July 26, 2007

Air NZ's abuses of law must be stopped - EPMU

Air New Zealand's abuse of employment law to cut the wages and conditions of thousands of workers must not be allowed to happen again, the Engineering, Printing and Manufacturing Union has told Parliament today.

Union officials and members addressed the Transport and Industrial Relations Select Committee this morning to explain how Air New Zealand deliberately set out to manipulate negotiations to remove bargaining power from their workers.

EPMU National Secretary Andrew Little says Air New Zealand's behaviour has been manipulative and well outside of the Employment Relations Act's spirit of fair negotiation.

"We've received a leaked 2005 memo from the management of Air New Zealand to the board in which they say: 'the intent is to deliver the bulk of the programme under the protection of employees being under contract and therefore unable to strike'. That clearly shows they've deliberately and cynically manipulated the law to strip wages and conditions from their staff.

"It would be bad enough for a privately owned company to skew negotiations in this way but for the national carrier to do so is unacceptable. Air New Zealand's conduct has caused huge distress to thousands of its workers and their families and has done long-lasting damage to its operations.

"One of the few silver linings to this situation is that because the New Zealand public is the airline's majority owner we can shine a light on how they have behaved and make sure this doesn't happen again. That's why we're pushing for this public inquiry and we can only hope our politicians are brave enough to take a good look at what the company has done to its Kiwi workers and hold it to account, even if that means changing the law."

In the last two years Air New Zealand has threatened nearly 2500 staff in Engineering and Airport Services with outsourcing in order to cut wages and conditions outside of usual legal negotiations.

ENDS

For more information contact Andrew Little on 027 551 3476 or Rob Egan on 027 276 5146.

The union's submission follows below:

SUBMISSION TO TRANSPORT AND INDUSTRIAL RELATIONS SELECT COMMITTEE ON PETITION OF ANDREW JAMES LITTLE AND ONE THOUSAND (1000) OTHERS REGARDING AIR NEW ZEALAND LIMITED

Introduction

The petition seeks an inquiry into Air New Zealand's human resources and industrial practices. The petition arises out of two high profile disputes over the last two years (a proposal to contract out wide-bodied aircraft heavy engineering and maintenance and a proposal to contract out ground handling functions at Auckland International, Auckland domestic, Wellington and Christchurch terminals). But there have been other human resources and industrial relations issues that are equally relevant.

The purpose of the petition is to draw Parliament's attention to relevant practices within Air New Zealand with a view to Parliament confirming, or not confirming, whether these practices are consistent with Parliament's own expectations of its legislation and with its expectations of arguably one of the most important corporates in New Zealand in which the public in New Zealand, both through the Crown's shareholding in the company and generally, have a major stake.

Air New Zealand

Air NZ is arguably one of, if not, the most important corporates in New Zealand.

It has a turnover of approximately $NZ4 billion. It has assets of nearly $NZ5 billion and total shareholder funds as at 30 June 2006 of $NZ1.6 billion.

The airline has enjoyed a steadily improving financial performance over the last few years. As at 30 June 2006, profit before tax and other items was $NZ150 million and net profit was $NZ96 million. Profit is forecast to increase significantly for the year ending 30 June 2007.

The airline employs around 10,000 people.

Air NZ has a number of key subsidiaries. These include Air Nelson Ltd, Eagle Airways Ltd, Mt Cook Airline Ltd and Safe Air Ltd. It also has associate entities, one of which is Christchurch Engine Centre (CEC), a partnership with American company Pratt and Whitney.

Beyond its organisational and financial dimensions, Air New Zealand's importance to New Zealand and its economy lies in the fact that it is the principal domestic air transport operator and is the most strategically important international airline flying into and out of New Zealand. Air NZ's success is critical to the success of the country's tourism industry and to the economy as a whole. It was, no doubt, for these strategic reasons that the New Zealand Government played the lead role in the recapitalisation of Air NZ in 2001/2002.

