Presentation Regarding Legislative Amendments Associated with the Restructuring of Canada's Airline Industry - May 2000

Presentation to the House of Commons Standing Committee on Transportation Regarding Legislative Amendments Associated with the Restructuring of Canada's Airline Industry

Presented by:

Gary Fane, Transportation Director

Jim Stanford, Economist

Tom Freeman, President, CAW Local 2213

Anne Davidson, President, CAW Local 1990

Berni Viczko, Canadian Regional Unit Chair, CAW Local 1990

May 2, 2000

Introduction: Opportunities and Risks

The Canadian Auto Workers union is Canada's largest primarily private-sector trade union, representing close to 250,000 members in some 15 different industries. We represent close to 10,000 workers in Canada's airline industry, including over 8,000 workers at Air Canada and Canadian Airlines.

It goes without saying that airline employees have endured a phenomenal degree of uncertainty, turmoil, and emotional stress through the past several months, as the long-needed restructuring of Canada's airline industry unfolded. Economists and financial analysts might take a cold, calculating view of the business realities of this industry, and the need for change. Indeed, our union has agreed that fundamental, structural change is long overdue for this industry, which has been ravaged by over a decade of short-sighted, ideologically-driven decisions by policy makers and business executives alike.

But we cannot lose sight of the human element through the painful process of restructuring. Thousands of our members have been fearing for their livelihoods, wondering where they will come out as this major structural shift takes place. Workers have been pitted against other workers, as everyone struggles to preserve what they can of their jobs, their incomes, and their working conditions.

The CAW is optimistic that the process of industrial restructuring which this government set in motion last summer will ultimately succeed in its goal of producing a more financially viable and sustainable airline industry-one that can meet the various needs of its customers for safe and efficient travel, its workers for decent and secure jobs, and its shareholders for acceptable financial returns. This will obviously not happen automatically. The federal government needs to be actively involved in the process, overseeing the necessary changes, protecting customers, communities, and workers (who are not represented in airline boardrooms), and protecting the public interest against abuse by a now-dominant private corporation.

This process will surely be turbulent, but we are optimistic that it can be managed in an efficient and socially responsible fashion. We look forward to an airline industry that in the future is more efficient and viable than was the case during the past decade.

Labour Relations in the New Airline Era

At the same time, however, the adjustment difficulties that need to be overcome through this restructuring process are daunting, indeed. Nowhere is this more the case than in the field of labour relations. Airline labour relations are highly charged at present, as representatives on all sides grapple with the difficult task of integrating two airlines, two work cultures, two traditions, and-most controversially-two seniority systems.

Like any other service industry, the success of our airline sector depends fundamentally on the quality, professional work that our members, and the members of other unions, perform every day. Loyalty to the airline industry, pride in our work, determination to succeed: these features of the airline workforce are huge assets as the sector moves into the future.

Sadly, however, these assets have also been viewed as tools to be manipulated by self-interested airline executives in their efforts to construct an airline industry in which they-and they alone-are on the flight deck.

Air Canada senior management played a shameful role during last fall's takeover wars, in trying to exploit the loyalties of their employees in their battle to defeat the Onex bid. Air Canada emerged the victor in that competition. But are Air Canada's workers going to reap the spoils of victory? It seems not.

Air Canada management moved quickly ahead with the unannounced, de facto merger of the two airlines within days of its legal and financial victory late last year-even though they had led their employees to believe that a merger was exactly what we were all fighting against.

As the merger process unfolded, CAW locals at Air Canada and Canadian Airlines came together with management to try to resolve some of the huge difficulties involved in integrating the two airlines, through the collective bargaining process.

We must stress how unique this experience has been: Ours is the only union in the industry where the locals at the two airlines have managed to come together in a joint effort to deal with the problems we will all face through the restructuring process. This is a testimony to the leadership and goodwill that exists at both the national and the local levels of our union-despite the well-publicized difficulties of last year.

Unfortunately, Air Canada management is still playing war games with its employees. They mobilized the Air Canada workforce into battle last year by playing the company loyalty card. Now they have a group of decommissioned soldiers whose expectations were raised unduly by management's promise that they would be the "victors."

Last month we managed to negotiate a joint tentative agreement between the new Air Canada and CAW members at both airlines, one that included an initial attempt to address the difficult seniority issue. Senior executives made numerous less-than-helpful public statements during the period leading up to the ratification vote on that agreement. Largely because of concerns regarding the seniority issue, our Air Canada members rejected that agreement.

We are now polling our Air Canada members to get a sense of their preferences for our future strategy. Workers at Canadian Airlines will now probably sign the agreement-which they ratified by 90 percent. The bargaining process will now be extremely volatile for more months to come. Air Canada management's continuing efforts to play one group of workers against another has clearly prolonged this difficult situation.

We know from years of experience that Air Canada management is interested in one goal and one goal alone: maximizing the profitability of the company, and thus the value of its shareholders' investments. Workers who signed up with management's campaign to "save" Air Canada have been cruelly deceived. In theory, the war was won. But management has gone ahead anyway with a de facto, unannounced merger that is raising about as many concerns among Air Canada workers as did the Onex bid.

