 2010.

1.           Dallas (DFW, DAL):                          AA, 52.7; WN, 21.4%; US, 5.8%; DL, 5.6%
2.           Miami (MIA, FLL, PBI):                      AA, 24.1%; DL, 13.4%; B6, 9.7; WN, 9.0%
3.           Chicago (ORD, MDW):                      AA, 25.3%; UA, 24.6%; WN, 22.6%; DL, 6.2%
4.           New York (EWR, JFK, LGA):              CO, 19.4%; DL, 16.4%; AA, 14.2%, B6, 13.6%
5.           LA Basin (BUR, LGB, LAX, ONT, SNA): WN, 26.3%; AA, 12.2%; UA, 11.3%; DL, 8.5%
6.           Washington (BWI, DCA, IAD):          WN, 21.6%; UA, 16.8%; US, 13.7%, AA, 9.8%
7.           Boston (BOS):                                  B6, 19.1%; AA, 15.1%; DL, 14.2%; US, 13.8%
8.           SF Bay (OAK, SFO, SJC):                   WN, 31.7%; UA, 18.4%; AA, 7.8%; DL, 6.2%
9.           St Louis (STL):                                  WN, 38.1%; AA, 25.2%; DL, 11.0%; US, 6.8%
10.           Transcon:                                         UA, 21.7%; AA, 18.2%; B6, 15.1%, VX, 12.0%
11.           Raleigh (RDU):                                  WN, 23.6%; AA, 20.9%; DL, 18.4%; US, 15.4%

So AA enjoys a position of strength relative to other network carriers in 4 out of 5 of the markets in its “cornerstone strategy” ­ -- Los Angeles, Chicago, Dallas and Miami.  In New York, AA is currently third, But coming in fourth is jetBlue, AA’s most recent partner feeding 12 international markets from 18 of the low cost carrier’s markets.  If one of the tenets of Flight Plan 2020 is to strengthen and defend its network, then AA is beginning to address its relative weakness in New York with the jetBlue relationship.  Among AA’s largest  ”origin and destination” markets, it is neither #1 or #2 in New York, Washington or the San Francisco Bay Area. 

American’s strength in the domestic markets will translate into added benefits if, as expected, anti-trust exemptions are approved to allow joint ventures with British Airways/Iberia/Finnair/Royal Jordanian and JAL.  Whereas American receives significant traffic from its partners today, there will be significant new benefits that will accrue to American as a result of being able to coordinate schedules and prices as well as jointly market the combined services – a benefit the other two global alliances already enjoy.  So alliance competition is about to take off as we transition to a three carrier contest for travelers rather than the global market that today favors STAR and SkyTeam.

Cost Advantages/Disadvantages

I’m no fan of American’s answer to its labor cost disadvantage, in which the company has said that labor costs will inevitably rise at the other airlines to even the playing field among carriers where now AA labor costs are markedly higher than its competitions’. Sadly this suggests that pattern bargaining is alive and well and that the industry will simply recycle profits among stakeholders as it has done for decades rather than focus on producing some return on capital. 

But I understand why American cannot talk any other way about its labor cost disadvantage.  Why? Because it is smack dab in the middle of negotiations with its unions – in some cases in mediated contract talks or in the process of awaiting union member votes on tentative agreements.  That makes any talk of labor costs particularly delicate, even considering the reality that the company’s current labor costs – in all cases at or near the top of the industry, means that AA doesn’t have much to give at the bargaining table.  Based on the tentative agreements reached so far, American is clearly willing to trade higher wages for the promise of higher productivity.  Beyond that, it remains to be seen – and the devil is in the details -- whether better productivity can mitigate the costs of the agreements.  If not, American’s labor costs are only going to increase further.

One thing the company can and should be talking about is what’s known as “non-labor” costs – all those costs outside of wages and benefits that are not driven by collective bargaining agreements. In this area AA has led the industry in lower costs over the past five years. In fact, non-labor costs at American should only keep coming down as the company takes a new aircraft every 10 days to replace the outdated and inefficient MD80 fleet, American should be touting this other side of its cost equation – the fact that its success in trimming non-labor costs mitigate some of its labor cost disadvantage, rather than bank on the hope that labor cost convergence at the other carriers will ease some of its labor pain.

So what should American say to the Jamie Bakers of Wall Street?

American says that between its cornerstone strategy and its expected immunized alliances, once fully implemented, could mean an additional $500 million on the books.  I believe that it could be even higher, particularly given American’s current position in which it lacks the legal ability to coordinate schedules, set prices and jointly market services with its partner airlines.

Some say that bankruptcy is the only option for American to strip out costs and strengthen the balance sheet against strong competition.  But this is not the post-9/11 era when it was a geopolitical catalyst that allowed several airlines to leverage bankruptcy to rewrite contracts and jettison debt and pensions.

I’ve read many stories that attempt to write American Airlines’ obituary. But the rumors of the airline’s demise have been greatly exaggerated.  In theory, the unmerged US Airways and American and other carriers should benefit, albeit indirectly, from industry consolidation.  Moreover, most of these stories missed the fact that consolidation is taking place at the bottom of a recovery cycle, not at the top.  Assuming that the health of the US airline industry is inextricably tied to the health of the US macroeconomy, then a rising tide should benefit the entire industry.

On May 3, Vaughn Cordle of Airline Forecasts Inc. published a white paper titled:  “United + Continental is Good News for all Stakeholders:  More Mergers are Needed.  Is American and US Airways next?” Cordle writes: “If the industry is not allowed to consolidate in the most rational manner, the result will be a continuation of the slow liquidation and the inevitable failure of US and AA, the two remaining network airlines in need of restructuring.  The most likely outcome would be an AA bankruptcy and outright liquidation of US.”

The analysts may want a more compelling story, but sometimes slow and steady wins the race. After all, past acquisitions at American have not produced much for the airline’s bottom line. I believe American would benefit more by getting its labor house in order before making a big play.  There is enough work to be done in the interim to coordinate schedules with its immunized alliance partners.  There is enough work to be done to get the tentative agreements ratified and complete negotiations with its pilots and flight attendants.  And there is enough work to be done to improve the operational integrity of the system -- a renewed fleet will help but it is not the complete answer.  I am willing to believe that bankruptcy may be an answer for American only if its employees push it there . . . and they may be the ones hurt most by the experience. 

Mirror mirror on the wall:  the tortoise may beat the hare after all. 

The NMB Finally Issues Its Representation Rule: What’s Next For The US Airline Industry?

Today, the National Mediation Board issued a new rule governing union organizing that is probably the most controversial thing this government panel has ever done.

So, after sifting through 103 pages of legal citations falsely hoping that the rule as proposed in December would have been changed to address at least some of the opposition’s concerns, I now realize the truth: The NMB has become a political body.

Don’t get me wrong – I’m a registered Democrat so this not a rant against all things Obama. But there are places politics shouldn’t figure so heavily and the NMB should be one of them.

The new representation rule comes as Delta and US Airways are suing the government over its proposed solution to the slot swap between the two carriers; and just a week or so since implementation of that visionary tarmac rule.  So yes, I am in a bit of a cynical if not downright snarky mood today.

In the final rule filed in the Federal Register, the National Mediation Board summarized:  “As part of its ongoing efforts to further the statutory goals of the Railway Labor Act, the National Mediation Board (NMB or Board) is amending its Railway Labor Act rules to provide that, in representation disputes, a majority of valid ballots cast will determine the craft or class representative. This change to its election procedures will provide a more reliable measure/indicator of employee sentiment in representation disputes and provide employees with clear choices in representation matters.”

In its proposed rule, the NMB is seeking to change the election process by which unions organize workers in the railway and airline industries. The new rule that will change 75 years of practice, would for the first time determine the outcome of union representation elections in the airline and railroad industries based on a majority of those who vote rather than current practice, where a majority of all eligible voters must support joining a union.

