Airline downgrades collective agreement

Sweden’s Scandinavian Airlines, the major airline carrier in the region, recently announced an extensive restructuring programme. It included a demand for unions to accept a downgrading of the company’s collective agreements. On 18 November 2012, it became clear that all unions had accepted the demands of the management after some intense discussion. However, there is criticism that the airline’s demands were in conflict with the Swedish model for collective agreements.

Background

Scandinavian Airlines (SAS) is a former government monopoly airline in Sweden, and a major airline in Scandinavia. Ever since air traffic in Europe was deregulated in the mid-1990s, the airline has been struggling to be profitable, as reported in Swedish press articles. As a part of its latest cost reduction scheme, the management gave an ultimatum to unions – either they accept downgraded collective agreements, or the company would be forced to file for bankruptcy. By 18 November 2012, the deal had been signed by representatives from all eight unions.

Swedish model contested?

Anders Kjellberg, Professor in Sociology at Lund University, and a labour market expert, said in a newspaper article (in Swedish) that the deal offered to the unions by the company management had several unique points:

  • it was the first time wages had been lowered in collective agreements since the 1930s;
  • the deal was given as an ultimatum and unions were not allowed room to negotiate;
  • the level of involvement by the Swedish government was exceptionally high.

Mr Kjellberg went as far as to say that the agreement was in obvious conflict with the Swedish model. He pointed out that since 1938, the practice had been to negotiate conditions, but in the SAS process unions were only allowed to accept the posited demands, under the threat of immediate bankruptcy. The demands included worsened conditions including longer working hours, an increase in the retirement age, and lower wages for several groups of employees.

Government involvement

The unusual nature of the situation was exaggerated by the high level of involvement of the Swedish government. The state is the largest shareholder in the company, as well as its major provider of loans through the bank Nordea, and a provider of loan guarantees. Mr Kjellberg pointed out that it was unique to see a minister – Peter Norman, Minister of Financial Markets – actively involved in lowering wages.

The minister, however, denied the Swedish model had been ignored. He said a lot of effort had gone into proposing a deal that the parties were then left to process. Minister Norman stressed that the alternative would have been bankruptcy and significant unemployment.

However, several experts agreed that the process was in conflict with the Swedish model. Magnus Henrekson, Professor and Chief Executive at the Research Institute of Industrial Economics, said in a newspaper article (in Swedish) that he felt the deal broke with the Swedish model, although he did not necessarily see it as something negative.

Carin Ulander-Wänman, Senior Lecturer in law at Umeå University, also felt the issue went against the Swedish model.

Criticism from unions

Anders Johansson, Adjunct Professor at the Department of Economic History at Uppsala University, argued that in the future more companies in crisis would try to do what SAS had done.

However, Anders Kjellberg said he expected unions in other sectors to offer much heavier resistance.

Karl-Petter Thorwaldsson, President of the Swedish Trade Union Confederation (LO), was very critical of the management of SAS. He said it was sometimes better to close down operations than to downgrade collective agreements, and he expressed concerns over a potential ‘race to the bottom’.

Eva Nordmark, President of the Swedish Confederation of Professional Employees (TCO), was very critical about the government’s handling of the situation. She was also of the opinion that the agreement broke with the Swedish tradition in the labour market.

The Swedish Airline Pilots’ Association (SPF) also aimed its criticism directly at the government and at Minister Norman. In an open letter, representatives of the association asked whether the minister supported the fact that the management of SAS, through their actions, deviated from the Swedish model. In his reply, Minister Norman said in a newspaper article (in Swedish) that there was firm support in parliament for creating the conditions necessary for SAS to implement the new business plan.

His message was that it was the responsibility of the different stakeholders to reach an agreement that would enable the business plan to succeed.

Commentary

The management at SAS have certainly broken new ground in the Swedish labour market. It is rare to see experts from academia make such explicit statements in the media about political issues. However, resistance from unions can be expected to be much stronger in other sectors. It remains to be seen whether this will leave a lasting impression on the model for negotiations in the Swedish labour market.

Emilia Johansson and Hjalmar Eriksson, Oxford Research

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