Since 2001 the airline has enjoyed a successful business recovery and growth strategy. In addition to strategic decisions on routes, aircraft types, in-flight offerings and fare structures the airline has been supported by a workforce that has accepted wage increase moratoria and constraints on bargaining.

Air New Zealand has performed well in a global aviation industry that has both expanded significantly and become vigorously competitive at the same time.

The Petition and Parliament's interest in it

The petition focuses on the airline's actions that have happened under legislation principally founded on good faith. The objectives of that legislation, the Employment Relations Act 2000 (as amended) are, of course, more explicit than the foundation stone of good faith. The key principles relevant to this petition are set out in the next section.

Parliament represents the Crown's ownership interest in Air NZ (the Crown has a direct shareholding and in addition shares are held by ACC and the New Zealand Superannuation Fund). Parliament is also responsible for the legislative framework under which Air NZ operates, including the employment legislative framework.

The public is entitled to know through its representatives in Parliament that one of the Crown's most strategically important assets and one of the most strategically important corporates in the country is acting consistently with Parliament's expectations and with the confidence of Parliament.

The major disputes and other issues referred to in this submission have, in the most part, been resolved. This is largely a testament to a workforce that is determined to do the best for the airline. But the mere fact that the disputes have been resolved on terms that have been voted for and accepted by the workforce, or parts of it, should not preclude Parliament taking an interest in what lay behind those disputes and the way the airline prosecuted its objectives.

Employment Relations Act

The parts of the ERA that are relevant to this petition are:

1. The stated object that the Act is to build productive relationships through promotion of good faith in all aspects of the employment relationship. (emphasis added) (section 3(a)).

2. The further object that the Act is to build such relationships by, amongst other things, acknowledging and addressing inherent inequality of power in employment relationships (section 3(a) (ii)).

3. The stated object of building such productive employment relationships by, amongst other things, reducing the need for judicial intervention (section 3(a)(vi)).

4. Strike action is unlawful for workers if it occurs while a collective agreement covering them is in force (section 86(1)(a)).

Relevant collective agreements

This petition does not deal with the relevant collective agreements which Air NZ employees were employed under at the time of the particular disputes. The petition does not deal with those collective agreements because it does not need to.

The relevant collective agreements, which include collective agreements between Air NZ and respectively the EPMU, the Aviation and Marine Engineers Association (AMEA) and the Service and Food Workers Union (SFWU), include comprehensive consultation provisions. These provisions are longstanding and pre-date the Employment Relations Act by nearly a decade. However, the consultation provisions of the collective agreement are entirely consistent with the requirements of the Employment Relations Act in relation to consultation over major change. The consultation provisions of the collective agreements are more prescriptive than the Employments Relations Act.

In any event, the issues raised in this petition apply irrespective of the consultation provisions in the collective agreements. The collective agreements are not relevant to the issues at the heart of this petition.

The dispute in Air New Zealand Engineering Services
(now Air New Zealand Technical Operations)

On 19 October 2005 Air NZ announced to its ANZES workforce, to the two ANZES unions (EPMU and AMEA) and to the New Zealand Stock Exchange its proposal to outsource wide-bodied aircraft heavy engineering and maintenance overseas. Both airframe heavy maintenance and engine maintenance were to be closed down in New Zealand. The proposal entailed the permanent loss of at least 600 highly skilled jobs. Although a specific provider was not identified, it quickly became apparent that six possible overseas providers had been approached by Air NZ, including providers in Asia.

The announcement was a surprise because of the following. In October 2004 Air NZ launched a business transformation project. In January 2005 it was agreed between the airline and union representatives in ANZES that the business transformation project was to be a standing item of discussion in the regular ANZES consultation forum involving management and the union representatives. Also an undertaking had been given that the union would engage with the airline on business issues following an attempt in 2004 by the airline to radically change the collective agreement, something which was not agreed to in negotiations at that time.

At the time of the January 2005 agreement and undertaking, a group of consultants, Bearing Point, was present in the engineering bases and was engaging with employees and union representatives over business practices.