It doesn’t take a magnifying glass to read between the lines. The NMB is doing organized labor a big favor with this rule. So it is laughable to me that the Board describes the change as part of its “ongoing efforts to further the statutory goals of the Railway Labor Act.”  Funny, because the overarching statutory goal of the RLA is to minimize the disruption on interstate commerce stemming from labor-management disputes.  And this rule would likely do just the opposite, with unintended consequences, by increasing the likelihood of union activities that could yet be another destabilizing force in an industry that needs anything but -- a destabilizer that comes just as the industry tries to consolidate in order to stabilize.

The first 81 pages of the document were a little dry.  But starting on page 81 the dissenting opinion of NMB Chairman (and sole Republican member) Elizabeth Dougherty began: “I dissent from the rule published today for the following reasons: (1) the timing and process surrounding this rule change harm the agency and suggest the issue has been prejudged; (2) the Majority has not articulated a rational basis for its action; (3) the Majority’s failure to amend its decertification and run-off procedures in light of its voting rule change reveals a bias in favor of representation and is fundamentally unfair; and (4) the Majority’s inclusion of a write-in option on the yes/no ballot was not contemplated by the Notice of Proposed Rulemaking (NPRM) and violates the notice-and-comment requirements of the Administrative Procedure Act (APA).”

Ouch.  But no matter. The Final Rule will become effective on June 10, 2010, unless opponents use the courts to stop it.

Let the Lawsuit Begin

The industry, speaking from the Air Transport Association platform said:  "It is quite clear to us that the NMB was determined to proceed despite the proposed rule's substantive and procedural flaws, leaving us no choice but to seek judicial review." 

The unions, of course, took a different tack. The AFA-CWA, a big winner here as it seeks for the third time to organize flight attendants at Delta, made clear where it stood on any legal challenge. "We applaud the NMB for taking this historic and courageous step to bring democracy to union elections. By allowing workers to have a voice in these elections, whether it be yes or no [author adds: or by write in], will only bring benefits to all parties. We look to airline management and their third party supporters to respect their employees' voices and the concept that guides our country every day, and not to bog down this significant achievement in legal appeals."

Having now devoted four blog postings to this subject, I may qualify as one of those third party supporters. Not because I’m carrying water for airline management, but because I think this rule stinks just like the tarmac rule and decision by this administration on the slot swap.  The only hope I have with this rule is that the incumbent unions start to be smarter in their negotiation strategies.

Included in a statement by AFA-CWA International President Patricia Friend’s statement lauding the cram down rule is her insistence that job security is a union function.  What is job security in today’s world?  Is it contract language?  Or is it a strong company?  When I think of pilot scope language that is designed and negotiated for the sole purpose of protecting jobs I see 14,000 mainline pilot jobs lost and nearly 800 narrowbody aircraft taken out of service because the economics (largely unproductive labor) could not translate into profitable flying.  But that unproductive labor paid union dues – for awhile.

I have a lot of union experience.  I worked as a local union president.  I have experience as an advisor to labor in distressed negotiations.  I serve in a union-appointed Board of Directors position at Hawaiian Airlines. While I know there is strong flight attendant union leadership at Hawaiian, the same cannot be said around the industry and I note in particular American and United and US Airways.

From what I can see, airline unions are all about yesterday.  Bankruptcy did not fix the labor problems at airlines or the ability of many airlines to manage their costs with still-bloated income statements.  But still the unions want to look back, back when labor costs were even higher and productivity was at an all-time low.  If productivity was given in the restructuring negotiations, union-represented employees would be earning more today.  But I digress.

Let me be clear.  I am not saying that unions are all bad.  Good leadership on the union side and a willing management can make deals.  Look at the most unionized carrier in the US industry – Southwest – which thanks in part to a strong relationship with its unions has managed to pay well and do well in the marketplace by building a great corporate culture and making productivity and customer service a priority.

But unenlightened and parochial thinking pervades the leadership ranks of many other airline unions.  The industry will continue to face change and challenges. Unions that adapt and are able to let go of the past will flourish.  Unions that cannot adapt to the new direction of the global airline industry will struggle to deliver for their members. 

And Why Are We Changing This Rule?

It is pretty simple and transparent.  Neither the AFA-CWA nor the IAMAW believes that they have the votes necessary to win an election in their efforts to organize the combined work forces from the merger of Delta and Northwest.  So labor prompted a friendly administration to change the union representation process to help them pick up these coveted new members – particularly on the Delta side where the flight attendants and maintenance workers have never been union.  Imagine how happy those former Delta employees must/will be?

Or, as the union leaders have clearly calculated, if you fail to win hearts and minds at the ballot box (as they have not once but twice) then change the rules. And despite an outcry and outpouring from the industry about the rule as first proposed by the NMB, the Board made no changes to address the concerns expressed by opponents. Instead the rules were relaxed even more to the advantage of unionization. Decrease the barriers to entry (union representation) and leave the barriers to exit high (no direct union decertification procedure).  So off we go to court.

As I have written before, it is not so much the rule change as the way the "politically neutral" NMB went about it.  With the tarmac rule it is the arbitrary nature of the three hours.  With the slot swap deal it is denying the incumbent carriers the right to sell what they invested in over the years and determine an adequate return on that asset.

I understand that most things governmental are heavily political.  But politics have had too much influence over this industry, and not for the benefit of the airlines or the hundreds of thousands of workers they employ.

More to come.

What Would Yoda Say to the APFA?

Where I would typically use this space to talk about the fact that the rumor mill has United and Continental in serious merger talks, I am not going there.  My feelings on a US Airways – United hookup are well documented in a number of posts.  I will be most pleased if United and Continental are indeed in talks.  Each carrier has aggressively pursued a path to the least exposure to the US domestic market, and that is a path resisted by US Airways.

I respect many people at US Airways, particularly those managerial types who have done yeoman’s work with a network that, in my opinion, holds little promise long-term. It is, as I say, presence everywhere and a dominant piece of meaningful real estate nowhere.

To me the biggest piece of news this past week was the fact that the National Mediation Board (NMB) did not release either the Association of Professional Flight Attendants (APFA) or the Transport Workers Union (TWU) into a 30-day cooling off period that each union sought in their negotiations with American Airlines.

At least until we see the rule drafted by the NMB on representation elections, all seems right at the Board.  They did not release a case that is nowhere near exhausting the mediation process, even though I had feared that they might given the political winds in Washington.

So, the APFA is, for the time being, reduced to trying to convince the world of the numerous grievances its members carry. The union’s You Tube videos claim that AA flight attendants are oppressed.  They talk of the past like somehow it will reappear,  even when reality knows it is but a faint memory.  And through it all, APFA’s reckless talk of a strike continues – reckless because the circumstances don’t justify the action as I have written before, most recently in Self-Help or Self Sacrifice or Self Fulfilling Prophecy? What Will This Accomplish?

I am reminded of a quote by Yoda in Star Wars: "Fear is the path to the dark side. Fear leads to anger, anger leads to hate, and hate leads to suffering."

American’s Conundrum

Few people, if any, have been as critical of American’s union leaders as I have.  The one union that has been left unscathed by swelblog has been the TWU because, as a leader, John Conley is typically careful in misusing power and rhetoric.  But in this case even Conley has come close to the line.

Is the fear that a union working to address American’s productivity deficiencies in return for improved wages somehow collaborating with the “dark side”?  I think it is.  The fear of reprisals from a vocal minority of members toward a union’s leadership has led to a campaign based on anger toward the employer.  The anger has become hate as unions try to tie everything wrong in the industry to executive compensation, particularly that part of their pay in at-risk company securities.

But without executive pay, what are the unions really protesting? Change? We’ve got plenty of that in the airline industry, which is all the more reason cooler heads should prevail in approaching negotiations in a way that promises the best long-term pay and job security for airline employees.

But that’s not how the flight attendants union is approaching it. The APFA is trying to stir up a lot of anger and hate with a strike vote that, if it eventually led to a strike, runs the risk of doing serious harm to wages and working conditions for their members.

The APFA has been speaking out of both sides its mouth in urging members to support a strike a vote. On one side it encourages flight attendants to send a message to management and channel their anger by threatening a work stoppage that would bring the carrier to its knees. On other other it tries to calm flight attendants with reassurances that they themselves would not be hurt by going out on strike.

