Major restructuring agreement signed at Alitalia

Download article in original language : IT0205202FIT.DOC

In late March 2002, an important agreement was reached by Alitalia and trade unions on the restructuring of the Italian airline. The agreement relates to the company's business plan for 2002-3 and covers four main areas: general company restructuring measures, a joint procedure for monitoring the implementation of the business plan; ways to reduce labour costs; and confirmation of the employee shareholding scheme as a strategic instrument to enhance workforce involvement in company management.

On 29 March 2002, an important agreement was reached by Alitalia, the Italian national airline, and trade unions on the restructuring of the group. The agreement was signed by Alitalia management and on the union side by: Filt-Cgil, the transport affiliate of the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro, Cgil);Fit-Cisl, the transport affiliate of Cisl; Uiltrasporti, the transport affiliate of the Union of Italian Workers (Unione Italiana del Lavoro, Uil); the National Association of Commercial Aviation Pilots (Associazione nazionale piloti aviazione commerciale, Anpac); the Pilots' Union (Unione Piloti); the Association of Flight Technicians (Associazione tecnici di volo, Atv); and the National Professional Association of Flight Attendants (Associazione nazionale professionale assistenti di volo, Anpav).

The agreement concerns in particular the business plan drawn up at the end of 2001 by Alitalia in order to cope with the crisis that had hit the air transport sector after the terrorist attacks on the USA of 11 September (IT0111103N). The unions had been highly critical of the business plan and of the company's intentions, which they believed could substantially curtail Alitalia's role in terms of employment and strategic importance. Talks between company and unions saw the close involvement of the government, both as the authority responsible for transport policies and as the majority shareholder in the airline. In January 2002, an agreement was reached at a meeting held at the Prime Minister's office (IT0201178F) which set out a series of pledges by the government, the company and the unions.

Alitalia and the unions undertook to reach agreement by 15 February on a reduction of labour costs in line with that envisaged by the business plan. However, negotiations continued beyond that date and, after Alitalia had announced around 2,500 redundancies in February 2002 (IT0203101N), agreement was reached only at the end of March, with the result that these collective job losses were averted. The agreement was definitively signed on 9 April at the Prime Minister's office, with the participation of the Ministry of the Economy and Finance, the Ministry of Production Activities, the Minister of Labour and Social Policies, the Minister of Infrastructure, and the Minister of European Community Policies. On this occasion, the Minister of Infrastructure, Pietro Lunardi, undertook to begin talks on the airport system in Lombardy, which comprises the hub at Malpensa, thereby acceding to a request forcefully put forward by the unions.

Finally, at the end of April, a workforce referendum was held on the agreement, which was approved by 81.25% of votes cast.

On the occasion of the formal signing of the agreement with the union, the Alitalia majority shareholder (the Ministry of the Economy and Finance) confirmed its commitment to providing financial support for implementation of the 2002-3 business plan, and to retaining its controlling share in the company, at least for the duration of the recovery plan envisaged for the same two-year period. Within the framework of measures to support the air transport sector, the government issued an Alitalia recapitalisation plan, which includes an initial capital increase of EUR 370 million from the Ministry of the Economy and Finance, which had been approved in December 2001 (and which had already been authorised by the European Commission in 1997). The state's shareholding in Alitalia will thus increase from 53% to 62%. Thereafter, the company will raise further capital by means of a share and convertible bond issue amounting to around EUR 1.4 billion, in which the Ministry of the Economy and Finance will also participate, keeping its ownership share in the company unchanged. This second issue, scheduled for May 2002, has been postponed for the time being while a pronouncement by the European Commission on Alitalia's recapitalisation plan is awaited.

The March 2002 agreement

The agreement concluded on 29 March 2002 concerns various aspects of the Alitalia business plan for 2002-3, whose main objectives are to restructure the company and to maintain its strategic positioning and potential. The agreement covers four main areas: (a) general definition of company restructuring measures; (b) identification of a joint procedure for monitoring the implementation of the business plan; (c) specification of ways to reduce labour costs over the period 2002-3 so that the objectives of the business plan can be achieved; and (d) confirmation of the employee shareholding scheme as a strategic instrument to enhance workforce involvement in company management and, in the present circumstances, compensate the workers for the cut in labour costs.

