Tough Times for Airlines Bring New Approaches to Labor Relations

IN their quest to cut costs, some profit-starved airlines are trying to win concessions from labor unions in exchange for a stake in the company.

Under recent deals, Northwest Airlines employees will own up to 37.5 percent of the company's stock and have three seats on the board of directors, and Trans World Airlines employees will own 45 percent of the company as it emerges from bankruptcy. American Airlines and United Airlines are rumored to be considering similar deals.

"It's absolutely clear that employee ownership is going to play a major role" as the United States airline industry tries to put itself back on solid footing, says Rutgers University professor Joseph Blasi.

"It pretty much has to be done," adds Bill Whitlow, an analyst with Pacific Crest Securities in Seattle. US airlines have posted combined losses of $10 billion in the last three years. Labor costs have been a central point of competition, weighing down some of the leading carriers.

Employee ownership is changing labor relations in an industry that continues to see drawn-out contract disputes. But employee stock ownership is no panacea, Mr. Whitlow says, though he hopes such deals will align workers with shareholder interests.

Mr. Blasi says the stock-for-concessions deals, on one level, represent a payment to workers in exchange for productivity improvements and work-rule flexibility. But they can also play a deeper role of being a catalyst for labor-management cooperation, he says.

"The second goal is not automatically achieved," but will require work by both parties, says Blasi, coauthor of "The New Owners," a recent book on employee ownership.

He urges managers to develop teamwork with their new co-owners, and unions to choose board members who have the company's broad interests in view, rather than using the position solely to air grievances. At two now-defunct airlines, Eastern and Pan Am, "employee representatives on the board never really functioned properly," Blasi says.

THE shift from conflict to cooperation still appears to be more a goal than an industry norm.

A case in point is Alaska Airlines, a regional carrier based in Seattle. Last month, unionized flight attendants filed a lawsuit in federal district court alleging that management negotiated in bad faith. The two parties failed to agree to a new contract after about three years of talks, and in June the company imposed new work rules.

The atmosphere is acrimonious despite the fact that the company's new wage plan provides slightly higher salaries over a five-year period than what the union had offered. One big snag: The company has cut its annual pension contributions from 11 percent of employee wages to 7 percent. Another concern is a loss of flexibility in scheduling under the new rules.

Alaska Airlines, like other carriers, has come under pressure from "upstarts with non-union labor," Whitlow says, listing Morris Air, MarkAir, and Reno Air as key competitors. Operating costs for Reno Air are about 20 percent lower than Alaska's 10.5 cents an "available seat mile." Much of the gap, Whitlow says, stems from labor costs.

Thus, he sees Alaska's recently imposed wages as generous given the competitive circumstances.

Mary Jo Manzanares, spokeswoman for the company's 1,600 flight attendants, views it differently. Flight attendant wages represent only about 6 percent of an airline's costs, she says, arguing that a carrier's viability does not rise or fall on issues such as the ones under negotiation.

The company has been making other moves: adjusting its service to emphasize more-profitable routes, negotiating new contracts with pilots and machinists, and cutting capital spending.

A final twist on the industry's labor-management tensions is legislation that may come before Congress this fall. The Workplace Fairness Act would ban use of permanent replacement workers by companies facing a union strike. Firms could still use temporary replacements.

Blasi says the legislation would correct a longstanding imbalance in union-management relations. The measure is backed by the Clinton administration but faces strong Republican opposition in the Senate.

Alaska Airlines flight attendants have chosen not to strike, in part out of concern that permanent replacement workers would be hired, Ms. Manzanares says. Strikes would remain a last resort, she says, since they "hurt labor as much as they hurt management."