And that’s just wrong. APFA President Laura Glading should be careful what she asks for.

What good did the strike do the BA flight attendants and their union Unite?  Zero. Nothing.  Nada.  It did entice a management to put into place a plan to fly through the “three strikes.”  Three strikes and you are out right?  Glading’s plea to her members is pathetic.  All the while she reminisces about 1993 and 2001, she mentions that a “yes vote” does not mean that they will strike.  She talks about the power of yes.  But she does not once mention the potential risks of a strike to her members.

Glading also does not mention that her flight attendants are the highest paid among her network peers according to MIT’s Airline Data Project; the least productive in terms of hours flow per month; generally lagging in terms of in terms of passengers served per flight attendant equivalent; and the beneficiary of a relatively costly benefit package.  It makes the negotiations between American and its flight attendants very complex and difficult to conclude - even for the most skilled negotiator and/or mediator.  American is asking for increased productivity for one simple reason:  whereas American’s salary per flight attendant is comparable to that received by flight attendants at Continental, if American achieved the same flight attendant productivity as Continental the carrier would require 1,254 fewer flight attendants.  And the carrier has offered to grow into the productivity over time rather than lay off even more flight attendants.

If I am an American flight attendant, I would carefully consider these facts.  Negotiations are now data driven – just like a Presidential Emergency Board (PEB) would be.  APFA likes to talk to the world about labor cost per available seat mile (CASM).  But that metric is fraught with potential error as the calculation is influenced by a wide number of items which are not in the control or purview of the flight attendant collective bargaining agreement.

In fact, as CASM is influenced by factors as varied as seat configurations, stage length, aircraft utilization and network design to name a few, even analysts and economists would be hard pressed to make the kind of bold analytical statements and sweeping conclusions that the APFA is making.  Pay and productivity are expressed in hourly rates and hours worked and that is why the MIT Airline Data Project examines pay and productivity against an hourly foundation.  The APFA refers to staffing as the culprit in American’s  high flight attendant unit cost.  The problem is that the 3-class fleet is a very small portion of the fleet.  Can 3-classes really be responsible for the highest flight attendant costs in the industry among the legacy carriers?  Warning to United:  the same argument is coming your way.

American does have a conundrum in that it is the first major case in front of the NMB and it has the highest costs among its peer group, particularly with its flight attendants who, as a group, are highly paid relative to their low productivity.  In a recent Dallas Morning News, I was quoted by author Terry Maxon suggesting that there will be an airline strike.  Inside of my comment was a challenge to management:  Is the airline ready to take a strike?  If American caves in its position, the industry suffers.   The American Airlines flight attendants suffer because American will have agreed to pay more than it can afford.  Even the best heeled US airline cannot afford what American’s employees are asking from their management. 

American’s unions constantly point to management compensation as unfair but, as is typical, they use only the parts that serve their purpose.  Conveniently, forgotten is the fact that there have been years in which management got well below their target pay (and well below their industry peers) because the system of pay linked to performance actually works.  Yes, management pay is higher than pay on the front lines.

That’s pretty much the way it works in every industry. That’s because the market for management labor is different than the market for flight attendant labor.  That’s a reality.  And in a market-based economy, no one is entitled to more for their labor than what the market will pay. The NMB got it right at this point.  Exposing the company to the destructive threat of a strike doesn’t serve anyone’s interest.

Yoda was right to focus on fear as a path to the dark side.   In this case, the dark side is not so much a strike but, rather, the fear, anger and hate churned up by union leaders that could lead to a disastrous outcome for the members they represent  

Pondering American and jetBlue: Most Interesting

Coming on the heels of last week's post about Southwest and being jilted by Delta and US Airways in their reworked slot exchange, this morning we get an announcement that American and jetBlue are entering into a new commercial arrangement at key east coast cities.  I will probably write later on the topic but wanted to jot a few things down before I leave for meetings.

• Each SkyTeam and STAR have enhanced their positions in the New York metro market in recent months.  Given the importance of New York and the key east coast cities of New York and Boston, American enhances its presence as well as that of oneworld with this announcement. 
• jetBlue has a relationship with Aer Lingus.  Lufthansa invested in jetBlue.  Now jetBlue enters into a commercial relationship with American whereby customers of each airline can enjoy interline capabilities with the other at each Boston Logan and New York JFK on non-overlapping routes.
• Is jetBlue becoming the Alaska Airlines of the east coast?  Keeping itself most relevant in its home market by code sharing with many airlines? 
• American intends to transfer eight slot pairs at Ronald Reagan National Airport and one slot pair at White Plains N.Y. to jetBlue.  Three more than jetBlue would receive in the DL-US proposed transaction.  So for jetBlue, will it be 5, 8 or 13 slot pairs at Ronald Reagan National Airport? 
• jetBlue intends to transfer 12 slot pairs at JFK to American.
• This slot transfer business is getting very interesting.
• It has been a bad week for Southwest.  Between their cry of being "left out" of the US - DL slot swap; talk of being jilted by WestJet; and now American teaming with jetBlue .......

I wonder what Southwest must be thinking?

Continental Makes a Most Interesting Proposal to Its Pilots: Delta plus $1

Happy St. Patrick’s Day to all.  The pattern on this holiday is all things green.  And maybe the luck of the Irish will make this St. Patrick’s Day a lucky one for Continental pilots as the company presented the Air Line Pilots Association (ALPA) with a new contract proposal. The pattern for collective bargaining in the airline industry is to secure all things deemed as best in class.  As I see it, Continental made an offer to its pilots that actually addresses pattern bargaining.  Not quite sure if I love it, but it is interesting.  Most interesting.  

The two sides have been in discussions for more than two and one-half years.  The amendable date has come and gone, yet the parties have not filed for mediation.  There’s been some movement on the non-economic issues, but little progress has been made on the economic ones. 

Sounds familiar doesn’t it?  This week, that’s what much of the talk from American Airlines’ flight attendants centered on as they asked for release from the National Mediation Board.  Several unions at American and United increasingly point to the long periods of time it is taking to reach an agreement. 

In its letter to Capt. Jay Pierce, President of the Continental ALPA Master Executive Council, Continental Airlines addresses how long it might take to negotiate an agreement:  “We have weighed the fact that it has taken ALPA two and a half years to compile and propose an exceptionally complex and comprehensive opening economic proposal that nonetheless still has a number of substantive items open. Despite its complexity, that proposal remains only conceptual, lacking specific contractual language. We have also considered the considerable period of time it would take to negotiate and craft specific contractual language that is fair to the pilots and fair to the Company. Even if we had no significant disagreements over terms of that opening proposal (a highly unlikely circumstance given the excessive increase in costs it contains), negotiating and refining ALPA's current proposal into to a final executable agreement is a task that would clearly take a very long time.”

Given that the Delta pilot agreement had become a template for the Continental pilots in their negotiation of a new agreement, Continental simply said that they would offer their pilots the Delta pilot contract except for a seat on the Board of Directors and by adding $1 to the pay rates included in the Delta Pilot Working Agreement (PWA).  The offering includes the Delta pension and benefits section as well.  This is important – very important – because benefit costs go into the calculation of the cost of an agreement.  We are finally at the point where we talk about the all-in cost – not just hourly rates of pay.

Capt. Pierce responded:  “the proposal is no surprise and much of the bargaining agenda that we have already presented is based on the Delta PWA. Hence, our Negotiating Committee is very familiar with that agreement and has referred to it often. Notwithstanding this fact, any such transition would be a very complex matter and there is much to consider before we commit ourselves to such a process. We will be carefully reviewing the ramifications of this proposal with respect to our bargaining objectives over the coming days. However, while we must proceed with caution and based on a complete understanding of the Delta contract, we are obviously interested in any process by which we can legitimately avoid extended negotiations during which a concession agreement will remain in place.”

