Lufthansa pilots pay dispute draws to close
Published: 27 June 2001
On 8 June 2001, an arbitration committee bringing together the German air carrier Lufthansa AG and the Vereinigung Cockpit (VC) pilots' trade union, chaired by the former minister for foreign affairs, Hans-Dietrich Genscher, drew up a joint dispute resolution agreement [1] (Schlichtungsvereinbarung), covering some 4,200 pilots at Lufthansa Passage Airline, Condor, Condor Berlin and Lufthansa Cargo. The agreement, which requires approval by the pilots in a second ballot, should bring a bitter eight-week dispute to an end. This included warning strikes and – after a strike ballot – two 24-hour strikes which forced Lufthansa to cancel most of its domestic flights and to suspend temporarily most of its cargo services.[1] www.eurofound.europa.eu/ef/efemiredictionary/joint-dispute-resolution-agreement
In June 2001, an agreement reached in an arbitration committee brought to an end a pay dispute between the German air carrier Lufthansa and the VC pilots' trade union. Bargaining had earlier broken down amid a number of warning strikes and two 24-hour stoppages. The conflict was particularly notable because the pilots, for the first time in Germany, used explicit international wage comparisons in support of their demands, while other unions openly criticised the pilots' demands as being excessive.
On 8 June 2001, an arbitration committee bringing together the German air carrier Lufthansa AG and the Vereinigung Cockpit (VC) pilots' trade union, chaired by the former minister for foreign affairs, Hans-Dietrich Genscher, drew up a joint dispute resolution agreement (Schlichtungsvereinbarung), covering some 4,200 pilots at Lufthansa Passage Airline, Condor, Condor Berlin and Lufthansa Cargo. The agreement, which requires approval by the pilots in a second ballot, should bring a bitter eight-week dispute to an end. This included warning strikes and – after a strike ballot – two 24-hour strikes which forced Lufthansa to cancel most of its domestic flights and to suspend temporarily most of its cargo services.
As well its substantial impact on German and European air traffic, the Lufthansa dispute also threatened negatively to affect the German system of industry-wide collective bargaining. Several trade unions affiliated to the German Federation of Trade Unions (Deutscher Gewerkschaftsbund, DGB) found VC's original demands to be outrageous and accused the pilots' union (which is not a DGB affiliate) of calling into question wage solidarity within the German union movement. However, VC considered its demands to be fair on grounds that the wages of German pilots had fallen behind those of their colleagues working for other major airlines in Europe, Asia and North America.
The dispute's history
Part of the rationale behind Cockpit's demands for major pay increases was related to concessions all Lufthansa employees agreed to when the airline experienced difficulties in the early 1990s. In 1992, as part of a rescue package for the company, the pilots accepted wage cuts of up to 15%, an extension of working time and reductions in overtime pay. According to data provided by VC, the entire rescue package reduced pilots' income by 28% and also had a lasting impact on other groups of Lufthansa employees. More than 1,000 employees lost their jobs and - sharing the burden with the pilots - flight attendants, sales representatives and ground crew also faced deep wage cuts.
At this stage, all groups of Lufthansa employees were represented at the bargaining table by either the German White-Collar Workers' Union (Deutsche Angestelltengewerkschaft, DAG) or the Public Services, Transport and Traffic Union (Gewerkschaft Öffentliche Dienste, Transport und Verkehr, ÖTV). Although VC was established as an association of pilots and aircraft mechanics in 1969, for a long time it did not consider collective bargaining to be its prime responsibility and thus mandated DAG to represent its members at the bargaining table. VC focused instead on political lobbying to improve the quality of pilots' training as well as air traffic safety. In 1999, Cockpit decided to end its loose affiliation with DAG and began to negotiate collective agreements on its own. Meanwhile DAG and ÖTV, the two other unions which organised airline employees, merged in March 2001 (DE0104220F) and became part of the newly founded Unified Service Sector Union (Vereinte Dinestleistungsgewerkschaft, ver.di).
