Agreements reached over Alitalia restructuring

Download article in original language : IT0410104FIT.DOC

September and October 2004 saw a series of agreements aimed at restructuring and relaunching Italy's troubled national airline, Alitalia. Agreements have been signed within the company changing the employment conditions of pilots, flight attendants and ground staff, and on a restructuring plan and new corporate structure. An accord has also been reached with the Italian government on measures to help redundant workers. The Alitalia workforce will be cut by some 3,700 under the agreed restructuring measures.

The financial problems of the Italian national airline Alitalia have proved to be worse than envisaged during the first months of 2004 (IT0404304F). In order to tackle the crisis, the government, Alitalia’s majority shareholder, appointed Giancarlo Cimoli as the new president of the company and, for the first time in Alitalia's history, also its managing director. Mr Cimoli is well known for having managed the reorganisation of the national railway company, Ferrovie dello Stato, when he was its president.

Alitalia's immediate financial difficulties and risk of bankruptcy seemed to have been prevented at the end of July 2004 thanks to parliamentary approval of an EUR 400 million bridging loan guaranteed by the state, to be paid back by the company in six months, which could be extended by another 6 months. The loan was approved thanks to cross-party support, after a fierce parliamentary discussion in which the Lega Nord party strongly opposed the rescue of Alitalia. At the end of July 2004, the EU authorities approved the loan, while calling for the privatisation of Alitalia.

According to Alitalia management, there will be an open recapitalisation of the company before March 2005. The stock capital of the company should reach EUR 2 billion, reducing the current public share in the company of 62.4% to less than 50%. This decision prevented the risks of Alitalia bankruptcy. However, despite the additional funding, management stated without the structural interventions envisaged by a new restructuring plan, the company's would be kept afloat only until the end of March 2005. This restructuring plan, presented on 6 September 2004, was substantially changed after agreements reached with the trade unions representing pilots, ground staff and flight attendants. The conclusion of such agreements was the main condition dictated by the government for the extension of 'social shock absorbers'- measures that support employees during restructuring (IT0311306T) - to the air transport sector.

At the end of September 2004, Alitalia has 22,200 employees: 7,187 cabin crew (2,365 pilots, 4,787 flight attendants and 35 technicians) and 15,013 ground staff (181 senior managers, 9,926 middle managers and 4,906 blue-collar workers).

Original restructuring plan

The restructuring plan presented in September by the Alitalia board of directors and by its human resources manager, Massimo Chieli, envisages a first phase aimed at the economic recovery of the company (2005-6) and a second phase aimed at relaunching it (2007-8). The plan, which aims to balance the company's accounts by 2006, originally envisaged savings on labour costs of about EUR 315 million, the reorganisation of cabin crew operations, and a new company organisation.

The workforce was to be cut by 5,000 - 1,570 in flight operations (450 pilots, 1,050 flight attendants and 70 ground staff), 1,440 in maintenance services, 900 in ground operations, 360 in marketing/sales, 610 in corporate and information technology and 120 in cargo operations.

The reorganisation of cabin crew operations provided for by the original plan, and maintained in the final plan, concerns the monthly transfer of crews from Rome to Milan in order to boost the role of the latter's Malpensa airport as an international hub. The productivity objectives of the plan are to be achieved by having at least four to six routes per day with the cabin crew on the same aircraft and returning to the base at the end of the shift.

The original plan provided for a new corporate organisation and the division of Alitalia into two new companies: one for air transport activities (Az Fly) and the other for services (Az Services). Az Fly was to take on 11,700 workers and Az Service 9,000 workers. In order to do this, Alitalia was to set up a holding company to control 51% of Az Fly and 49% of Az Service. The remaining 51% of the shares of the latter company were to go to Fintecna, a public holding company created after the dissolution of the Institute for Industrial Reconstruction (Istituto per la riscostruzione industriale, Iri) in 1993 and entrusted, during recent years, with managing crises in many public companies. The new corporate organisation, according to Alitalia management, would have made the company as competitive as its main continental competitors.

The original plan did not deal with how to recover Alitalia's share of the domestic market, which has fallen from 66% in 2002 to 45% in the first six months of 2004.

According to the plan, the two-year period following restructuring (2007-8) is to be focused on the relaunch of the company and on the enhancement of long-haul flights thanks to an increase in the company’s fleet, with seven new aircraft for long-haul flights and 12 new aircraft for medium-haul flights bringing the total fleet to 162 aircraft.