Pattern Bargaining

This is the second time this week where I’ve see pattern bargaining embraced by management. First, it was American and how it structured pay increases for flight attendants in the last offer.  Now it is Continental adding $1 to the pay rates included in the Delta pilot agreement.  I hate pattern bargaining.  I think it is counter-productive as no one airline is the same.  Just because Delta negotiates an agreement with rates and working conditions it believes it can afford, that does not mean Continental’s network can afford the same. But this pattern is a little different than pattern bargaining of the past – and deserves a closer look.

Pattern bargaining typically resulted in best-in-class provisions being included in the union’s opening proposal.  It was/is a cherry picking exercise. Whether the unions want to believe it or not, the cherry-picking of agreements also contributes to negotiations taking longer than a party might wish.  Why?  Because each and every collective bargaining agreement has sections that work in tandem with another section.  As one section was made more complex, other sections of the agreement were impacted.  Simply, the interdependencies within a collective bargaining agreement must be analyzed, understanding a change in Section 7 affects Sections 11 and 14 and so on.  It’s a process that has become increasingly complex over the years.  Circular logic can be hard to avoid for you excel users.

What is interesting about Continental’s offer is the idea of a single collective bargaining agreement – one where the interdependencies are understood and identified – avoids many of the pitfalls of traditional pattern bargaining.  What the company points out in its submission letter is the Delta PWA “is a post-merger, post-concessionary pilot agreement at a legacy carrier that is also the world's largest airline, it will likely set the pilot contract standard for years to come.”   

For me, what the company seems to be saying, is if we are going to engage in pattern bargaining, then no more picking what you want from that agreement and from this agreement.  The same agreement produces no need to distinguish between pilot rates of pay; rules governing work; and benefits (to be determined).  Presumably, the work rules when applied across a respective network would yield the same hours of productivity except for structural seniority differences.  Differences in pension plans and retiree health insurance are company specific and therefore may be or may not addressed by this type of a proposal exchange.  Talk about a way to speed the process.

The Delta Nuance

The Delta PWA was negotiated under the watchful eye and focused leadership of Captain Lee Moak.  I have written about Capt. Moak many times. What seems to set Moak apart is an understanding the industry has undergone significant structural change and the Delta agreement needs to embrace that change.  For example, because Delta serves many small and medium-sized markets in the U.S., there are few limits on the use of regional jets 76 seats and smaller.  Continental is the only legacy carrier that does not permit use of regional jets with more than 50 seats.  This line in the sand keeps Continental at a domestic competitive disadvantage relative to the industry.      

Mainline pilot scope has been quite the topic here at www.swelblog.com over the past week.  Some have suggested I drew the line – or heard what they wanted to hear - at 50 seats.  I did not.  To me the line begins with the next generation of small jets that are bigger than the current aircraft platforms doing 76 seat-and-less flying within networks.  The domestic scope issue is but one scope concern at Continental.  The real issue of significance is that Continental cannot implement the joint venture with United, Air Canada and Lufthansa without the relaxation of language contained in the existing Continental pilot agreement.  There is a regulatory deadline to complete aspects of the joint venture and anti-trust immunity agreements.  Scope is not just domestic.

This is where the Continental situation gets a little murky.  Moak understands that the globalization of the airline industry will drive his carrier’s success.  Further, he demonstrated his understanding of such when he negotiated a new collective bargaining agreement for the merged Delta and Northwest pilots.  Moak accomplished something extraordinary in the history of merger negotiations in the U.S. airline industry. 

Ted Reed of TheStreet.com wrote about the Continental situation last month.  Reed wrote and quoted Continental’s pilot leader Jay Pierce, “Among the network carriers, two models exist for pilot relations. Pilots at Continental and Delta have generally enjoyed positive relationships with the carriers. Pierce said he is an admirer of Lee Moak, chairman of the Delta ALPA chapter; the two talk frequently. "We both recognize that our airlines need to be profitable," he said.”

Depending on how you look at it, the Continental pilots are searching for leverage and public pronouncements seem to suggest they have found the leverage in their scope section.  Now the company counters by offering pilots the agreement they have held out as "industry leading".  The difference being the Delta contract negotiated by Moak allows 76 seat-and-less flying and embraces the direction of international joint ventures.  [All sections of an agreement have interdependencies with other parts of the agreement]

In his interview with Ted Reed, Pierce says he recognizes the need for his company to be profitable.  The pilots also say their current proposal would only cost the company $500 million. [Note:  the $500 million is an ALPA cost estimate, and not a company estimate.] When was the last time Continental reported net income in a year of more than $500 million?  But the ask is not just $500 million.  The $500 million would compound in perpetuity.  And that is before contractual improvements are offered to other Continental employees.

Why I Like the Continental Approach 

• What I like about this offer from Continental is it does some tearing down of the cancerous practice in the airline industry of pattern bargaining. 
• It challenges both sides to come to terms in a more expedient manner than the current construct produces. 
• It embraces Delta’s long-time approach to pay commensurately well in return for operational flexibility and productivity. 
• Most of why I like the approach is that it is different.  As I say too much for some on this blog, the old way just does not work. 

As I wrote in the last piece on pilot scope, my real fear is for management to again overpay for scope.  That makes me nervous this time.

The more I think about it though, I am starting to like it because it addresses the real issue of how long it takes to get a deal done under the Railway Labor Act.  Whereas I have defended the RLA in the past, maybe the time issue does need to be discussed.  But to do that, we would have to limit the number of issues that require mediator expertise?

And another reason I like it -- maybe this will build the stage where the legacy carriers can compete on service and price and not on a labor cost differential?

February 2010: Short on Days, Long on News

This month promises to be full of news in the airline industry, and potentially in a big way.  February is the month where we celebrate Groundhog Day.  And like the movie of that name, we’ll probably see some of the same stories emerge, over and over again.

Colgan, Congress and the Regulators

One of the biggest, in my view, is the ramifications of Colgan 3407, the subject of many megabytes on Swelblog.   The tragic crash of the Colgan Air flight came last year on February 12 and there have been a number of Congressional hearings since focusing on the safety of the airline system generally and the regional airline system specifically. Last week, Federal Aviation Administration Administrator J. Randolph Babbitt and DOT Inspector General Calvin L. Scovell III testified before the House on the status of the FAA’s response.. 

In its Call to Action, the FAA is looking at fatigue; crew training; pilot qualifications; training program review guidance; pilot mentoring/experience transfer programs; pilot records; and code share agreements.   

New scrutiny on code sharing comes courtesy of Reps. James Oberstar and Jerry Costello, who have demanded that the DOT IG investigate these widely-used agreements between airlines. The congressmen ask, at a minimum, that the investigation consider:

1. Whether the DOT and the FAA have the legal authority to review code -share agreements between mainline carriers and their regional partners;
2. How mainline carriers ensure that their regional partners operate at the same level of safety; and
3. Whether the flying public has adequate information about code-sharing arrangements to make informed decisions when purchasing a ticket.

As if this story needed fuel to fire the debate, PBS Frontline will air an hourlong investigative report on the Colgan crash on February 9.   If PBS publicity on the subject is any indicator, then this piece will be will be as much about sensational journalism as it is about half-truths.  Already, Frontline is making much of the low salaries some regional pilots earn in a story centered on Colgan but that by all appearances paints all regional operators with the same brush. It will be important to parse the information offered and the story-telling in this piece. 

oneworld and an Immunized Atlantic (and Pacific?) Alliance

As STAR and SkyTeam fortify their alliances with new partners, anti-trust immunity and “metal neutral” joint ventures; American, British Airways, Iberia, Finnair and Royal Jordanian await word as to whether the third time will be a charm for oneworld to operate with immunization across the Atlantic. In a January article, Lori Ranson of Airline Business writes about some of the issues before the regulators.

This is only one big decision affecting AA – another is the continuing saga regarding whether Japan Airlines will stick with oneworld or submit to entreaties from Delta and join SkyTeam.  [NOTE:  JAL announces its intention to stay with oneworld on 2/9/10]  The media has been all over the board on this one, with this week’s predictions going oneworld’s way. This story has had more leads from unnamed sources than even the rumored merger talks in past years involving Continental and United, and United and US Airways.