Shortly after the merger, which had created Germany's largest union with almost 2.9 million members, ver.di stepped into the ring to negotiate a new agreement for Lufthansa's 55,000 cabin and ground staff. After the union had called a warning strike, a settlement was reached on 24 March 2001 which increased employees' wages by 3.5% from 1 April 2001 and also included a lump-sum payment of DEM 250 for February and March 2001 (DE0104215N). In addition, Lufthansa agreed to pay its cabin and ground staff a bonus of 10% of a month's pay and shares in the company worth DEM 1,100. From the union's perspective, this settlement seemed to be fair, given that other major unions had settled for less: for example, the IG Metall metalworkers' union has agreed to a 2.1% pay increase for 2001, while the current agreement for the chemicals industry includes a 2.0% "linear" pay increase (DE0004255F).
Breaking the ground for a new bargaining strategy
While ver.di used domestic points of reference in the arguments supporting its wage demands at Lufthansa, VC compared the pay of its members with that of pilots working for other major airlines throughout the world. In 2000, shortly after the pilots' union had decided to conduct collective bargaining on its own, it agreed with Lufthansa to carry out a joint study which compared wages, working time and productivity with the airline's competitors in Europe, Asia and North America. In an unprecedented step in the history of German collective bargaining, the findings of this global wage survey were used to provide the basis for the subsequent negotiations over a new wage agreement for Lufthansa pilots. The survey was conducted by a joint committee, with both parties represented by an equal number of members, which gathered the data required and drew up a report. As the table below indicates, pilots' wages at Lufthansa are considerably lower than those of the company's major competitors. At least in part, this can be explained by the massive wage cuts the pilots faced as part of the 1992 rescue package.
| Airline | Gross annual wage in comparison with Lufthansa (Lufthansa = 100%) |
|---|---|
| SAS | 83% |
| Lufthansa | 100% |
| Iberia | 109% |
| Air France | 114% |
| KLM | 122% |
| Swissair | 124% |
| British Airways | 127% |
| Average | 127% |
| American | 164% |
| United | 165% |
| Delta | 167% |
| Cathay Pacific | 245% |
Source: Joint survey by Lufthansa and VC.
The data, however, were open to different interpretations. VC frequently referred to the figures on average annual earnings presented above, and demanded that Lufthansa pilots' salaries be brought in line with the earnings of pilots working for Lufthansa's competitors. However, company management argued that, in addition, figures on working hours, retirement benefits and local housing costs needed to be taken into consideration before drawing final conclusions. Eventually, VC demanded: average wage increases of 35%, with several differentiations for specific groups of pilots; a revised wage classification scheme, based on 85 flight hours per month instead of 73; and the introduction of a bonus.
For several weeks after the union issued this demand, Lufthansa did not make a counter-offer. Finally, however, after the pilots had initiated a successful warning strike which grounded some 100 flights, it offered a four-year agreement with wage increases ranging from 10% to 16.7%. VC found this offer unacceptable and initiated a strike ballot among its members. On 3 May 2001, VC announced that 96.19% of participating union members had voted "yes" to industrial action and it scheduled a 24-hour strike for the following Thursday. Michael Tarp, head of VC's collective bargaining department, declared that the union would stage a strike on Thursday each week and also threatened to organise walk-outs on other days if no progress was made.
On 22 May 2001, both sides declared the failure of the negotiations and called for the use of a joint dispute resolution (Schlichtung) procedure. One day later, they appointed Mr Genscher as the mediator in this procedure. On 8 June, he presented a joint dispute resolution agreement which was then accepted by both sides. The agreement, which runs for 39 months, contains the following provisions on fixed pay:
a linear pay increase of 3%, backdated to 1 February 2001; and
a structural pay adaptation worth an average of 9%, backdated to 1 May 2001
For the remaining term, linear pay will increase on 1 February 2002 and 2003 in line with the average pay increase in Germany. In addition, a further structural adaptation of 2.8% will come into force on 1 May 2002. Apart from the provisions on fixed pay, the agreement contains regulations on variable performance-oriented pay, which is dependent on the economic results of the individual business areas within the Lufthansa concern. Relating to the economic results of the whole concern in 2000, all cockpit staff will receive two additional months' pay in August 2001.