Company restructuring

The agreement acknowledges Alitalia's need to concentrate on its core business by adopting 'industrial systems, organisational models and operational processes which will ensure levels of cost, quality and efficiency' in line with those of the company's main competitors. To this end, the agreement provides, amongst other measures, for services to be supplied to the group's various companies by centralised structures operating at efficiency and cost levels which meet the highest market standards, and the selling-off of certain non-strategic companies (without excluding the possibility that Alitalia may retain residual shares in them).

Moreover, Alitalia will assume a leading role in the 'SkyTeam' alliance comprising Aeromexico, Air France, Czech Airlines, Delta Airlines and Korean Air, but will safeguard all its airline company activities (information technology, ground operations, maintenance and engineering). Any agreements with the other partners which would affect flight activities should be previously discussed by the parties to the restructuring agreement.

The 2002-3 business plan may be revised during its implementation in the light of market trends. For this reason, the company and the unions will set up a joint monitoring system (see below).

The business plan to be put in place after 2003 will be discussed at meetings between the company and the unions, which should begin by June 2002 and conclude by October 2002.

Joint monitoring

The agreement provides for the creation of three bodies, as follows.

1. The monitoring committee. The monitoring committee is to be set up on a joint basis, with, on the union side, one representative for each union signatory to the agreement. The committee will be supplemented by an advisor and a technical secretariat, which will furnish information and opinions on market developments, and on trends in air traffic and demand, also in relation to the forecasts made by the business plan. The monitoring committee is convened every month and holds periodic meetings with the technical secretariat (every two months) and the advisor (every three months). The committee may submit written proposals and requests to the company with regard to measures intended to consolidate and develop the company, also in relation to preparing the 2004-6 business plan.

2. The technical secretariat. This is composed of two independent experts, one nominated by the company and one by the unions, and coordinated by a member of senior management (the senior vice-president for finance and control). It has the task of monitoring trends in markets, air traffic and demand, and with drawing up reports and technical papers for each session of the committee and providing the information required to accompany the requests put forward by the monitoring committee.

3. The 'super partes' advisor. The 'super partes' advisor is appointed jointly by company and unions. Should they not agree, the advisor will be nominated by the Minister of the Economy and Finance. The advisor expresses opinions on trends in markets, air traffic and demand, and on the proposals made by the monitoring committee. The parties take the advisor's assessments and opinions as concluding the monitoring procedure, and they will be submitted to the company board.

Alitalia will furnish the facilities and resources required by the monitoring bodies.

Reducing labour costs

The agreement includes a series of measures intended to reduce the number of job losses announced by the group in February 2002 - 1,288 Alitalia employees, 779 Alitalia Team employees, and 451 Alitalia Airport employees, out of a total group workforce of around 22,000 at the end of March 2002.

The unions acknowledge the initiative already taken by the company, which has introduced incentives to encourage retirement by employees who will attain pension entitlement by 31 December 2005. However, because this scheme does not entirely absorb the staff cutbacks (it is predicted that it will involve around 900 employees), the agreement provides for two main measures to obtain a significant reduction in labour costs, to the order of EUR 140 million over two years:

1. a 'freeze' on all pay increases arising from renewals of industry-wide collective agreements for the two-year period 2002-3. This will apply to ground staff, pilots, flight technicians and cabin crew. Besides the freeze on pay increases, the agreement suspends a series of contributions that the company had undertaken to make to the various supplementary pension funds for employees (ground staff, flight technicians and cabin crew); and

2. for ground staff only, a job-security agreement or solidarity contract (contratto di solidarietà) will be used to distribute the impact of reducing labour costs among the largest possible number of employees by means of a corresponding reduction in working time. The scheme will apply to all personnel hired on a permanent basis or with apprenticeship or work/training contract s, and it will last for 21 months from April 2002 to 31 December 2003. The maximum reduction of working time will be 11 days per worker in 2002 and three days per worker in 2003. The solidarity contract scheme is based on a mechanism whereby the wage cut is less than proportional to the reduction in working time. The workers concerned will receive from the wages guarantee fund an allowance amounting to 25% of the wages lost because of the working time reduction. Alitalia will also pay the workers the 25% allowance that the relevant law assigns to the company. These provisions differ from the 'ordinary' ones, since Alitalia falls outside the scope of the general regulations on solidarity contracts, which apply to manufacturing companies and provide for a 50% allowance to the workers involved. The implementation of the solidarity contract will be defined through a collective agreement which may also provide for periods of collective closure. The conclusion of the solidarity contract (together with the other provisions set out in the agreement) will allow the redundancies that the company announced in February 2002 to be avoided.