In June 2005, in the regular consultation forum the airline raised the possibility of contracting work out, but firmly instructed union representatives present not to disclose the possibility to other employees and undertook that there would be considerable consultation prior to any formal proposals being tabled with the unions. By this time, union representatives were aware that a second group of consultants, AT Kearney, was present in the workplace but they were not engaging with employees or union representatives.

As late as September 2005 the unions had discussions with the airline on how any report from the consultants might be dealt with. The unions were advised that the consultants' report had not been finalised and no conclusions had been reached. No indication of the likely suggestions or recommendations from either of the consultants' reports was given.

Following the airline's announcement on 19 October 2005 the unions and the airline automatically went into a formalised consultation process provided for under the collective agreement. One of the obligations under the formalised process was for the provision of relevant information. This was done by way of allowing the unions and their representatives access to an information room containing 40 cartons of information. In view of this the unions engaged external expertise to assist in analysis of the airline's data and proposal. Notwithstanding that the parties entered into formal consultation under a provision in the collective agreement, the reality is that the airline was obliged to follow the same obligations under the good faith provisions of the Employment Relations Act.

In December 2005, the unions presented their alternative analysis to the airline and questioned the economics of the original proposal to outsource airframe maintenance. The case for retaining engine maintenance was not as strong because of the likely lower volume of future work in light of new aircraft acquisitions. The unions pointed out that the airline's risk assessment of its original proposal was scant or non-existent. Following presentation of the unions' counter-analysis, the airline entered into discussions with the unions that amounted to negotiations over the conditions under which airframe maintenance and a reduced engine shop would be maintained.

The unions and their members were in the position of struggling to retain 400 or so jobs out of the 600 that were threatened. In these circumstances they were compelled to renegotiate their terms and conditions of employment even though they were bound by a collective employment agreement and did not have recourse to their industrial rights.

These circumstances created extraordinary tension for the workforce. Even though agreement was finally reached and ratified by the workforce the entire episode created a considerable loss of morale, motivation and confidence within the workforce. The call for voluntary redundancies was over- subscribed; the airline has since endured difficulty recruiting fully trained aircraft engineers as well as apprentices; and recently the airline took the step of applying for permission to recruit engineers from overseas to fill growing gaps in their workforce.

The unions' fear throughout the ANZES exercise was that once the jobs went New Zealand would never get them back. Air NZ has now discovered that once the people went they have not been able to get them back. The airline is suffering a predictable but avoidable loss of reputation in that part of the labour market.

The dispute in Airport Services

On 12 October 2006 Air NZ announced a proposal to outsource ground handling services in Auckland, Wellington and Christchurch. That announcement confirmed that the airline had a preferred supplier for ground handling services, Spanish company Swissport, and that it could achieve savings in the order of $20 million a year.
The background to the announcement was as follows:

* As early as August 2005, Air NZ proposed contracting out a small part of ground handling, namely aircraft cleaning at the Auckland International terminal. That proposal did not proceed when it was found to be impractical, although some changes to conditions were agreed to by the affected employees * From early 2006 the airline ran a series of workshops involving staff chosen by the airline as well as some union representatives from both the EPMU and the SFWU to consider suggestions to improve the business. Management proposals in those workshops focussed on getting rid of the existing collective employment agreement and specifically the consultation and employee-engagement parts of it * Settlement of the aircraft cleaning exercise in May 2006 led to the establishment of the process known as the airports consultative review group ("ACRG") under which there was to be a comprehensive exchange of information with the unions as well as an open exchange of ideas and dialogue. This did not happen and the union considers the exercise to have been one of considerable frustration. In any event, in early September 2006 the unions made proposals to improve business competitiveness based on such information as was available at the time. These proposals were rejected. * On 5 October 2006 Air NZ CEO, Rob Fyfe, briefed relevant union secretaries from the EPMU and the SFWU on the announcement of a proposal to outsource ground handling, and this announcement was eventually made on 12 October 2006.