The agreement required approval by the pilots in a second ballot to be completed by 6 July 2001. It was expected that a majority would vote in favour.
Union responses to pilots' demands
Other trade unions increasingly took an interest as the Lufthansa conflict proceeded. The pilots at the Scandinavian-based SAS, Lufthansa's partner in the Star Alliance, which were due to present their own demands for their upcoming collective bargaining round, postponed publishing their agenda, preferring to await the Lufthansa settlement. Furthermore, other German unions, such as ver.di and IG Metall, became increasingly involved. In particular, ver.di, which had recently concluded a new agreement for Lufthansa's cabin and ground staff, reminded VC that all Lufthansa employees and not just the pilots had accepted wage concessions and thus contributed to rescuing the company. Margret Mönig-Rahne, ver.di's vice president, claimed in a statement to the press that the pilots' demands challenged the solidarity of wage policies and threatened to put an end to justice within the labour movement. Ms Mönig-Rahne's assessment of the VC wage demands was seconded by IG Metall's president, Klaus Zwickel, and by Gesamtmetall, the employers' association for the metalworking industry, which both argued that powerful special-interest groups such as VC might undermine the moderating effect of industry-wide collective bargaining.
In an open letter to Lufthansa's other employees, VC regretted that the pilots' action had caused disturbances which affected other Lufthansa staff but also insisted that its wage demands were appropriate. According to VC, Lufthansa's profits amounted to DEM 2 billion in 2000, making the airline the most profitable in the world. Thus, the pilots' union claimed, it was time to compensate Lufthansa employees for earlier wage concessions. As the union's strike slogan proclaimed, the pilots wanted "Top pay for top performance".
Ver.di faces different problems than those affecting the pilots. Besides the lack of wage solidarity implied by the VC settlement, the union is also concerned that Lufthansa might also use international wage comparisons for other parts of its operation and thus threaten to cut jobs. In addition, ver.di is facing increasing competition for members in airlines because independent employee associations are mushrooming. According to its general secretary, Uwe Hien, the Independent Association of Flight Attendants (Unabhängige Flugbegleiter Organisation, UFO) gained 3,000 new members in the course of the pilots' strike, raising its total membership to 13,000. In addition, some 520 sales representatives and check-in staff recently formed the Association of Ground Crew (Vereinigung Boden) in opposition to ver.di.
Commentary
The pilots' strike has the potential to leave a deep mark on the history of the German system of industrial relations in two respects. First, the wage dispute in the airline industry, although still predominantly domestic in nature, shows new ways through which collective bargaining strategies can be extended beyond national borders. While in the case at hand, this internationalisation operated in favour of the workers, simple wage comparisons without preparing the ground for collective action might easily backfire. It is not hard to predict that IG Metall, for instance, would not feel very comfortable being confronted by comparisons with the much lower wages of Polish or Hungarian automobile workers. Second, the Lufthansa conflict is the first occasion on which trade unions have openly criticised the bargaining demands of rival unions as being too high. As far as wage solidarity is concerned, it seems to be clear that wage moderation is contingent on the existence of a unified labour movement. If it is true that German wages are relatively compressed (ie there is a narrower spread between the lowest and highest), in particular compared with the Anglo-Saxon countries, less restraint at the higher end of the wage scale might also negatively affect the ability of unions to push through demands which raise the wages of low-skilled and unskilled workers. In this sense, the German trade union movement can hardly afford to let high-paid employees pursue collective bargaining on their own. (Martin Behrens, Institute for Economic and Social Research, WSI)
Eurofound recommends citing this publication in the following way.
Eurofound (2001), Lufthansa pilots pay dispute draws to close, article.