The federal government could play a helpful role in this process by impressing upon Air Canada's management, in the course of designing and implementing this restructuring legislation, the importance of effecting a smooth transition in labour relations.

In particular, we request that the federal government demand a commitment from Air Canada for a four-year period with no layoffs and no involuntary relocation of its workers at Air Canada, Canadian Airlines, and the respective regional carriers. Our tentative agreement with Air Canada, turned down by CAW members at Air Canada, provided for such protection until March 2004. If this agreement is signed and implemented at Canadian Airlines, Air Canada workers-in the absence of an agreement covering them-will be at a disadvantage in any subsequent workforce adjustments. On the other hand, if Air Canada were required to make good on a full four-year moratorium on lay-offs and forced relocations, this would remove a considerable degree of uncertainty and insecurity in the minds of workers at both companies. The result would be a much smoother transition to an integrated workforce. By signaling its insistence that all affected workers be adequately protected through the restructuring process, the federal government would help put an end to the manipulative efforts of Air Canada management to prolong a state of civil war among groups of its own employees.

Canadian Regional Divestment

Another major concern of our union through the airline restructuring process involves the proposed divestiture from the new Air Canada of the former Canadian Regional network. In the first place, we reject the idea, implicit in the competition bureau's recommendations on this matter, that establishing another national or sub-national carrier will somehow protect "true" competition in the airline industry.

Have we not learned the lesson of a disastrous decade of experimentation with so-called free competition in airline travel-competition which turned out to be neither free, nor very competitive? The airline industry in Canada, for reasons of both geography and economics, demonstrates powerful economies of scale and scope which make it unfeasible for competing private carriers to exist in a stable and efficient manner within a deregulated industrial context. One way or another, the pseudo-deregulation of the past decade had to be replaced with a more regulated regime. It now seems that this will be achieved through the creation of a single dominant private carrier, operating under closer public supervision.

There is no logical place in this scenario for public measures aimed at creating yet another short-lived, perpetually strapped private competitor to the new Air Canada. Canadians saw over and over again that underfunded private firms did not offer meaningful competition to the dominant carrier. The real results of this supposedly competitive structure were chronic financial distress, and repetitive instability for both customers and workers. The economic case for divestiture of Canadian Regional is extremely weak.

Moreover, this divestiture would impose a terribly unfair burden on the employees of Canadian Regional. The federal government's restructuring of the airline industry will not be measured as a success until all the employees at Canadian Regional are dealt with in a fair and equitable manner.

For employees that work on regional carriers, it has always been a challenge to be treated as well as the employees on the main carriers (Air Canada and Canadian). For the employees at Canadian Regional the task has been made "Mission Impossible", ever since the federal government agreed with Mr. Von Finckenstein, the Commissioner of Competition, to force Air Canada to sell the carrier.

Obviously, Mr. Von Finckenstein must have limited airline experience. To divest Canadian Regional will not enhance competition. Rather, the opposite will occur, by ultimately limiting the choice of service the public will have. The choice and quality of service will be in jeopardy if Canadian Regional is sold. Perhaps Mr. Finckenstein should try flying Inter Canadian in Quebec or Air Atlantic in Atlantic Canada; what kind of competition do these regional carriers now offer? To sell off Canadian Regional is to ensure bankruptcy. This does not service the public well, not to mention Canadian Regional's employees.

There are 2100 employees at Canadian Regional serving thirty domestic markets. This market is often referred to as a "feeder market," which brings customers to the major cities and feeds traffic to Canadian Airlines and Air Canada. Considering the frequent flyers who cherish their point programs, it becomes obvious that customers will prefer to travel on the connectors from the national carrier(s). Moreover, experience has shown that the cost structure of any connector needs to be shared with the national carrier or success will be impossible.

The Canadian Regional fleet consists of twenty seven F28 aircraft, fourteen DH-8-300s, and ten DH-8-100s, for a total of 51 aircraft. We are informed by the media that a financial argument is occurring between Air Canada and the competition bureau regarding how little the company should be sold for. Mr. Von Finckenstein seems intent on selling the carrier regardless of price, regardless of how short-lived its subsequent life might be, and regardless of the consequent costs imposed on that company's workers.

All possible purchasers should know that the strong majority of Canadian Regional employees prefer to be part of the new Air Canada family. Almost two-thirds of the carrier's employees are unionized; the other five unions will be invited to actively join the CAW's efforts to persuade potential purchasers not to buy the company. We even expect non-union employees to join our efforts. We attach a copy of a petition, signed by hundreds of Canadian Regional employees, angry that they have been singled out as a result of the proposed divestiture of their airline. The petition was instigated by Ms. Debby Stubbs. We are also joined today by Mr. Rick Lemesurier, who represents some 300 non-union members of the company.

The CAW was not the author of this petition, but we expect to be part of the solution. We expect this committee to review the damage that this divestiture will cause to 2100 families throughout Western Canada. Finally, we will utilize all the resources available to us to ensure that Canadian Regional employees are treated fairly and equitably through this process.