At the briefing of union secretaries as well as at the time of the subsequent announcement, the airline offered the unions a choice of continuing the by now unsatisfactory (to the unions) ACRG process or embarking on the formal process provided for under the collective agreement that required provision of "all relevant information".
As with the engineering exercise, the unions embarked on the formal consultation process. Once again, we took on external advisors and provided a counter-analysis and a counter-proposal. A succession of proposals to improve business competitiveness without radical change to the collective agreement was made between December 2006 and January 2007. All union proposals were ultimately rejected by the airline. An airline undertaking to delay a decision on outsourcing expired on 7 February. Litigation commenced in mid-February 2007. Negotiation with the airline continued and a settlement of both a new collective agreement and the litigation was reached in early March 2007.

From the announcement on 12 October 2006 to the settlement in early March 2007, the existing collective agreement remained in force at all times.

Subsequent to the proposal being announced on 12 October 2006 but prior to the final settlement in early March 2007, the unions became aware of an Air NZ board paper that outlined a "People Strategy" for airport services that had as two of its objectives the following:
* Lower labour cost * Position the workforce as an attractive proposition for any outsource, joint venture modelled that may emerge as a reinvent strategy.

The strategy document (attached) contains the following statements:
* "Utilise outsourcing and/or joint venturing as the major lever for labour contract (CEA) reform and simplification. If the current labour-related strategy environment remains to 2006 to 2007 it is best executed where Air NZ is not deemed to be the employer (see Kiely Thompson review)." * "The issue is less one of "are we prevented from doing this contractually?" and more one of appetite for the risk and change effort required. Against the likely socio political environment of labour reform and availability in New Zealand, the people plan is designed to be pragmatic in its execution but not risk averse to positioning the environment for major strategic reform through other ownership options." * "The intent is to deliver the bulk of the programme under the protection of employees being under contract and therefore unable to strike. At December 2006 a clear decision would be taken around the magnitude and speed of change. Major labour deployment and reform could then be executed through the requirement of a differing ownership structure or outsourcing of large areas of work such as the ramp activity."

The strategy document was prepared in May 2005 not long prior to the last general election.

The outcome of the airport services exercise was a change in remuneration provisions but with many aspects of the existing collective employment agreement remaining unchanged. Items which earlier the airline had said had to be removed for the benefit of the future of the business, such as overtime rates and consultation provisions, remain in the agreement.

The Two Major Disputes in Context

The disputes in ANZES (Air NZ Technical Operations) and airport services cannot be separated from other significant issues the unions have had in the airline in recent years. Foremost amongst these was the introduction of an alcohol and drug testing policy which commenced in 2003.

The alcohol and drug policy commenced with a perfunctory consultation with all Air NZ unions following which the airline failed to make any material change to its original draft policy in the face of many submissions from the unions. The matter was the subject of litigation. A hearing commenced and after only a few days the Employment Court granted an adjournment of some months to allow the airline to rewrite the policy. Air NZ re-wrote the policy taking account of most of the issues that the unions raised in the earlier process. This left one outstanding issue which then became the subject of the litigation. This was the issue of random testing.
From around 2004 Air NZ took a much more aggressive approach to disciplinary issues than had previous been the case. A typical example of this was a series of cases relating to alleged internet misuse. Four EPMU members were dismissed in November 2004. They were all reinstated on both an interim and permanent basis by the Employment Relations Authority. Two other employees from the AMEA dismissed in identical circumstances were also reinstated and appeals against these two reinstatements have been rejected by the Court of Appeal. Air NZ is still attempting to appeal the EPMU reinstatements nearly 3 years after the original dismissals.

The union has also seen the airline misuse its power in relation to its subsidiaries. In September 2005 the union's members doing ground handling work for Air NZ wholly-owned subsidiary Mt Cook airlines were in an industrial dispute with Mt Cook that entailed strike action. Air NZ's response to that was to threaten to withdraw a contract ostensibly between Air NZ and Mt Cook to provide baggage handling and ticketing services to airlines using Queenstown airport, including Air NZ. In reality, Air NZ and Mt Cook were one and the same thing. The law afforded no protection against this one-sided abuse of power.