Trade union positions

The positions of the Alitalia trade unions on the original restructuring plan presented by the Alitalia board of directors were as follows:

• employment conditions. The unions were willing to renegotiate on employment conditions, taking as a reference the standards applied by the European 'flagship' airlines (eg Lufthansa);

• employment. The unions asked the government to provide income support measures ('social shock absorbers') to help redundant workers at Alitalia and its subcontractor companies;

• corporate organisation. The unions called for the creation of a public holding company to control directly the two companies resulting from the planned division of Alitalia. This control, according to the trade unions, had be extended also to Az Service in order to guarantee the unity of the group. The unions were concerned that the division could have led to the outsourcing of all ground services, increasing the risk of Az Fly becoming a low-cost company unable to provide such services; and

• industrial policy. The unions sought an investment policy able to help Alitalia to recover its share of domestic and international traffic, in view of possible strategic alliances with other European companies.

Negotiations

Management and trade union discussed the company's restructuring plan and launched negotiations over specific agreements covering pilots, flight attendants and ground staff. Once such agreements were reached between the sectoral trade union organisations and Alitalia, negotiations shifted to the reorganisation and recapitalisation of the company and to national and international alliances. The partners also met the government to negotiate the measures to be used to help redundant workers.

Pilots’ agreement

A new collective agreement for Alitalia pilots was signed on 14 September 2004 by management and six trade union organisations - the Commercial Aviation Pilots' National Association (Associazione nazionale piloti aviazione commerciale, Anpac), the Italian Transport Workers' Federation (Federazione italiana lavoratori trasporti, Filt-Cgil) the Italian Transport Federation (Federazione italiana trasporti, Fit-Cisl), the Pilots' Union (Uil Piloti) affiliated to the Union of Italian Workers (Unione Italiana del Lavoro, Uil), the General Labour Union (Unione generale del lavoro, Ugl) and the Pilots’ Union (Unione piloti, Up). The key points of the deal are as follows:

• the number of redundancies has been decreased from 450, as previously announced, to 289;

• the agreement adopts the 'Lufthansa standard', which implies more flying hours and a reduction in cabin crew numbers;

• working time will be unified in a 'fly duty period' of 14 continuous hours without distinction between flying hours and service hours (previously, continuous working hours could not exceed 13 hours, with a maximum of eight flying hours);

• the crew will be composed of two pilots for all flights shorter than 4,200 miles and three pilots for all longer flights - one pilot fewer than before. Exceptions will be possible for particularly difficult flights, such as the Chicago route during winter time;

• earnings will be linked to productivity. There will be a fixed proportion of pay (78% - previously 86%) and a variable portion (22%) linked to the hours actually flown. There will be two new pay elements that group various variable payments that formerly overlapped - a temporary-transfer allowance (diaria), which covers accommodation and transfers, and a daily subsistence allowance (indennità giornaliera), linked to the presence of the pilots at work;

• the number of days of annual leave remains unchanged at 42, but the number of days that can be taken during summer time has been cut from 15 to 12. The notice that workers must give to take leave rises from 15 to 30 days; and

• the number of routes flown by each shift has been increased from four to five and once a month there will be a shift with six routes. For rest periods far from base, the rules remain the same (10 hours of rest or twice the hours flown) but the agreement no longer envisages additional hours of rest for jet-lag.

During the next few months, pilots' tasks may also be reviewed. Alitalia has asked pilots to check the status of the aircraft and of fuel, tasks which have so far been performed by a technician.

The agreement, once implemented, should bring annual savings of EUR 52 million by 2006.

Ground staff agreement

An agreement for ground staff was signed on 16 September 2004. The main provisions are as follows:

• the number of redundancies will be cut from from the planned 3,550 to 2,490. Of the workers concerned, 800 will have attained minimum pension entitlement before 2006. For the others, the partners have committed themselves to avoiding collective redundancy measures and making recourse to the widest possible range of income support measures;

• earnings will remain unchanged until the end of 2005, but pay increases due to the workforce in order to adjust their wages to real inflation between 2002-3 and to predicted inflation over 2004-5, plus some holiday payments, will not be made. According to trade union estimates, wages will thus be effectively reduced by 7%. Contributions to the company's supplementary social assistance fund, which had been suspended in June 2003, will continue to be frozen;

• the first 10 hours of monthly overtime will no longer be remunerated but will be accumulated in an 'hours bank' and may be taken as time off during off-season periods. The same will apply to all work carried out on non-working days (with the exceptions of Christmas, Easter and 15 August), for which compensatory time off will be at double rate;

• rest periods have been modified in order to allow the company to have personnel available during peak-season periods. The previous 13 full days of rest have been divided into half-hour periods of time off that can be taken during off-season periods; and

• only one cleaning team will be used to clean and recondition aircraft after landing, rather than the previous two.

