Race for the bottom, chapter 76

Categories: Economy

Bankruptcy as the airlines' last best business tool

There's been a flood of good stories about last week's simultaneous bankruptcy filings by Northwest and Delta--much of it published in cities where neither airline is the hometown carrier. My favorite is a piece in last Thursday's issue of the Arizona Republic--that's right, the oft-shrill house organ of the late Barry Goldwater's right-to-work state.

Business section columnist Jon Talton opines that "something seems fundamentally broken beyond the immediate crises, in this case the twin blows of Hurricane Katrina and higher fuel costs (plus a mechanics strike at Northwest)." Talton then delivers an easy-to-read primer.

At the moment, labor is a convenient fall guy. If you consider the decisions of the flying public as an indicator, Americans have little sympathy for restive airline employees. Northwest appears to have felt little consumer backlash for using replacement workers when mechanics struck.

That's odd, considering that every worker who enjoys an eight-hour day, a safe workplace, benefits and whose children don't toil 12-hour days - every one of us can thank organized labor for these good things taken for granted. Those victories were dearly purchased in the 1930s. Today, average Americans are likely to complain about stagnant wages and declining benefits while also bemoaning those nasty airline unions....

...What we have yet to see is management accountability. It wasn't the middling-paid gate agent, for example, who underfunded Delta's pensions by more than $5 billion. As airline after airline has reached the point that was traditionally considered a shaming bookend, entry into Bankruptcy Court, the corporate leadership only grows richer. Now will we see an embarrassed resignation by Gerald Grinstein at Delta or Douglas Steenland at Northwest? Not likely.

Former National Transportation Safety Board director Jim Hall writes about safety and maintenance outsourcing in Sunday's USA Today.

Before the Northwest strike, how many Americans knew that most of our airlines are outsourcing maintenance to low-cost, third-party private contractors in the USA or to cheaper labor in other countries, including El Salvador, Singapore and Hong Kong? Ten years ago, only about a third of maintenance work for U.S. airliners was performed by outside contractors — today that number has grown to just over 50% and is expected to rise to 60% by 2008.

Far more than that at Northwest, which had some 9,000 mechanics this time last year and, were it miraculously to settle with its striking technicians, aims to have fewer than 1,200 from now on.

Also on Sunday, the Strib's Terry Fiedler chronicles Northwest's sorry history of labor relations, noting that other airlines with better track records have convinced their unions that concessions would be good for everybody. (Our hypothesis is that in the tradition of passive-aggressive paramours everywhere, Northwest wanted to be quit of its mechanics union, it just didn't want to be the one giving the "it's not you, it's me" speech.) Still, it's the most skeptical thing we've seen in the dailies to date.

Northwest's tough approach with its mechanics union best illustrates the issue, according to labor experts. Management spent 18 months preparing for a possible strike, at an estimated cost of $100 million from the airline's fast-eroding cash, money that potentially could have been used to hedge some of the airline's exposure to rising fuel costs. The show of force, and the ultimate decision to bring in replacement workers, showed Northwest's entire workforce that management meant business. It also made the unions wonder whether a partnership was even possible.

"Why is Northwest bankrupt? I think the first thing is the erosion of management credibility with unions," said Harley Shaiken, a labor professor at the University of California, Berkeley. "Using the hammer that they did with mechanics didn't bode well for a broader restructuring without bankruptcy.

"In, effect, they didn't just simply hammer the mechanics; they hammered their own credibility."

Good thing Fiedler's union, too, we say.


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