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ANALYSIS: Europe's pilots fight for control

By: MICHAEL GUBISCH

LONDON

Source: 

13:00 1 Oct 2014

Industrial action played havoc with operations at Air France and Lufthansa over recent weeks as pilots revolted against 
legacy carriers' cost-cutting plans.

But the battle between management and their best-paid employees
isabout more than wages and working terms: it is about control and 
staff influence on the carrier's future direction.

Airlines carefully select flightcrew to ensure that passengers and 
aircraft are in the hands of high-calibre individuals who remain 
cool-headed, stick to the book and, crucially, do not give up in 
critical situations. But as that determination naturally extends 
beyond the cockpit, executives have a fight on their hands when 
pilots perceive their working environment to be under threat.

Pilots and management at Air France and at Lufthansa 
and its wholly owned subsidiaries AustrianAirlines and Swiss 
International Air Lines are deeply entrenched about the future 
flightpath of their respective carriers.

For management, the aim is to please investors and shareholders, 
and improve balance sheets, amid the threat from younger, leaner 
competitors in both the short- and long-haul arena. Executives are 
trying to circumnavigate pilots' long-standing working terms by 
transferring operations to lower-cost subsidiaries, and thus force 
the employees to change.

Meanwhile, pilots are retaliating with strikes and legal action to 
avoid fragmentation of their workforce and loss of privileges, much 
of which date back to the pre-liberalisation era of state-owned flag 
carriers.

Air France pilots began industrial action in mid-September over the 
parent's expansion plans for low-cost subsidiary Transavia. Air France-
KLM was seeking to build up Transavia as a pan-European budget 
airline with bases outside France and the Netherlands to compete 
with thoroughbred low-cost carriers such as EasyJet and Ryanair. 
But the group adjusted the plan soon after the start of the crippling 
strike – which, it said, was causing daily operating losses of up to 
€20 million ($25 million), with "catastrophic consequences" for the 
company and its financial position.

Rex Features

Air France pilots protesting outside the French 
Parliament in September

Now, Air France-KLM wants to build up the French Transavia 
division instead, under what it terms a "made-in-France 
solution" rather than developing the unit outside France 
and the Netherlands. But pilot unions remain opposed to 
that move, because it would mean wider employment of 
flightcrews on terms outside the mainline labour agreements.

Air France-KLM argues that Transavia France "can only 
develop under economic conditions that are compatible 
with the low-cost model". Any single labour agreement for 
pilots would "totally oppose the principle of this [low-cost] 
model", particularly if such a deal were "under Air France 
conditions", the group says.

After two weeks of industrial action, French pilot union SNPL 
halted the strike at the end of September. But no agreement 
had been reached with Air France-KLM, and another pilot 
union, SPAF, said it would continue the walkouts.

Meanwhile in Germany, Lufthansa has decided to use 
external pilots for its planned low-cost, long-haul sub-fleet of 
Airbus A340-300s under the mainline brand. Up to 14 
aircraft of the widebody type are to be employed with a 
denser cabin configuration – with no first class and a smaller 
business class – on low-yield routes aimed at leisure 
travellers. While management was able to agree cost 
cuts with its flight attendants, catering arm, maintenance 
division and other stakeholders, it claims that no such deal 
was possible with flightcrew. So, while the cabin crew will 
comprise Lufthansa employees, the aircraft are set to be 
flown by pilots from outside the airline.

When the plans were revealed in July, Lufthansa Group 
chief executive Carsten Spohr said management would 
consider wet-lease options if targeted savings could not 
be agreed within the airline. Sources familiar with the plans 
have meanwhile confirmed that Lufthansa is evaluating 
a wet-lease arrangement with Swiss charter operator 
PrivatAir for the A340s.

The decision is the latest episode in a dispute which has been 
simmering for years between management and German union 
Vereinigung Cockpit. The last collective labour agreement for 
the pilots expired in 2012, and has since remained in place as 
no follow-up deal could be agreed. But the conflict escalated 
in December 2013 when Lufthansa terminated a transitional 
pay agreement covering wages if pilots retired early due to 
medical reasons. This led to a three-day strike in early April 
and multiple walkouts in August and September.

Lufthansa wants to move from the traditional company-
funded system to an employee-financed scheme, and raise 
the age threshold – at which pilots become eligible for early 
retirement – from 55 to 60 years. The airline says it is 
willing to negotiate a compromise and has proposed a 
stepped approach for the existing workforce. But pilots taken 
on since January 2014 are to be excluded from the deal.

While the union briefly returned to the negotiating table after 
the stepped-approach offer, the conflict goes deeper than 
a disagreement about benefit levels and retirement-age 
hresholds. The absence of a single arrangement for the entire 
cockpit workforce was a key reason for the union to 
reject the deal. "Lufthansa management continues to 
refuse a unified transitional pay agreement and demands a 
division of the pilots into three classes," says 
Vereinigung Cockpit. Apart from differentiating between 
existing and new staff members, the stepped approach would, 
argues the union, penalise employees who have worked part 
time, such as female pilots who reduced their working hours 
to support their families.

Pilots and flight attendants at Austrian Airlines gained a 
legal advantage in September when the European Court 
of Justice ruled in their favour over management's 
unilateral cancellation of a collective bargaining agreement 
two years ago. When the Lufthansa subsidiary failed to reach 
a labour deal with its crew members in 2012, management 
transferred all the relevant aircraft and employees to lower-
cost regional arm Tyrolean Airways.

While the controversial move did not lead to a reduction 
in pay levels, it was especially aimed at slowing statutory 
wage increases under the previous agreement, Austrian 
said at the time. But the transfer also covered productivity 
rises and pension cuts.

