Cyprus Airways submits survival and restructuring plan

Download article in original language : CY0410102FCY.DOC

In August 2004, in a last-ditch effort to address the huge financial problems of Cyprus’s national airline, the board of directors of Cyprus Airways submitted an action plan for the company’s survival and restructuring. The proposals include pay and job cuts and major changes in working time rules, and trade unions at the company argue that employees will be made to bear most of the burden of restructuring.

On 5 August 2004, in a final attempt to address the huge financial problems faced by Cyprus’s national airline, the board of directors of Cyprus Airways submitted an action plan for the company’s survival and restructuring. In its present form - ie not including any changes that may be made after the completion of the dialogue between the board and trade unions - the action plan focuses on the following basic areas:

  • the flight network and the composition of the fleet;
  • commercial and tariff policy;
  • organisational structure;
  • cost-cutting and staff issues; and
  • the corporate structure of the group and its subsidiaries.

Reduced flight network and organisational structure

As regards the flight network and the composition of the fleet, the restructuring foreseen in the action plan is focused on determining the most cost-effective use of the carrier’s aircraft, which are its most important asset, with the goal of maximising the company’s income. Following a study, it has been decided to reduce Cyprus Airways’ network by terminating a series of routes, cutting back the fleet by two Airbus A320s, and selling another two A320s. An additional two or three Cyprus Airways A320s will be sold in the event that its Hellas Jet subsidiary closes down and its aircraft become part of Cyprus Airways’ fleet. This plan will be implemented in two stages, one short term and one long term. According to the estimates made to date and on the basis of the company's 2004 budget, adoption of this plan - also taking account of a cut of a total of 172 staff that will result from this specific exercise - is expected to improve the company’s finances by around CYP 6 million.

As regards the organisational structure of the company, despite small amendments made in recent years, it currently features several layers of management, and decision-making that is centralised to some extent. The basic features of the new proposed structure are:

  • reducing management layers from eight to five;
  • reducing needs for 'top' managerial staff - on the basis of preliminary indications ,there appears to be room for redundancies among this group; and
  • rationalising job tasks and competencies, in order to focus better on customers and concentrate more rigorously on the company’s flight operations.

As regards the overall reorganisation of the company’s structure, as well as a revision of departmental procedures and working methods, the action plan considers reform necessary, based on doing away with rigid, outdated bureaucratic procedures, in order to increase Cyprus Airways’ effectiveness, reduce staffing and increase the quality of the services offered, with particular regard to speed in serving domestic and foreign customers. To achieve this goal, the action plan sets out indicative measures relating to the following departments/services:

  • cutting staff in the export department;
  • abolishing some senior clerks’ jobs;
  • restructuring the general accounts department;
  • abolishing two jobs in the ULD (containers) department; and
  • allowing operators to fly both types of aircraft owned by the company ('mixed fleet' flying).

In the same context, the action plan proposes training and human resources development measures, with a focus on:

  • staff hiring procedures and selection committees;
  • staff education and training programmes;
  • introduction of new evaluation methods;
  • new criteria for career advancement, which has so far mostly been based on length of service; and
  • introduction of incentives and targets, for both managerial and other staff.

Collective agreements

According to the action plan, collective agreements have over time created various gains for Cyprus Airways staff that are borne by the company as fixed costs, many of them judged to be counterproductive. Thus, in the context of the broader efforts to reduce labour costs, the plan states that it is necessary to reduce total employee earnings ('gross emoluments'). In particular, it recommends a 5% decrease in total earnings of staff receiving over CYP 20,000 a year. It also proposes to reduce employer contributions to the company social insurance fund from 9.4% to 6.3% of pay, and at the same time increase employees’ contributions from 3.2% to 6.2%. Another measure concerns reducing employees’ transportation costs, both travel expenses and travel-time allowances. In this context, each employee’s place of work will be deemed to be his or her home base. With regard to allowances for employees working shifts or on 'scheduled' working hours, the action plan proposes that such pay supplements not be paid to employees who are absent from work for any reason, even when on annual holiday or sick leave. Furthermore, for staff working shifts in the catering department, it proposes to abolish meal vouchers and provide meals instead.

As regards working time and overtime in particular, the proposed changes relate both to 'supervised' (controllable) and 'unsupervised' (uncontrollable) overtime. With regard to the first category, which refers to overtime paid for work performed on Sundays or public holidays by employees working shifts and scheduled working hours, taking account of the fact that these categories of employees receive a pay supplement for shift work or scheduled working hours respectively, the action plan recommends that no additional compensation be paid in the form of overtime. For unsupervised overtime it recommends that staff be entitled to compensation for overtime work only if the total number of hours worked exceeds the total number of regular working hours. The same will apply to cabin crew, provided that their total number of scheduled and unscheduled working hours exceeds 150 hours a month.