The agreement provides for savings of EUR 150 million per year. It also envisaged the possible creation of a restructuring fund for the air transport sector. According to Claudio Claudiani, the general secretary of Fit-Cisl, the establishment of this fund would be negotiated with the government in order to tackle in detail the problems of the entire sector.

Flight attendants’ agreement

The agreement for flight attendants was signed on 18 September 2004. The key points are as follows:

• the number of redundancies is cut from the planned 1,050 to 900. Of these workers, according to the trade unions, 200 have attained minimum pension entitlement;

• as with other Alitalia workers, flight attendants will not receive the pay increases due to adjust their wages to inflation for the next two years. The criteria for calculating wages have also been modified, with the variable portion of pay increasing from 14% to 23% and the fixed portion decreasing to 77%;

• annual flying hours increase from 590 to 793 and the maximum hours of employment to 900 from 770;

• all crews will have one member less. Flights lasting three hours and less will have three flight attendants, while there will be four attendants on longer short-haul flights. The number of flight attendants on long-haul flights will remain the same while on all-economy flights and on 767 and 777 Boeings the number of flight attendants will be reduced from 11 to nine;

• there will be 33 rest periods on medium-haul flights every three months and 35 on long-haul flights. 'Physiological' rest periods, ie for recovery from work fatigue, have been abolished;

• the number of days of annual leave remained unchanged but only 14 days may be taken during peak-season periods (now set at six months per year, Christmas included, compared with the previous five months); and

• fixed-term workers will see the duration of their contracts reduced from 10 to six months.

The agreement makes savings on labour costs of about EUR 80 million per year.

Restructuring plan agreed with unions

On 20 September 2004, the partners approved the restructuring plan, incorporating the new employment conditions negotiated with the trade unions for the various groups, and a separate agreement was then reached on Alitalia's new corporate organisation.

In the final restructuring plan, the total cuts in labour costs were reduced to EUR 282 million (EUR 50 million under the pilots’ agreement, EUR 80 million under the flight attendants’ agreement and EUR 150 million under the ground staff agreement), compared with the EUR 315 million previously envisaged. The number of planned redundancies was cut by 1,321 to 3,679 (289 pilots, 2,490 ground staff and 900 flights attendants).

The agreement establishing the new corporate organisation was signed on 24 September 2004 by all the trade union organisations representing pilots, ground staff and flight attendants - Filt-Cgil, Fit-Cisl, the Union of Italian Transport Workers (Unione italiana lavoratori trasporti, Uiltrasporti), the Ugl Transport Federation (Ugl Trasporti), Anpac, Up, the National Flight Attendants Professional Association (Associazione nazionale professionale assistenti di volo, Anpav), the Italian Flight Attendants’ Association (Associazione italiana assistenti di volo, Avia) and the Transport Workers’ Unitary Trade Union (Sindacato unitario lavoratori trasporti, Sult).

The agreed corporate structure provides for the creation of a new company which will work alongsideAlitalia SpA. Alitalia SpA will manage air transport activities while the new company, Alitalia Service, will manage ground services and will be initially 100% controlled by Alitalia SpA. Later, a public sector partner (probably Finteca) will acquire 49% of the ordinary shares in Alitalia Service and 100% of the privileged shares. This recapitalisation initiative, whereby Alitalia SpA will own 51% of the capital and the new partner 49%, should give Alitalia Service the necessary financial resources for the entire duration of the restructuring plan (2005-8).

The subsequent privation and recapitalisation of Alitalia SpA will have to observe the following guarantees demanded by the trade unions:

• the Italian state will remain the majority shareholder, with no less than 30% of the shares; and

• privatisation will start with the acquisition of Alitalia SpA capital by institutional investors.

The agreement provides for the establishment of a joint consultation committee involving all the partners, with the task of examining the implementation of the restructuring plan in the two companies.