But one thing is certain, and that is February 10, 2010, when four slot pairs become available to US airlines to serve Tokyo’s Haneda Airport under an “Open Skies” agreement between the U.S. and Japan. [DATE moved to 2/15 due to weather in Washington DC]  Initial applications for those slots are due this Wednesday, with final submissions due to the US Department of Transportation by March 1, 2010.  The winner could be flying as early as October of this year when the fourth runway at Tokyo’s downtown airport is scheduled for completion. 

As part of the pact, Japan also made immunized alliance relationships for JAL and ANA a condition of the deal. And it has long been thought that if applications for immunity were not made by mid-February then it would be difficult for the US government to complete the necessary analysis in order to meet the October deadline.  Few, if any, ATI applications have been approved in eight months or less.

United/Continental/ANA have already applied.  JAL is bankrupt but needs to pick a partner soon.  That means that the ongoing soap opera playing out in Japan may soon be coming to an end. 

The National Mediation Board and Airline Strikes

On January 21, 2010 the Association of Professional Flight Attendants (APFA) ended a two-week intensive bargaining session with American Airlines without reaching a deal. Leading up to these talks, the union had been working hard to rally its members, even going so far as to stage a mock strike with limited impact. Next up:  yet another round of mediated negotiations in Washington, DC beginning February 27.

Serious industry watchers may conclude that a a round of talks in Washington at this relatively advanced state of negotiations could mean that a “release decision” is imminent.  Another viewpoint is that the NMB might be more likely to put the negotiations “on ice” given the wide gap between what the union demands and the company believes it is able to provide.  Even in historically difficult times for the US airline industry, the APFA’s rhetoric suggests that the union will pay little to nothing in efficiency in return for the improved economics it seeks.  So these talks may be the next milestone marking how Obama’s NMB will deal with labor negotiations in the airline industry.

If nothing else, the APFA has been reckless in talking about a strike.  Long-term observers may recall that the union pulled off a coup in 1993 with a strike even the airline didn’t think would happen; and the union leaders seem to think they could do it again.  So as APFA’s strike talk continues, American did what a responsible airline must do, confirming in a media story that it is working with the FAA to prepare, if necessary, to train replacements if the APFA strikes.  Clearly the news story made a few APFA members nervous as, shortly thereafter, APFA President Laura Glading criticized the company, calling its contigency plans "an ill-conceived and doomed strategy." My question to Ms. Glading is:  How, then, is your strike rhetoric not an ill-conceived and doomed strategy not only for your members but for all employees at American Airlines?

As a footnote, last week the story took an amazing turn with news that former TWA flight attendants – nearly all of them furloughed after the APFA put them on the bottom of the seniority list following AA’s acquisition of TWA's assets -- would be willing to cross a picket line and work if the APFA went out on strike. Now I wonder how much time Glading is spending reliving the strike of 1993 when faced with the prospect of an airline ready with trained replacements at hand, including a group of flight attendants with an axe to grind against her union?

Finally, February may be the month we get a decision from the NMB following the effort of two Board members to change by fiat the law that governs labor law in the railway and airline industries and would make it far easier for unions to organize workers.  The decision has, however, generated a tremendous amount of comment and controversy, so we may be waiting until March Madness for that story to break.

Stay tuned. It may be a wild ride.

Pondering Washington Politics and Dilemmas over Airline Strikes

Things just happen when things move too far too fast.

Wow.  All I could say after Tuesday night’s victory for Scott Brown in Massachusetts was wow.  I am still in a head shaking wow mode as is much of the country.  Then again, this has been one amazing 40 days for the country when it comes to politics.  Much of the political power grabs have been occurring within the health care reform debate arena where the “Cornhusker Kickback” and the unions wringing a “Cadillac Plan” tax exemption out of the White House emerged.   

During these amazing 40 days, the airline industry was not immune from political meddling and arrogance that somehow manage to turn politicians into CEOs and airline route planners either.  Nevada Senator Harry Reid went so far as to write a letter to US Airways CEO Doug Parker expressing concerns about the airline’s decision to significantly downsize operations at Las Vegas’ McCarran International Airport.   Reid’s letter provides a lot of fodder for comment, but there are a few I want to highlight.

Reid writes, “As I am sure you are aware, Nevada has been particularly hard hit by the recession affecting our nation.”  Hey Harry, have you noticed the U.S. airline industry lost nearly $60 billion during the 2K decade.  Or that airlines shed 150,000 jobs because of economic conditions that plague the country and, thus, this industry which is inextricably tied to the health of the economy?  Or that taxes and fees on airlines increased while the revenue environment deteriorated?  Or that you chose to pursue, and fund, a railroad serving a few rather than funding an air traffic control system and equipping an industry now serving the masses?  I suppose not.

Then Reid has the audacity to write, “Because of the commitment you have shown to Nevada, I have been a longtime supporter of your airline.  From the merger with USAir to accessing additional slots on the East Coast, we have worked together to build the airline into one of the premier national carriers.”  Wow, how arrogant is that?  Does that mean if US Airways pulls down Las Vegas, Reid will stand in the way of a commercial arrangement that would make US Airways stronger?  Then again, that line of thinking is more typical than atypical of this Congress and its view of an industry that facilitates commerce.

Politics are the rule of the day even with quasi-government agencies charged with minimizing instability within those very industries. The way the National Mediation Board is going about changing a 75-year rule that worked until organizing possibilities presented themselves at Delta Air Lines is another example of politics run amuck.

Speaking of the National Mediation Board

There is a lot of talk in the mainstream and industry press about airline strikes.  The process by which airline and railroad unions can strike is quite different than other industries – and it all runs through the National Mediation Board.  It is explained better by some reporters than others. 

This round of negotiations is the first since the restructuring negotiations of 2002 that resulted in significant salary and work rule provisions being stripped from many collective bargaining agreements.  Some of those negotiations were done under Sections 1113 and 1114 of the U.S. Bankruptcy Code and others were not.  The current round of talks will involve the National Mediation Board in many, if not most, instances.  Complicating matters is the sheer number of cases already being negotiated under the auspice of the NMB.   And there are more cases on the way. 

As I write, all organized groups at both American and United Airlines (per a reader: except the IBT, PAFCA and IFPTE) are in mediation.  At some point, certain of those negotiations will have gone as far as they can before the NMB determines the two sides are at an "impasse".  Once an impasse is declared, then the parties are put into what is known as a “30 day cooling off period.”  If no agreement is reached inside that 30 day period, then either side is free to engage in “self help.”  Self help permits management to either “lock out” employees or to "impose its last offer" on the work force. The union can choose to withdraw its services – otherwise known as a strike - - or utilize other “work actions.”   The parties can mutually agree to continue talks until such point that further discussions are deemed fruitless by either side.

Dilemmas for Obama As He Considers a Request from Airline Workers to Strike

Going into this negotiating period and suspecting difficult, if not impossible, negotiations, I wondered aloud about how decisions would be made to release parties into a cooling off period.  I wondered aloud if strikes would be more prevalent than they have been in the past.  I have wondered aloud about who might be this decade’s Eastern Air Lines.  I have wondered just how the NMB is possibly going to manage this work load all the while promising a more speedy negotiating process as part of its new charge.  And recently I have been wondering how politics might affect NMB thinking when it comes to releasing parties from mediation. 

In my prior thinking I believed that this round would result in more Presidential Emergency Board proceedings to ultimately decide the terms of a contract.  A Presidential Emergency Board?  Yes, as the 30 day cooling off period expires and, more often than not, the union decides to engage in self help, there is a parallel decision that must be reached by the White House. 

The White House must determine how commerce might be disrupted if a certain airline were to go on strike.  That calculus involves, at a minimum, the level of unaccomodated demand in certain markets if one carrier were to strike.  Or said another way, can the remaining service in the market accommodate the passengers that cannot travel on the carrier they booked on due to the strike? 

In the era where 80+ percent load factors are the norm, the case for suggesting that demand can be accommodated by the remaining service is increasingly difficult.  It was already starting to get difficult when the Northwest pilots decided to strike in August of 1998.

