Committee Reports > List of Committees > Joint > 1994 > Committee on Commercial State-Sponsored Bodies (7th Committee) > Interim Report - Aer Lingus

Appendix II

Submission from the Aer Lingus Craft Group of Unions:

Submission to the Joint Committee on Commercial State Sponsored Bodies from the Aer Lingus Craft Group of Unions

SUBMISSION TO THE JOINT COMMITTEE ON COMMERCIAL STATE-SPONSORED BODIES.

Tuesday June 28th, 1994

For many weeks now, politicians, the media and the management of TEAM Aer Lingus have thrown the evolving crisis at our feet and asked us to explain what we are going to do about it. Given that all of the problems relate to gross mismanagement and inefficiency, we are baffled that the focus has not been on the management scandal at TEAM. It’s management’s job to manage and there’s not much point asking the workforce: why we haven’t won available new contracts?; why we have remained locked into a diminishing market when we are capable of servicing other markets?; why chronic scheduling has caused massive waste in overtime payments?; why huge bad debts have not been collected while we continue to trade with the customer?; why redundancy costs were calculated at £12.5m when they actually ended up at £28m? It goes on and on. We welcome this opportunity to put our case to this committee and to explain to you why it would be suicide for TEAM and the workforce to accept the LRC/management proposals. Given your terms of reference which relate to Commercial State Sponsored Bodies:

to examine (a) the Reports and Accounts and overall operational results and (b) in the light of the reports published pursuant to paragraph (a), the common issues relating to Board responsibility, structure and organisation, accountability and financing, together with the relationship with central Government and the Houses of the Oireachtas.

we hope that your committee will take this opportunity to ask management some tough questions about the above issues. It is a scandal that despite a general acknowledgement that there has been gross mismanagement at TEAM, there has been no serious investigation of their record.

BACKGROUND

MISTRUST, CONFRONTATION AND BROKEN AGREEMENTS.

As will be clear later in this submission, the February/March agreement is crucial to understanding the background to, and possible resolution of, the current impasse. At that time, management asked us to enter negotiations to agree changes required under the Cahill Plan. We were told that if we reached agreement, the £25m equity would be injected immediately, thereby securing the future of TEAM Aer Lingus. Despite what management say, agreement was reached (see appendix 1). Management then brought forward an additional demand of a pay freeze after we reached agreement. As a compromise, we offered to impose a pay pause on ourselves until 1995. This package was independently valued by Riada Stockbrokers and John Murphy, consultant as achieving £14m - £17m savings annually (see appendix 2 and accompanying correspondence). This met the terms of the Cahill Plan in full. Management then came back and told us that their sums were wrong and that they were looking for a further £8m in savings. They wanted us to accept:

• a 10% reduction in wages

• a compulsory 48 hour week

• the use of exploited Third World cheap labour

Not only were these Dickensian conditions unacceptable, they also pointed to management’s continuance of a misguided and suicidal direction in its rescue policy. As we illustrate later, labour costs are only a minuscule part of a very complex set of factors. Even management’s own expert consultants AMA concluded in their first report:

‘Pricing, specifically Labour Pricing is not the primary selection factor in repair management - the overriding criterion for selection of repair agency is turn-around time.’

Management’s call on the unions to accept these outrageous and ineffectual proposals led to deadlock. We wanted discussions to move the agenda for change back to the core issues. Minister Quinn then intervened and asked the LRC to instigate an enquiry into the core problems at TEAM Aer Lingus. We participated in the 3 day process on the basis that it would do just that - examine all of the issues and not just the peripheral industrial relations aspects.

• What we got was a set of proposals which dealt exclusively with the narrow IR aspects and ignored the causes of the problems.

• Also, it did not include a key financial submission from independent consultants in its report to the Minister.

• Of the 25 recommendations, 23 were management demands, only 2 reflecting the unions’ submission.

• Nowhere did it recommend new or reorganised management structures or practices despite widespread agreement that there has been gross mismanagement and inefficiency. Even though Mr. Mulvey states in his preamble that TEAM needs ‘a complete overhaul of management and industrial relations practice’ no such recommendation appears in his proposals.