Tripartite agreement

On 5 October 2004, the government, Alitalia and employers’ and workers representatives from the air transport sector signed an agreement - the last in the current cycle. The tripartite agreement provides for the extension of the 'social shock absorbers' (IT9802319F) that apply in the industrial sector to the entire air transport sector. Redundant workers will thus be able to receive for 24 months an allowance from the extraordinary Wages Guarantee Fund (cassa integrazione straordinaria, Cigs), equal to 80% of their real income and, after this period, they will be placed on availability list s (liste di mobilità) for three years, benefiting from the same measures.

A special solidarity fund (Fondo speciale di solidarietà per il sostegno al reddito dei lavoratori del trasporto aereo) will provide income support for workers in the air transport sector. Employers will make a contribute to the fund of 0.375% of total annual pay while workers will contribute 0.125%.

For the whole duration of the Cigs and availability list measures, employers will have to adopt all the necessary training and outplacement measures in order to foster the redeployment of redundant workers to other companies.

According to the agreement, all redundant workers who have not yet reached pensionable age can benefit from its income support measures.

The tripartite deal also applies an agreement with the Minister of Infrastructure which regulates the 'system requirements' for relaunching of Alitalia activities. This involves extension to the air transport sector of the same conditions applied to other transport sectors, such as tax incentives related to fuel, parking and flying operations.

On the basis of the agreement signed by the government, the trade unions and Alitalia, whose conclusion was necessary for the application of the new agreements signed at company level on employment conditions, the company was able to start the necessary procedures for obtaining the EUR 400 million publicly-guaranteed loan (see above). On 11 October 2004, Alitalia signed a contract with the Dresdner Kleinwort Wasserstein bank, which will make the loan

Social partner reactions

The trade unions expressed their satisfaction with the agreements signed relating to Alitalia. Savino Pezzotta, the general secretary of the Italian Confederation of Workers’ Unions (Confederazione italiana sindacato lavoratori, Cisl), commented positively on the 'important step forward made by the social partners thanks to concertation to rescue Alitalia'. Guglielmo Epifani, the general secretary of the Italian General Confederation of Labour (Confederazione generale italiana del lavoro, Cgil), said that the 'agreement signed will permit Alitalia to have a future'. The vice-general secretary of Ugl, Renata Polverini, said that 'if Alitalia will keep flying it is thanks to the workers and thanks to the new development perspectives offered to the company'.

The air transport employers’ representatives, in particular Assaereo and Assoaeroporti, were less favourable to the agreement, due to the employers' contributions to be paid into the new solidarity fund which, according to them, will imply a 1.57% increase in labour costs.

Mr Cimoli, president and managing director of Alitalia, said that 'the cornerstone for relaunching Alitalia has been laid, now workers in the company will have to understand that there is no time for games'.

Commentary

When Alitalia was close to bankruptcy, the main actors responsible for the company’s continuity managed to sign a series of agreements which, until the last minute, seemed impossible to reach.

The most important success of the new managing director of Alitalia, Giancarlo Cimoli, is having reached an agreement with nine trade union organisations that represent different professional interests, which were not easily reconcilable due to the high fragmentation of workers’ representation at the company. The trade unions affiliated to the main confederations played a key role in the protection of all workers’ interests, thus reducing the power of the sectoral interests of the professional trade union organisations (for pilots etc). The agreements signed demand important sacrifices by workers, such as the adoption of 'European standards' in the definition of employment conditions and wages, directly linked to the performances of the various categories of workers.

The most important results achieved are the agreement signed on the new corporate structure, the extension of the social shock absorbers to air transport sector workers and the creation of an income support fund for redundant workers. The explicit consequence of this agreement is the acceptance of the future privatisation of the former national airline company. This is a very significant change. The privatisation of the company seems plausible as a result of the division between logistic and flight-related activities, which lays the basis for two further and interesting developments.

The first concerns the new service company, Alitalia Service. Alitalia's technical services have a tradition of excellence that will permit the development of other activities at both national and international level, provided to other companies. Alitalia, by cutting its overhead costs, will be able to start new national and international alliances. Second, the European flagship airlines are no longer able to act alone as global competitors since low-cost companies entered the market and eroded the competitiveness on the domestic and European markets. However, some European global operators will be to survive thanks to a policy of integration among the most important European airlines.

The guarantees contained in the Alitalia agreements, such as the mandatory participation of institutional investors in the privatisation of the company, envisage the possible involvement of collectively agreed supplementary pension funds managed by the social partners, and this means employee share-ownership opportunities.

The way towards the company’s economic and industrial recovery will be long and hard, but a fundamental objective has already been met. (Domenico Paparella and Vilma Rinolfi, Cesos)