So if Obama, in this case, determines that a strike would provide too much harm to certain air travel markets, he could stop the strike and order a Presidential Emergency Board to be convened… just like President Clinton did in 1997 when the American pilots chose to strike.  In the case of a PEB, a panel of neutrals, usually arbitrators, is formed to hear the economic case presented by each side.  If the parties cannot agree, then the panel will suggest a "non-binding" settlement.  There is still the possibility of a strike and also the possibility that Congress could legislate a settlement to avert such strike – more than likely the settlement offered by the PEB.

But that is a long way down the road.  I only raise the issues in this piece because politics prior to Massachusetts at least would seem to be nothing more than promises made to special interests (unions) in a dark room in order to garner their support for Obama.  And it worked and has worked.  But might things change?

Compunding the complexity of White House decisions in this round is the possibility of interstate commerce disruption when government stimulus money is in play.

Dilemmas for Airline Labor As They Decide to Strike

About the only thing that you can predict is that a strike at a major, legacy airline will more than likely result in yet another tombstone in the airline graveyard.  Said another way, if a union wants to strike one of today’s legacy carriers, I can see a lock out, use of replacement workers or the sale of assets to another airline that does not include employees.  Ultimately, the majority of the flying done by the striking airline will be replaced. Should a strike result in the liquidation of an airline, the flying will be done by companies that can do it more efficiently – which means fewer jobs.  And that cuts against this administration’s agenda too – doesn’t it?

As hard as it might be for unions to understand, not enough was done on the productivity side of the equation during the restructuring negotiations.  Yes, a judge presided over most of the restructuring negotiations.  But the unions were largely permitted to “pick their poison” when it came to making contractual changes with pensions being the exception.  The poison chosen was to reduce pay more than it needed to be reduced in order to preserve work rules. The tenet that rules the day in any union caucus room is that you can never get work rules back.

In order to get more money in the pockets of workers, more efficiencies need to be found in this industry.  For unions, that will mean fewer dues paying members.  But, this smaller work force would be earning more cash compensation.

One can only hope that a Presidential Emergency Board fully understands the tradeoff between pay, benefits and productivity.

A Battle for JAL or the Threat of Competition?

In this post, I’m going to pick sides in the mighty contest for the JAL bride.

But before we begin, let’s dispense with some business.

First, let the record show that I have long been a fan of Delta Air Lines on many fronts, particularly how it went about its merger with Northwest.  I applauded the strategy CEO Richard Anderson led in demonstrating the benefits of an “end to end merger” versus the old model merger with “significant network overlap.” It is interesting to me how Delta is suggesting to the world that getting immunity for a relationship with JAL will be fairly easy.

Second, I was recently asked by to present at a one-day seminar on the subject of anti-trust immunity hosted by American’s legal counsel Jones Day.  I am not retained by American in this matter, but the airline did cover my travel expenses.

My views are my own. And they are based on a very firm foundation of data.

Now, let’s talk about alliances.

The North Pacific Market

In the U.S. – Asia market, the two most important Asian gateways are Tokyo Narita and Seoul Incheon.  And just as airlines compete, gateways compete for the same traffic. Tokyo and Seoul offer services that can facilitate 10.4 million U.S. – Asia passengers a year.  Of those, 10 million passengers can be accommodated by either Tokyo or Seoul, while only 400,000 are uniquely served through Tokyo’s Narita gateway.

Airlines form alliances to partner with other airlines and more effectively participate in traffic flows between world regions. Alliances permit a carrier to leverage its own network across its partner’s network to create benefits that would not otherwise be logistically possible or economically viable. 

Now Japan Airlines is the “it” airline in a global contest to win its favor and woo it from one alliance to another.  The troubled airline’s current partners in the oneworld alliance are determined suitors in their effort to keep JAL happy at home, while Delta is playing the part of home wrecker, posing and making promises that the opportunities are greater for JAL as part of the SkyTeam alliance.

If I am Delta…..

I would be pursuing JAL as well.  Why?  Because Delta has the most to lose from any new competition into the U.S. – Japan/U.S. – North Pacific marketplace.  Why?  Because of the extraordinary rights Delta has to fly beyond Tokyo and Japan and carry traffic that originates in Japan.  Why?  Because the route rights granted to Northwest (Orient) in 1952 came at a time when Japan was dependant on the U.S. in its post war recovery.

The bilateral agreement in place between the U.S. and Japan has been largely unchanged since 1952.   Both sides have thought the pact unfair, but little progress was made until 2009.  To Japan, the bilateral was imbalanced, with too many NRT slots held by U.S. airlines using them to provide local intra-Asian service.  To the U.S., the bilateral was viewed as anticompetitive as it restricted frequencies, favoring incumbents and preventing market-driven price discounts.  Those incumbents are Northwest and United, which bought the rights from the late, great Pan Am.

What complicates the DAL’s JAL play is that Delta in effect already owns most of the rights of a Japanese flag carrier as a result of the 1952 bilateral agreement.  Along with its immunized relationship with Korean Airlines, Delta already enjoys a commanding market position in what promises to be one of fastest growing markets over the next 20 years – the North Pacific.   

Those route rights now held by Delta as a result of its merger with Northwest give the carrier significant market power.  Those route rights have over the past six decades enabled Delta to build a U.S. – Asia network via Tokyo that could only be rivaled by United.

Only now, under an Open Skies pact between the U.S. and Japan, can that incumbent status be truly challenged.

Oberstar and the Fear Mongers Sure are Quiet

As this story unfolds, one thing we’re not hearing is the usual braying from Congress’ self proclaimed, air travel consumer protection cop James Oberstar.  Is it because the situation involves his former hometown airline?  Or is it because the Congressman is just waiting to pounce?  In either case, the man who has previously been quick to try to apply regulatory and legislative “solutions” to the airline industry’s complex challenges is atypically quiet.

As regular readers know, I am no fan of the Minnesota Congressman’s approach to competition in the industry.  But as we approach a situation in which the term “duopoly” will describe inter-alliance competition should Delta and JAL form a partnership in Japan – his silence is, well, deafening.

Today, American + JAL at Tokyo, Northwest/Delta at Tokyo and Delta + Korean at Seoul are competing for U.S. – Asia traffic.  There are 413 city pair markets in that region that involve 19 overlapping Asian markets served by each Tokyo and Seoul that have at least 5 passengers per day each way.  Currently, 83 percent of those 413 city pair markets either originate in or are destined to points behind a U.S. gateway to one of those 19 points beyond the two Asia gateways. 

It is these markets that represent a competitive disadvantage to the non-immunized alliances today – chief among them  American’s oneworld.  These markets also represent true opportunity for the immunized alliances of tomorrow – those, that is, that would now be permitted by the U.S. – Japan Open Skies Accord – and that’s what has the incumbent airlines looking nervously over their shoulders at the prospect of new competition.

Today both STAR and oneworld are limited in their ability to compete for this traffic by a lack of immunity with their Japanese partners.  Northwest/Delta, on the other hand, can coordinate schedules and set fares for traffic connecting over Tokyo Narita (as a result of the agreement negotiated with Japan in 1952) and for traffic connecting over Seoul with its Korean Airlines partner.

In fact, on 98 percent of the 413 city pairs we’re discussing, either Delta/Korean or Northwest/Delta or both “immunized” combinations have a larger share of this critical connecting traffic than does American + JAL. 

This ability to generate traffic and offer passengers a choice of carrier and gateway is just one of the important benefits that accrue to airlines and consumers as a result of a relationship that allows immunized alliance airlines to coordinate schedules and set fares.

Today Delta’s U.S. domestic network is roughly 2.5 share points larger than American’s, yet it is able to connect disproportionately more traffic from the U.S. to Asia.  Network economics suggests that this relationship does not make sense unless one considers the power of immunity.

The Threat of Competition

Today, both oneworld and STAR compete for the same traffic against SkyTeam.  Today there is certain symmetry among the three global alliances for U.S. – Japan traffic and U.S. – Asia traffic.