• More importantly, management’s misguided policy is further pursued in the LRC/management proposals. Even if we accept the LRC/management terms, based on the company’s own figures they would only result in a saving of 2.6% on total costs. These savings when applied to the hourly cost in aircraft overhaul result in a reduction from £41.74 to £38.56 (see appendix 3). With a need to reach a figure of £33 to achieve competitiveness, presenting the LRC/management proposals as the solution to TEAM’s problems is grossly stupid, incompetent and irresponsible.

This is the absurd situation now facing us. While hundreds of us are out of a job and fighting for the long-term viability of our company, the LRC, the Company, the Government and the Minister are all pressurising us to accept a hopeless set of terms. Even a cursory analysis of the figures will prove that contrary to Minister Cowan’s marketing of the LRC/management terms as ‘medicine’, they are in fact poison which will kill us all and our company.

WE MUST TACKLE THE PROBLEMS, NOT THE SYMPTOMS.

The bottom line for us is that we are prepared to accept viable and fair proposals which will ensure the long-term survival of TEAM. These proposals must tackle the problems and not just the symptoms. Management keeps mistaking the symptoms for the problems. Although, we obviously would challenge the detail, they list them as follows:

• TEAM is losing £1m per month

• TEAM has no cash

• TEAM has no work

• Labour costs are too high

We, the workforce are constantly being asked about these symptoms as if they were our responsibility. They all relate to management issues and we believe that given your terms of reference, you should ask management how they allowed this situation to develop.

Also, TEAM has not produced any evidence to support their claim of this level of losses. According to management information released to independent consultants Fielding Flynn & Associates, the Company was ahead of target for April/May. Obviously the events in June changed that but the committee should ask the Minister to verify the information which he is being fed. We can do a quick fix, end-of-pipe solution but things will just get worse very quickly. The LRC proposals are so ill-advised that they don’t even provide that. We will still be losing money. We will still have no cash. We will still have no work. And the hourly cost will still be too high.

There is a better way though which deals with these problems in a more intelligent and effective fashion. Given, the crisis, it must be recognised that any comprehensive solution should address the immediate-term and the long-term. And any survival plan must also tackle the following key areas:

• Sales

• Productivity/Cost Reductions

• Trust/Participation

SALES

Though our illness is life-threatening, it is important to recognise how close we are to recovery and full health. A relatively small improvement in sales would make a huge difference. This is the key issue. Let us explain. At present, working from management’s figures, we are selling 44.4% hours of our capacity at a cost of £41.75 causing a loss of £7m. (No company, in any sector could survive at this level of sales. Serious questions must be asked of management). But again, using their figures, the company only needs to sell an additional 200,000 hours of work to break even - that’s only 56% of available hours. To put it in perspective, this would translate into the equivalent of 5 C-checks (5 aircraft). This brings the hourly rate down to the competitive £33. In fact, if they sold 75% of available hours which is possible, TEAM would make a profit of £12m! And this is all based on present levels of overhead and payroll. Though no changes would be needed at these levels of sales, we are still agreeable to make sacrifices to give us an extra edge to secure valuable work. These are outlined later.

WE CAN’T SELL WHAT WE DON’T OFFER.

At present management’s policy has locked us into a narrow corridor of work opportunities - C and D checks. This reflects a limited market of 7 million work hours. But there are numerous other compulsory modifications which we in TEAM have the capacity to carry out. Many of these have deadlines fast approaching. These include:

• The Floor Beam Mod

• The Lap Joint Mod

• The Section 41

• The Pylon Mod

• Cargo Conversion

• B747 Upper Deck Conversion

These fall into a market of 30 million workhours. Some of these are expanding markets. With downtime on aircraft being so expensive, many companies are now looking for facilities that can deliver all modifications and overhauls within the same downtime. TEAM management must allow us to offer these other services to this lucrative market if we are to be competitive and win extra business. By offering these, the C and D check market also expands beyond 7 million workhours.

Management will of course deny such business exists and will paint a picture of doom and gloom. If they admit there’s work out there, it begs the serious question: why are they failing to go after those markets? They will also continue to claim that we know nothing about the market situation. But because of their inability and unwillingness to tackle new markets in the past, we have found ourselves exploring where we can source new quality contracts. We are in daily touch with colleagues in many facilities and airlines around the world. There is work there.