More recently, during the recent dispute the union had with Air Nelson, another wholly-owned Air NZ subsidiary, union negotiators were repeatedly told that Air Nelson's fortunes were independent of Air NZ but that Air Nelson negotiators were constrained by their instructions from their parent company, Air NZ.

Submission

All of New Zealand has a stake in Air NZ's success.

Air NZ, both because of its crucial place in NZ society and the economy, and also because of the direct Crown stake in its ownership, must be accountable for its conduct. That accountability is not just a matter of legal technicality. It is a matter of ethics as well.

We look to Parliament to ensure that Air NZ meets the standards it has laid down for all employers and that it would expect as the predominant owner of the business.

A combination of Air NZ's conduct and the current law has allowed the airline to compel employees into renegotiating terms and conditions of employment under threat of contracting out, and therefore the loss of jobs, and has denied those employees the protection against the inherent inequality of power in employment relationships that the Employment Relations Act says it seeks to provide. Air NZ has manipulated its role as owner of subsidiaries to undermine the protection the ERA is meant to afford employees of these subsidiaries.

EPMU members and members of other unions involved in these disputes have gone to extraordinary lengths to deal with the situation. The cost to the EPMU alone of the two main disputes referred to has been in excess of $800,000 in consultancy fees and legal costs. Prior to one of those disputes, the ANZES dispute, a senior Air NZ manager, Craig Sinclair, offered for the airline to meet some external consultancy costs to assist the union in its analysis and response. In light of that offer we have made a request for a contribution to costs incurred in obtaining that analysis. That request was for a contribution in the order of $140,000. We have had no response to that request. Since then we have incurred in excess of a further $60,000 in relation to the airport services issue just in preparing counter-proposals.

The alcohol and drug policy issue cost the EPMU in the order of $250,000 in expert advice and legal costs.

The period between the original announcements of the airline's proposals to contract out and the subsequent settlements reached with the union on those proposals on two separate occasions were periods of enormous stress and distress for the workers affected. Those employees have felt devalued and dejected. They have seen their legitimately chosen representatives marginalised and treated with contempt.

The impact of this type of conduct even today is obvious and predictable. Morale and motivation continue to be a problem. In engineering, there are ongoing issues as the union seeks to have the airline make good commitments, especially in relation to skill-based pay elements, it made as part of the settlement. Those commitments still have not been fulfilled. The long term impact of the airline's conduct can be seen in the difficulty it is now experiencing in attracting former aircraft engineers back when there is a strong demand for them and in recruiting apprentice aircraft engineers.

In airport services, there is ongoing disquiet over the way people feel they have been treated and disputes are now emerging over the content of what was agreed in March.

Air NZ has enjoyed the benefit of leading workplace consultation and employee engagement processes for many years. Those processes have been highly effective in the past for achieving workplace and productivity improvement. More recently, the airline's management has eschewed those processes and in doing so have shut many of its employees out of a say on issues that directly affect them.

The airline stopped listening to its workforce when what they said through their representatives was inconvenient. Worse, the airline has sought to manipulate matters so its workforce is deprived of its basic industrial rights. Unions representing Air NZ workers have had to embark on expensive and resource-intensive means in order to get heard in external forums when they should have and could have been heard in the workplace in the first place.

CONCLUSION

The employer may well feel it has got what it wanted. It may be satisfied that it has successfully prosecuted a largely concealed but contemptible and hostile strategy against its workforce . As its May 2005 document makes clear, the airline has deliberately used the threat of contracting out to compel employees into bargaining during the currency of their collective agreements, depriving those employees of recourse to their usual industrial rights. If ever there was a demonstration of the inherent imbalance of power in employment relationships, then this is it in its crudest and most cynical form. If the law allows this, then it is flawed and it should be changed.

Employees should be allowed to exercise their right to strike in these circumstances.

It is for Parliament, for our elected representatives, to say whether Air NZ has acted to the standard they expect. If Parliament is not satisfied that the standard it expects of this important corporate and of the law it has passed with a view to improving employer conduct has been met, it should censure the conduct.

Andrew Little
National Secretary

EPMU

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