Airline transfer puts end to pilots’ collective agreements

Unions are planning legal action after managers at Austrian Airlines transferred ownership of the company to its own subsidiary, Tyrolean Airways, as a way of ending expensive collective agreements inherited from earlier phases of the company’s history. This followed the announcement of a record €67 million loss in the first quarter of 2102. A cost-cutting package put together by management, the fourth since Lufthansa’s takeover of the airline in 2009, had been rejected by staff.

Background

Austrian Airlines declared a record operating loss of €67 million in the first quarter of 2012, following a €60 million loss in 2011. The management of the Lufthansa subsidiary announced an austerity package to save €263 million, €45 million of which was to come from cuts in personnel costs. The airline has 6,000 employees, 2,300 of whom are flight crew. Even though the airline has cut 1,500 jobs since 2009, annual staff costs have not fallen from their 2009 level of €438 million a year, largely due to wage increases.

Parent company Lufthansa said it would recapitalise the debt-laden airline with a €140 million cash injection, but only if a new austerity package was implemented. This would have been the fourth cost-cutting programme since Lufthansa’s takeover of the airline in 2009, and wages had already been cut by 5%. To avoid the threatened transfer of the airline into the ownership of Tyrolean Airways, the Austrian Airlines works council presented its own cost-cutting package that would have saved €47 million a year in personnel costs and delivered a one-off saving of €230 million, but this was rejected.

Collective agreements cancelled

The usual practice of social partnership in Austria is for management and employee representatives to hold preliminary talks before a new collective agreement is drafted. However, Austrian Airlines presented the union and works council with a new collective agreement and summoned them to a meeting. Unhappy with this unusual procedure, the union and works council rejected it. It included a number of measures that would have led to lower wages and less favourable working conditions, including:

• the abolition of automatic wage increases and adjustments in line with inflation;

• changes in retirement regulations;

• an increase in monthly flight hours from 70 to 100;

• the abolition of a clause preventing Tyrolean Airlines pilots from flying planes with more than 110 seats.

Three types of collective agreements for 2,300 flight personnel (600 pilots and 1,700 flight attendants) were in force across the Austrian Airlines group at the time of the meeting. On 15 February 2012, two of them were cancelled by the Federal Economic Chamber (WKO) on behalf of Austrian Airlines management. They were:

• the Austrian ‘old AUA agreement’ which was valid for 338 Austrian Airlines pilots (AUA collective agreement);

• the ‘new AUA agreement’ that applied to former pilots with Lauda Air, a charter company taken over by Austrian Airlines in 1997, and which paid them between 15% and 20% less than the old AUA agreement.

Left in place was the Tyrolean collective agreement that paid Tyrolean flight crew about 25% less than the old AUA agreement.

The Austrian Airlines supervisory board then suggested a transfer of Austrian Airlines to its own regional subsidiary, Tyrolean Airlines, to allow management to apply the Tyrolean collective agreement to all on-board personnel, reducing costs. It was expected that most of the 338 pilots still working under the generous ‘old’ collective agreement would make use of the ‘exceptional right of termination’ set out in the Employment Contract Law Adaptation Act (Arbeitsvertragsrecht-Anpassungsgesetz, AVRAG), that guarantees severance pay of 30 months’ salary for those with 10 or more years of service, and 39 months for those with 25 years’ service or more.

Pilots who qualify will be entitled to severance pay of between €250,000 and €500,000 each, which Austrian Airlines is apparently ready to pay. So far 43 pilots have taken up the offer and the works council estimates that 150–200 pilots may follow suit. The airline’s management seems to be generally in favour of the departure of its most expensive staff, and unconcerned at the prospect of losing a large number of pilots in a relatively short space of time. The shortfall is to be made up by upgrading co-pilots and the retraining of about 40 Tyrolean Airways pilots to fly the larger Airbus 320 planes used by Austrian Airlines.

Unions abandon remaining agreement

In reaction to the cancellation of the collective agreement, and hoping to prevent the transfer of Austrian Airlines to Tyrolean Airlines, the vida union unilaterally cancelled the Tyrolean collective agreement despite the opposition of the Tyrolean Airways works council. This unprecedented step was followed by protests by Tyrolean Airlines staff in front of the Austrian Trade Union Federation’s (ÖGB) main building in Vienna. The union argued that, with the cancellation, Austrian Airlines management would halt the transfer and negotiations on a group-wide collective agreement could be started. Austrian Airlines’ management, however, did not open new negotiations.

Terms of the transfer agreement

Austrian Airlines’ transfer to Tyrolean Airlines was agreed on 19 April. A few days later, a works meeting was attended by 1,000 Austrian Airlines flying staff at which further negotiations were demanded for a collective agreement covering the whole Austrian Airlines group. Talks took place and management proposed a compromise agreement which involved a 30% wage cut for all pilots covered by the ‘old’ AUA agreement. In order to make the change more attractive, all flying staff were to be given lucrative one-off payments to compensate for the switch from the generous company pension model to the legal severance pay system. The payments would be about €250,000 for pilots and €150,000 for co-pilots covered by the ‘old’ AUA agreement and €20,000 to €40,000 for pilots in the ‘new’ AUA agreement. However, as in the rejected agreement, pay rises in line with inflation would be abolished and the clause preventing Tyrolean Airways pilots from flying larger aircraft would be dropped. The earlier 5% wage cut would stay in place and overtime premiums would not be paid from 2013. A profit-share was agreed as a substitute for overtime pay which – in good economic times – would be worth about a month’s pay a year. Management also said that they wanted to expand the airline, and agreed to develop a group-wide collective agreement and a career model.

These proposals were agreed to by the works council and crew members were to vote on them. Staff, however, demanded guarantees that management could not provide about how the one-off payments and pension compensation would be taxed. The works council then cancelled the ballot, and management started to transfer ownership of Austrian Airlines to Tyrolean Airways.

In response, the works council presented a modified austerity package that offered savings of €40 million a year on personnel costs, €230 million worth of one-off savings and an average 28% wage cut. These proposals were agreed by an overwhelming majority of employees, 96.4% of those who voted, on 14 May.

Management, however, refused to take part in further negotiations and pressed ahead with the ownership transfer. It will be completed on 1 July 2012. On that date, employees will be given new company guidelines modelled on the cancelled Tyrolean Airways agreement. Wages will be frozen until the wage levels of those paid in accordance with the Tyrolean agreement catch up with the wages set by the more expensive agreements, and this will take several years.

Union reaction

The works council and union have said that this is unlawful, as both the collective agreements cancelled by the company are valid for a further year after the cancellation date. They have announced that they are bringing several lawsuits against the airline’s management, one of which will seek a ruling about whether the transfer of company ownership was legal. The unions claim that such a transfer should only be implemented to protect employees, and not to lower wages. There will also be a lawsuit challenging the 5% wage cut, which is due to remain in place until 2015.

Ground staff are not involved since they have their own agreements which are valid indefinitely. They have agreed to a wage freeze in 2013, and to the withdrawal of the generous company pension model.

Bernadette Allinger, FORBA (Working Life Research Centre)