BRINGING IT ALL BACK HOME.

If TEAM stopped outsourcing valuable work and allowed us to process this in-house, it would divert £4m back into the company.

LET’S GET PAID FOR WHAT WE DO.

Obviously there are a host of other issues here that should be addressed as part of any survival plan such as accurate invoicing. We know of many examples of work which was invoiced for far less than it was worth because of incompetence or faulty record keeping.

PRODUCTIVITY/COST REDUCTION

Throughout our history, this has been a contentious area. Subverting the stereotype of union culture, we - not management - have been setting the pace on increasing productivity. In fact, in most cases, management has blocked our radical reform ideas to improve performance and avoid unnecessary overtime costs. We believe that they have done this because any upgrading of productivity will make increased demands on management to secure increased business to fill the free hourly capacity.

Our unions’ proposals are based on creating the conditions in which we can produce a quality product within the right timeframe and at the right price. According to expert consultants (ours and the Company’s) this is the only way we can become competitive. The Company however takes the narrow view that costs can be cut and losses controlled by reducing wages and other labour costs. We’ve already pointed out that the net gain from the LRC’s proposals is a paltry reduction in our hourly rate of only 7.6% for a huge amount of pain, confrontation and disruption to the workforce. The hourly cost still remains way above the market selling rate.

We must have efficient work measurement standards introduced to provide the accurate Standard Times so essential for correct costing, planning, scheduling marketing and invoicing. As things stand the company’s proposals do nothing to tackle the causes of the endemic inefficiencies and hence the high hourly rates which make us uncompetitive. It is a matter of record that the Company has consistently failed to develop a proper system of Work Measurement.

As we have asserted many times, we are prepared to take whatever pain is necessary but only within the context of a solution that addresses all of the problems and only if the changes are just and justified.

• In the context of cost-cutting, it is important to remember that if all of our February agreement had been implemented, this would result in immediate savings of at least £14m and possibly as much as £17m.

• We were also prepared to agree to additional voluntary redundancies over and above the 250 requested in the Cahill Plan

• To alleviate the costs of overtime, we agreed to the hiring of temporary workers but not cheap Third World workers who management plan to exploit.

TRUST/PARTICIPATION

THE BAD PARENT

TEAM’s unique relationship with its parent Aer Linqus has had a huge bearing on the crisis. We believe that contrary to popular opinion, the parent is suffocating the child rather than vice versa. A close examination of the figures reveals that management totally miscalculated the redundancy costs. Instead of the cost being £12.5m, it is now £28m. Apart from the fact that management can’t add, the responsibility for these redundancies lies at the door of Aer Lingus. It was Aer Lingus who took the decision to restructure the group. TEAM, from the beginning, was grossly undercapitalised. We have had to pay £12.5m in interest charges in the the last three years. We inherited stock and equipment which have since required a write down of £16.5m and also inherited some of the total bad debts of £8.6m. That’s a legacy of £53m. These factors have nothing to do with how the workforce performs but the Company is still trying to blame us. Taking all of this into account, there was always going to be a crisis.

WHO CAN WE TRUST?

No one should underestimate the workforce’s complete lack of faith in our management (see appendix 5). In the past two years we have agreed changes worth a staggering £34m yet time and time again management has come back to us demanding more and more. Despite our sacrifices, TEAM is still being mismanaged into oblivion. Obviously, every time they ran into trouble, their knee-jerk response has been to cut labour costs rather than address how such a crisis should be managed. Every time we accepted cuts in the past, things just got worse. Why should it be any different now?

For any initiatives on any of these key areas of Sales, Productivity and Cost-cutting to be successfully implemented, there must be an acceptable level of harmony and mutual respect. Managements insensitive and adversarial treatment of our workers and our proposals has caused mistrust and anger. Their sacking of 850 people has now made it near impossible to proceed.

Mr John Behan, Personnel Consultant, has presided over and created a climate of fear, intimidation and confrontation when we all should have been working together in cooperation and partnership. Added to this, his breaking of our February/March agreement and his subsequent denial of its existence makes it impossible for us to deal with him in future. There is no reason for us to believe that he will not continue to try to treat us with contempt and even then, not honour agreements reached. His destructive influence must be removed from the process.