Now, management is aiming for an out-of-court 
settlement after the ECJ ruled that conditions in Austrian's 
former labour agreement should be honoured until a new 
contract had been reached with the employees. The final 
ruling has yet to be made by Austria's supreme court, 
but is likely to follow the ECJ judgement as the national 
court had asked the European institution for advice. 
Separately, aVienna court is assessing the legality of the 
transfer to Tyrolean in 2012.

Meanwhile, Austrian is preparing what it terms "alternative 
scenarios" in case it cannot reach a settlement with 
mployees that is satisfactory to the airline. Chief 
executive Jaan Albrecht says that "ultimately, the 
judgment handed down [by the ECJ] in Luxembourg makes 
it difficult for us to defend our position as a quality airline 
against the competition".

Nevertheless, that ruling has encouraged Swiss's mainline 
pilots to start legal action. After the Lufthansa Group 
carrier was unable to negotiate agreement on future working 
terms with the mainline pilots, management decided to 
assign its on-order Boeing 777s – due to join the fleet 
n early 2016 – to the airline's regional arm.

Pilots at the two divisions are represented by separate 
unions: Aeropers for the mainline, and IPG for the regional 
operations. All three parties had aimed to reach a deal 
whereby the two pilot corps would be merged into a single 
unit, but the airline signed a labour contract only with IPG. 
Aeropers says the trilateral agreement failed because 
management tried to use the settlement to introduce 
additional cost cuts.

Now, Aeropers has resorted to litigation because, it says, 
Swiss's "German management" has breached several 
contractual obligations in the existing mainline labour 
agreement, including duties to continue negotiations and 
permit employee participation in matters such as the 777 
introduction. The union argues that "outsourcing" of parts 
of the long-haul operation is not permissible under the 
current contract.

Swiss has decided to terminate that deal at its earliest 
possible expiry date in November 2016 because, it says, the 
differences with Aeropers "on the key issues" are 
"irreconcilable".

Perhaps the airline's management eventually decided 
that having separate pilot workforces with differing terms 
and conditions might be conducive to cutting costs. 
Oliver Sleath, European airlines analyst at Barclays, suggests 
the operators are aiming to undermine the unions' power 
and influence by building up internal competition: "Lower cost 
units within a legacy [airline] can help to incentivise 
savings at the mainline carrier. If employees are not 
willing to adapt, investment and growth opportunities will be 
directed elsewhere. But it is always a power struggle between 
management and unions."

Sleath expects that Air France-KLM and Lufthansa Group 
will eventually succeed in changing their business models
against union resistance. But he foresees that "they will 
shrink in the process" as their loss-making businesses 
are gradually eroded away by market forces. Thus the 
network airlines will change regardless of whether employees 
accept cutbacks in terms and conditions, because passengers 
favour carriers with the lowest operating cost base. "It's like 
evolution," says Sleath. "You have to adapt or die."

Management at Air France-KLM and Lufthansa could be 
forgiven for looking enviously at IAG and its progress at Iberia. 
A long-running dispute over job cuts and efficiency plans 
at the Spanish carrier finally ended early this year when a series 
of productivity deals were struck with unions. Iberia secured 
not only step-change double-digit percentage salary cuts 
but also industrial breathing space until 2017, when the deals 
expire.

Perhaps a difference here – and also in Italy, where Alitalia has 
secured cost-saving labour deals with several of its unions 
to facilitate Etihad's investment – has been the spur of the very 
obviously difficult economic backdrop. For example, the union and 
staff outlook is probably very different in a country with Spain's 
high unemployment rate.

EUROPEAN AIRLINE LABOUR SNAPSHOT

While Air France and Lufthansa have dominated the industrial-
strife headlines, they are far from the only European airlines 
to have faced strikes this year, whether from pilots or other labour 
groups:

Aer Lingus: The Irish airline scaled back its full-year profits 
outlook – though it was later restored, on stronger sales – after 
strikes were called by cabin crew in a row over working conditions. 
Aer Lingus also remains embroiled in a long-running dispute with 
cabin crew over tackling its pension deficit. These talks have now 
entered what chief executive Christoph Mueller describes as a 
critical stage after recent labour-court recommendations.

British Airways: The IAG-owned UK carrier has enjoyed a 
relatively pain-free industrial relations since ending lengthy dispute 
with cabin crew in 2011 and securing cost savings through 
introduction of a mixed-fleet cabin crew who fly to a combination 
of short and long-haul destinations. But members of the latter 
group indicated in June a willingness to consider industrial action, 
in a consultative ballot prompted by a dispute over pay and 
working conditions. About one-third of the 2,600-strong mixed-fleet 
staff are members of Unite, and 95% said they would support future 
strike action if formally balloted by the union.

Czech Airlines: The SkyTeam carrier has faced disruption from 
cabin crew after detailing plans to cut around 280 staff – around a 
third of the total – as a result of phasing out its Airbus A320 
operations this winter.

Finnair: The Oneworld airline began outsourcing cabin crew for 
some flights after failing to secure concessions from the union 
representing its own flight attendants. It did, however, in September 
reach a tentative cost-saving deal with pilots.

Icelandair: The Icelandic carrier faced strike threats from 
pilots, cabin crew and maintenance personnel during May and 
cited industrial action as having hit its second-quarter financial 
performance.

Meridiana: After facing industrial action in June over restructuring 
plans, the Italian airline last month initiated procedures to cut over 
1,600 jobs as it presses ahead with a restructuring plan under which 
it is to move to an all-Boeing fleet by the end of next year.

Norwegian: Cabin crew at the Scandinavian low-cost carrier called 
strike action in May in a dispute over pay and conditions before a 
new collective deal was reached later that month.