In the U.S. – Japan market, STAR’s share is 31%; oneworld w/JAL is 38%; and SkyTeam w/o JAL is 30%.  In the U.S. – Asia market: STAR’s share is 34%; oneworld w/JAL, 22%; and SkyTeam w/o JAL, 28%. 

Based on MIDT data American commissioned from Compass Lexicon and analyzed by me, if JAL were to be lured away by SkyTeam, the numbers would look very different.  In the U.S. – Japan market:  STAR, 31%; oneworld w/o JAL, 6%; and SkyTeam w/JAL, 61%.  In the U.S. – Asia market:  STAR, 34%; oneworld w/o JAL, 10%; and SkyTeam w/JAL, 30%.

Delta will likely challenge that analysis, claiming that it should not include traffic between Japan and the U.S. “beach markets” of Hawaii and Guam. I will leave that argument to the lawyers.  But last I checked, one was a U.S. state and the other a U.S. territory and each are therefore governed by the U.S. – Japan bilateral.

In simple terms, the real threat of liberalization in the U.S. – Japan market is the overnight competition Delta/SkyTeam will face from oneworld and STAR for the nearly 10 million U.S. - Asia passengers.  Do the math: If Delta is successful at luring JAL away from oneworld, then SkyTeam and STAR will have a 92% share of the U.S. – Japan market.  In most economic analyses, that share represents a duopoly.  And that should not be the result of market liberalization. But then again, do we have a duopoly on the Atlantic given that oneworld is not immunized there either?

Oberstar and the Fear Mongers have already protested the prospect of limited competition in three alliances hell bent on “gouging” air travelers.  So where are they when it comes to the prospect of just two alliances controlling so significant a share of the Asian market?

Duplicitous Delta and the Source of My Confusion

In late 2006, while Delta was in bankruptcy, U.S. Airways made a hostile offer to take control of the company.  Delta rejected U.S. Airways’ overtures vehemently and was ultimately successful in fending them off. “US Airways’ principle goal in its hostile takeover attempt is to eliminate its key competition,” Delta(Grinstein) said at the time. “In a pro-competitive merger, the two airlines’ routes do not overlap excessively; they are complementary. Joining complementary networks can enhance competition and create consumer benefits that result in lower prices and increased service option.”

Then in late 2007, Delta, on its own terms, began to pursue a merger with Northwest. Anderson argued time and again that the two airlines had “complementary instead of overlapping route systems” that would maximize synergies.

With the two airlines already connected through alliance relationships, Anderson said:  “Alliance relationships are valuable and very difficult to extract yourself from.”  He noted that neither Delta nor Northwest needed to pull out of its existing alliance, which would have “disrupted revenues and required tearing out significant infrastructure and then rebuilding someplace else.” 

Given regulatory restrictions regarding cross border mergers, an immunized alliance is a defacto merger in the sense that it gives the combination the ability to act as one airline in determining service levels, pricing, marketing.

On the surface, the size of Northwest/Delta’s North American network is slightly larger than American’s.  However, the fit of the network is more important than size.  The ability to leverage one network against the other in order to create new city pairs to sell is critical to any network’s success.  American and JAL would make for a true “end to end” combination whereas Delta and JAL possess significant overlap with each other – the very combination it suggested results in an anti-competitive combination.

On the surface, the solution is crystal clear - at least to me: Three alliances across the Atlantic and the Pacific that each benefit from anti-trust immunity and equally competitive tools.  Even if JAL ultimately restructures through bankruptcy, a partnership with American would still provide a true end-to-end partner that Delta itself contends is the very best way to maximize the synergies of a commercial combination.

But the more I study the data, a different picture emerges. Delta’s play for JAL is not about JAL at all.  It is about preserving Delta’s dual flag status in Japan.  For 58 years Northwest/Delta has been tweaking its US network to sync with its Japan-based network – and they have done it well.  Under Open Skies, Delta will realize new and more vigorous competition on many routes where it enjoys little to no competition today.  Self preservation is a strong instinct and I am all for consolidation in this industry.  But I am also for open and fair competition, particularly where all three alliances are concerned. 

Either way, Delta wins.  It wins by delaying anti-trust immunity for each American and United and thus preserving its legacy competitive position.  And it wins by potentially eliminating a competitor (JAL) where redundant flying can be removed. 

Competition loses.  If Delta lures JAL away from oneworld and the U.S. grants the Delta/JAL combination anti-trust immunity, then perhaps Oberstar finally has a position he can defend. Three way alliance competition is robust.  Institutionalizing duopolies in Open Skies markets is something else.

Self-Help or Self Sacrifice or Self Fulfilling Prophecy? What Will This Accomplish?

This week, Terry Maxon of the Dallas Morning News  wrote about the “surprised” reaction at American Airlines when a correspondent on NBC’s Today Show reported a “potential strike” at the airline following the holidays.

The show was a bit vague on its sources, but my best is that Laura Glading, President of the Association of Professional Flight Attendants, is working her media list to drum up a little coverage for the union’s latest negotiations gambit.

I consider myself a pretty good historian on most things airlines over the past 30 years.  And I remember the APFA’s divisive and destructive Thanksgiving strike in 1993 that attempted to bring the airline to its knees over the critical holiday travel period.  Last year, the union “celebrated” the 15^th anniversary of the strike with a campaign they called “Remember November.”

For this year’s anniversary, the union is doing its best to remind the company of the pain it could again impose in a campaign that all but threatens another strike . . . this one called “Got Guts?” 

To be fair, the APFA has made clear that they do not plan to disrupt American’s operations over the holidays.  However, the union did say it was prepared to strike next year if no contract agreement is reached by January, with Glading saying she will consider asking the National Mediation Board for a “release” from negotiations – the first step toward seeking the right to “self help” under the Railway Labor Act.

First, let’s review the rules.  The NMB will grant a release only if it believes negotiations are at an impasse, and the bar for that is set pretty high.   A release would then open a 30-day “cooling off” period.  Only after that point and if the parties fail to reach agreement can either side engage in self help --  which for a union means work stoppages or strikes and for management allows a company to impose its “last offer” at the table or lock out striking workers.

So let’s be perfectly clear.  The union can’t strike now, no matter what the alarmists may say on Today. There is no guarantee that the NMB would grant a release. And even then, the RLA has several protections built in – the cooling off period and the prospect of a Presidential Emergency Board – to prevent the kind of work stoppages that could ground an airline and impact interstate commerce.

So why is the flight attendant union playing it out this way? Why on one hand are they talking strikes (which in some cases proves reason enough for passengers to “book away” from a particular airline) and on the other hand trying to reassure passengers that their holiday travel plans are safe?

Because that’s what unions in the industry too often have done. . . talk out of both sides of their mouth – paying lip service to their commitment to passengers while at the same time making demands and engaging in work actions that threaten the airlines’ ability to do business.

The Boeing Lesson

Let’s consider the real impact of strikes.

Last September I wrote here:  “In what is starting to be a rather ho-hum event in the aerospace/defense world, the International Association of Machinists and Aerospace Workers (IAMAW) have decided to strike the Boeing Company for the second time in three years. Is this a “yawn moment” or a precursor of things to come as the airline industry begins in earnest the renegotiation of concessionary contracts?”  

In its negotiations, Boeing was looking to balance its economic offer to the union with added flexibility in its contracts the company needed to address the ups and downs in the business cycle.   The IAMAW was not willing to comply. So Boeing ultimately settled with the union, but not before further damage was done to an already fragile relationship. 

The real story, however, played out a few months later, when Boeing announced its decision to build a second production line to build the 787– not in Washington, its corporate home for decades, but in the right-to-work state of South Carolina.

Washington State officials reportedly worked hard to try to convince Boeing to stay, but at the end the state’s governor said the company’s decision to build the line in South Carolina came down to one thing: its difficult relationship with the Machinists union and a failure to reach a no-strike deal. 

And the pain may not be over for Washington’s IAMAW workers. At some point Boeing will need to begin manufacturing replacements for today’s 737 and 777 lines.  Where will those planes be built? 

What is particularly telling in this case is that the IAMAW was publicly dismissive of the fact that the union’s actions had anything to do with the company’s decision to add capacity in South Carolina. 