With regard to working hours for ground staff, on the basis of the collective agreement and current practice work schedules follow a progressive cycle. The work schedule of an employee may not include more than two nights of work per week, and there must be a 12-hour rest period between shifts. In addition, the split working day applies with an extended framework of working hours. The action plan recommends that the work schedules of staff working shifts and scheduled working hours be arranged on a weekly basis and provide leeway for changes without payment of compensation for overtime. Alongside this, the plan proposes that rest days should not necessarily follow a progressive cycle, ie Monday-Tuesday rest days need not necessarily be followed by Tuesday-Wednesday and Wednesday-Thursday. Finally, all company staff should work 36 or 38 hours a week, depending on the season, and the current provisions of the collective agreement laying down a 33-hour week should be abolished.

The plan recommends that pilots and cabin crews work return flights. This will bring about a surplus of 17 permanent and 25 temporary employees. The plan also recommends that: overtime pay for pilots be abolished; pilots’ and flight attendants’ subsistence allowances be reduced; the menu be simplified and less food served on return flights; pilots’ annual bonuses be abolished; allowances for extra expenses for meals and automobile expenses paid to managerial staff and staff on scale A12 be revoked; plans to make temporary employees permanent be suspended; managerial staff’s basic earnings be cut by 5%; annual pay increases be suspended for two years; and the scheduled pay increases for 2005 and 2006, provided for in the most recent collective agreement, be suspended.

Other measures include the following:

  • setting new pay scales for existing staff, so that their earnings are comparable with the earnings of staff performing similar jobs in other companies both in Cyprus and abroad;
  • reducing annual holidays by one week for staff entitled to more than four weeks of leave per year;
  • setting new scheduled working hours, particularly with regard to customer access. The span of the new working hours should begin at 06:00 and end at 23:00;
  • determining the numbers of pursers and senior flight attendants on the basis of needs during the winter season, with additional needs during the summer periods met by assigning additional staff on a seasonal basis; and
  • abolishing the practice of transferring public holidays to the next working day when they fall on weekends.

In conjunction with the measures pertaining to existing permanent staff covered by the enterprise-level collective agreement, the action plan recommends a range of measures concerning the terms and conditions of employment of newly hired staff, primarily aimed at reducing unit labour costs, a move which in the long term should contribute to the company’s profitable growth, it is argued. The proposed changes refer to pay as well as non-pay issues, and most provide for terms less advantageous than those enjoyed by the permanent staff currently employed by the company.

In the context of organisational restructuring, the action plan provides for the creation of central departments to meet the needs of all the group’s airlines. This should make the best use of the airlines’ limited resources, thus improving the group’s overall operating results. Specifically, in order to make use of 'synergies', more effective organisational structures should be created on the basis of the following assumptions:

  • initially, the company’s three separate brands will be retained, for both legal and practical reasons;
  • the number of separate support departments (financial management, technical support, sales etc) will be reduced with a view to better coordination and economies of scale;
  • central management bodies will be created, to cover the various sectors of activity of all the companies in the group; and
  • any changes will be made after the restructuring of the management structure of the parent company of Cyprus Airways begins.

Commentary

After years of financial difficulties, Cyprus Airways has in recent months found itself faced with a real financial impasse. According to some estimates, if something has not changed radically before the end of October 2004 it will not be possible to save the company, given that its liquidity will be exhausted by November and it will not be able to meet its obligations. The action plan for the national carrier’s survival and restructuring submitted by the board of directors in August 2004 seeks to find a solution to the serious financial problem created by wrong decisions and poor management in the past. The fact that the proposed plan is not the product of dialogue between company management and trade unions gives rise to serious questions of whether it is practicable and whether there can be a final plan that both sides agree upon. On 21 September 2004, the Minister of Finance stated that the government will not take a position unless it has in hand an action plan agreed upon by all the actors involved, and which will ensure the continued existence and the financial recovery of Cyprus Airways. Another basic problem is that the unions believe the action plan to be 'lopsided', in that it asks the employees to shoulder the burden of the measures to address most of the financial problems. The unions are ready to discuss reasonable measures to improve the company’s productivity, along with ways to improve its procedures and restructuring, but they are not ready to accept the abolition of the basic terms and conditions of employment contained in collective agreements. Furthermore, they will not accept staff redundancies resulting from outsourcing of services, and feel that an early retirement scheme must be put in place in order to try to avoid 'victimising' any workers.

All the unions at Cyprus Airways have already warned, some directly and other indirectly, that industrial action will be taken if the company should decide to transfer work from the parent company, Cyprus Airways, to its subsidiary Eurocypria. (Eva Soumeli, INEK/PEO)

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