Both of these measures are temporary. They will lapse after 31 December 2002, as they are considered by both sides to be 'one-off measures that cannot produce further negative effects'. Rather, if business picks up appreciably, the joint monitoring system may lead to changes being made to the measures laid down in the agreement.

Employee shareholding

The agreement confirms the value of employee shareholding and the company's commitment to enhancing workforce involvement, with a view to supporting Alitalia's ability to operate profitably (IT9706306F). It also recognises the need to devise ways to reward the contribution made by workers to the company's recovery.

To this end, Alitalia has undertaken to give free 'warrants' (or options) to employees. These warrants will enable workers to purchase shares when they are issued in an ad hoc company capital increase. The warrants will be distributed by September 2002 and they may be used three years after their issue (a condition introduced in order to benefit from fiscal incentives).

The beneficiaries will be flight crew, cabin crew and ground staff. Each category will receive a share of warrants proportional to their contribution to the labour cost reduction over the period 2002-3. Pilots will thus receive 32.19% of the warrants, flight technicians 3.1%, cabin crew 25.85%, and ground staff 38.86%.

Moreover, in view of the importance of employee shareholding for the company, Alitalia has undertaken to find statutory means to promote workforce representation in its governing bodies.

Reaction by the unions

The unions have declared themselves satisfied with the agreement, especially because it has averted collective redundancies, and also because of the commitments obtained from the government and the creation of the joint monitoring system. According to the unions, the latter will make it possible to adjust the business plan according to market trends, and it creates new prospects for workforce involvement.

Commentary

The agreement of 29 March is an important step towards the relaunching of Alitalia. It has unblocked implementation of the business plan and recapitalisation of the company, although the European Commission has yet to give the latter the definitive go-ahead. Major action is required to revitalise the company, which made a record loss of around EUR 900 million in 2001.

During the negotiations, the unions showed a significant capacity to make concrete proposals, and they made a decisive contribution to devising measures which have averted job losses amounting to more than 10% of the workforce. Approval of the agreement by a large majority of workers has provided a further and important confirmation for the unions' action.

After a period of difficult relations with the unions, the company has renewed its commitment to constructing a partnership. Significant evidence of this is provided by both the joint monitoring system on the application of the business plan, and the forms of discussion and involvement set up relating to alliances with other airlines, with regard to both their impacts on the airline's business and company strategies. In particular, the structures supporting the joint monitoring committee (the technical secretariat and the advisor) may prove to be important resources with which to overcome the 'information asymmetries' that often impede the proper functioning of participatory schemes that provide for the involvement of workers' representatives in the definition of corporate strategies. Moreover, confirmation of employee shareholding as a strategic company choice, and the commitment to support representation of worker-shareholders in the company's governing bodies may be further components in a participatory system.

The concrete forms taken by this 'participatory blueprint' will depend to a large extent on the results of the endeavour to revitalise and relaunch Alitalia, as well as on the commitment of both sides to renewed collaboration. Should the economic difficulties persist, the equilibrium created by this important agreement may be subjected to strong pressures. Furthermore, of crucial importance will be the government's attitude to the privatisation of Alitalia: for the moment any discussion of the matter has been postponed until the company has been restored to economic and financial health, and not before 2004. Whatever the case may be, any sell-off by the state of its controlling share in the company may have profound effects on industrial relations and on the role of employee shareholding. However, if restructuring enables the creation of a solidly-based participatory system, to which the weight of workforce shareholding (more than 20%) may be added, especially if confirmed by the newly introduced measures, the trade unions and the worker-shareholder associations may prove to be key players when and if the state relinquishes its control of Alitalia. (Roberto Pedersini, Fondazione Regionale Pietro Seveso)