This is typical of labor of late.  But at some point unions in this space – whether airline or aerospace -- need to recognize the fundamental flaw in their collective bargaining agreements that too often work to choke productivity rather than promote it.

Looking ahead, I believe that the current round of airline negotiations must continue the transition/transformation underway in the US airline industry and address the sticking points in its contractual relationships with its labor force.  These include pay (which is unlikely to return to 2001 levels)  and productivity (which unions resist for fear of losing dues-paying union jobs).

The crux of the problem for labor as I see it is a failure to appreciate the delicate balance between pay and productivity. Without recognition that balancing the formula is critical, the industry, and individual carriers, will continue to find a more efficient means of doing the work.

Sadly, productivity is driven at its core by seniority and all the protections I’ve discussed in the past that unions provide so that long term members feast while newer members are left to feed on the scraps. 

Despite many of the gut-wrenching changes and cost cuts during the last negotiations cycle, the industry did nothing to restructure seniority – the “third rail” on union politics.  In my view, organized labor’s blind commitment to preserving seniority lies at the heart of a race to the bottom.  Yes, the revenue environment contributes more than its fair share to airline’s financial woes, but at some point labor has to accept responsibility for the role of these Depression-era ideologies.  The reality is that, last time around, airline wages were cut more than necessary because of union insistence on preserving seniority and limiting productivity.

Back to the Cabin

So it is in this environment that the APFA waves its strike threat like a red flag in the bullring.  The APFA website even features a report the union commissioned highlighting the failures of airline deregulation and the economic pressures on the industry. On a recent trip to Washington, Glading joined AFA-CWA President Pat Friend in urging the Obama Administration to “stabilize an industry that's not working” and reverse the “damage done” to the traveling public.

Call me nuts, but I’m guessing that Glading’s talk of a strike runs counter to her desire to “stabilize” the industry.  Perhaps other carriers would benefit from the union’s effort to ground the country’s second largest carrier in terms of revenue. But American – and all of its employees – wouldn’t see many benefits.

Or am I to believe that glorifying 1993 and rallying her members to strike in one of the most difficult times in airline history would alleviate the “damage done” to travelers?

I’ve said it before and I’ll say it again – the U.S. industry needs to do a better job of managing labor costs in boom and bust cycles in which fat contracts are approved in boom years only to require painful and at times draconian cuts when the cycle turns down.

Tellingly, and perhaps predictably, the unions are hoping a labor-friendly administration in Washington will help them gain new power in the industry – evidenced also by their efforts to change election rules at the NMB to make it easier to organize workers (even if the AFA-CWA, which is trying to organize at Delta, is hiding behind the AFL-CIO’s Transportation Trades Department to do it.)

What’s happened in Detroit over the last year is a pretty good indicator of what happens when an industry fails to get its costs in line with the market.  A smaller airline industry can’t absorb the same costs – including labor costs – that it did ten years ago.  Already we’ve been at this restructuring thing for more than five years and it’s pretty clear that the market has spoken.

So I’m really confused by what the APFA thinks it will get in return for a strategy that will only hurt the company that employs its members.

I don’t know what a strike buys anyone in this fragile business environment except, perhaps, an unpleasant ending.  Where I do agree with Ms. Glading is the importance of recognizing history.  I, for one, remember Pan Am, Eastern and TWA.  At the time, most believed those proud companies could weather any storm.  And I’d guess there may be another airline on that list before this cycle is complete.

If the past eight years have been rough and tumble, imagine what the next few years could be like as airlines reach pressure points in contract negotiations.   In that case, I can only imagine what would be left to celebrate on the 20^th anniversary of APFA’s Thanksgiving Strike. 

Is the Proposed NMB Rule Change Wright or Wrong?

I had made up my mind that I was not going to write anything more on National Mediation Board activities, at least until after the scheduled public hearing on December 7 in Washington. Isn’t it interesting that the date for the hearing is synonymous with Pearl Harbor Day?  I digress.

I have heard from many people regarding the two recent NMB pieces I posted on this blog.  Most of the comments have been private and along the lines of:  “How can you oppose something so fundamentally akin to our democracy? “And “How can you possibly be against anything that is so aligned with the Constitution of the United States? “

Negotiation and Compromise Were Wright

As I think about my feelings, I reflect back on the reasons I helped American Airlines a few years back in its campaign against Southwest’s push to repeal the “Wright Amendment.”  After all, Southwest’s CEO Herb Kelleher had made a deal in 1979 (or maybe 1978, or maybe 1977, or maybe earlier)when he agreed to the Wright Amendment’s limitations on Southwest’s flying from Dallas Love Field.  Then, in 2004, for reasons unstated but not hard to figure out, Kelleher wanted to undo that deal and expand his airline’s ability to fly nonstop on new routes from Love to points beyond the eight state limit that had been legislatively imposed. 

The Wright Amendment was negotiated with a purpose and a commercial issue at its core.  The law was largely designed to promote stability in the Dallas/Ft. Worth airline market as a then-fledgling DFW Airport came online.  In my work on the campaign, I was often asked how I could oppose unfettered competition in the Dallas marketplace. My reasoning was simple: I believed repeal would lead to dangerous instability in the airline marketplace, particularly for American at a time when all legacy carriers were on life support.  Southwest's motives were largely intended to take advantage of commercial weakness.   

When I assessed the Dallas market and the potential impact on American if the Wright Amendment was immediately repealed, the tenets of a compromise played themselves out in the analytics. That analysis supported a phased-in repeal that immediately allowed through ticketing for Southwest at Love Field.  It certainly was not my place to suggest that compromise.  That compromise came only after a lot of hand wringing among politicians and senior airline executives alike.  But it assured more stability in the market and will ultimately lead to what Southwest sought:  Come 2014, it will be "free" to fly to any and all domestic points from its home base in Dallas.

A Cram-Down Would be Wrong

Based on what we know today, the National Mediation Board through its Notice of Proposed Rule Making (NPRM) seems to leave very little room for negotiation or even compromise as to how representation elections should take place.  This, despite concerns raised from not only management interests but from other unions with interests as well.  Interesting, and disturbing, behavior for a quasi-government agency with the mandate to reach agreements with parties rather than provoke, and perpetuate, actions that lead to disruption and delay, don’t you think?  

As I wrote in my last blog, as drafted the NPRM smacks of politics, disregard for prior practice and arrogance in its refusal to address key subjects in the labor arena, including the ability of employees to decertify a union and a union’s right to demand the personal contact information of employees they hope to organize known as an Excelsior list.

Let me be clear here:  I have no issue with the rule change per se.   But I have major problems with how it is being done.  In a real world application of NMB mediation cases, doesn’t the Board provide one or both parties “political cover” in reaching an agreement that might otherwise be politically unpalatable? That sure as hell is not the case here. 

The Wright Amendment was a politically and commercially-charged issue between two airlines and two cities that also had national implications because airline activities so often do. Changing the union organizing process under the Railway Labor Act has implications beyond airlines and airline unions as well. I believe that by changing the rule, the NMB will be creating more instability on top of an already unstable airline marketplace.  And that has national implications. How many industries have interdependencies on the airline and railroad industries?  A stimulus question indeed.

The truth is that some at the NMB are looking to do nothing more than change a rule that would initially make it easier for unions to organize a largely non-union airline (Delta) and add/retain thousands of dues-paying workers to union ranks. But the ramifications have much longer-term implications that very clearly favor one side (union supporters) over the other (those who oppose unionization).  That’s one upshot of a draft rule that ignores rail and airline employees’ right to decertify a union or provide their personal contact information to union organizers.

It sounds to me like either the NMB and its proposed rulemaking should be put on ice, or a Presidential Emergency Board be convened in order to make sure that all input be considered.  At least in a PEB, history suggests that neither party will be totally happy. Inside baseball tells us that means a good deal has been reached.

In this case, like Wright, compromise would be right but only after all sides have had their say and issues heard and considered. Because otherwise, something tells me that the outcome will be wrong.

More to come, for sure.