WELCOMING A NEW WAY FORWARD.

We welcome the arrival of our new CEO, Donnacha Hurley and we believe that, given what has transpired up to now, this offers the best way forward. In the interest of making genuine progress we would welcome meaningful discussions with Mr. Hurley under an independent chairperson (not the LRC) with his agenda on the table. From our side we will be putting forward our strategy and analysis but we will also offer the following cost savings as a mark of faith in any new, constructive negotiations:

• we will offer 100 additional voluntary redundancies over and above the 250 requested in the Cahill Plan

• we agree to total functional flexibility across both engineering groupings, avionic and mechanical.

• we agree to numerical flexibility — to alleviate the high overtime costs, we will agree to the hiring of temporary workers but not exploited Third World Cheap labour.

• we agree to variable shifts including night shifts

• we will enter discussions with Mr Donnacha Hurley with a view to agreeing new, enhanced cost-saving arrangements to attract new business and further cost savings totalling an additional £15m.

The Company has hired expensive British consultants to undermine our proposals on the basis that we presented them as a comprehensive business plan. On viewing our strategy document ‘Destination: The Future’ anyone can immediately see that this is not a business plan. It was conceived as an information pack to tell politicians, media and interested public our side of the story and our vision of a way forward. You don’t need to pay expensive consultants to tell you that. We are not managers. While it is not our place to write a business plan (however, we are prepared to do so by engaging the neccessary expertise). We do believe that a comprehensive business plan is needed for TEAM and we would want a meaningful input into such a plan.

As stated in our document ‘Destination: The Future’ we proposed 10 steps to a new way forward. We still believe that TEAM should consider these proposals, particularly the following:

• Implement the March Agreement thereby saving the Company at least £14m.

• Having fulfiled the terms of the Cahill Plan the promised £25m in equity should be injected immediately.

• A comprehensive business plan should be commissioned with a participative and meaningful input from the workforce.

• Emphasis must be placed on sales and the lucrative markets outlined earlier in this submission.

• Equity participation should be granted to all TEAM staff. In other role models of this nature, participation has led to harmony, increased competitiveness, improved productivity and higher profits.

• Board Representation

Agreement reached on package to save TEAM

By SEAN O’RIORDAN

AGREEMENT was reached yesterday between management and craft workers at TEAM Aer Lingus, the national airline’s aircraft maintenance subsidiary, in a £14m cost-cutting and voluntary redundancies package needed to turn the company around.

It was agreed that 250 voluntary redundancies would take place and that a packet of measures to save the financially troubled company would be put to the workforce at Dublin Airport today.

While agreement had been reached earlier on a number of contantious issues, the main sticking point was the two-year pay freeze the company were looking for.

While this proviso was not included as part of the savings required in the Ca Plan, management were pressurising the union side to make some concession on this, which the union had strongly rejected.

Last year, Aer Lingus management said it could not afford to pay a wage increase to their staff for the next two years: This was upheld by the Labour Relations Commission.

It is understood that the pay freeze issue will now be referred to a third party, as the management are very anxious to have some measure of agreement on this in their efforts to trim the £1m being lost every month.

Union officials and TEAM represantatives will meet the workforce at Dublin Airport today, to spell out details of what was agreed.

Following 36 hours of hard bargaining, a package of radical new measures, including rotaring, work practice changes and shift flexibility, were agreed.

These will be put to the 1,600 craft workers and ballotted on later.

This significant agreement now means that if the deal finds overall acceptance, Aer Lingus will put £25m in equity into TEAM, which could turn the company around from the enormsous losses it is experiencing.

If the agreement is accepted, it will locsen the stranglehold on TEAM’s operations, and allow the company to compete successfully in the flercely competitive world aviation market.

Now that terms have been agreed on by management and union leaders at Aer Lingus and TEAM, the injection of the £175m State equity should see the Cahill Plan being finally implemented.

As part of the plan, it is understood that a number of Aer Lingus’s assets, such as Cars Computers, Irish Helicopters and the Copthorpe Hotel Group, could now be sold off.

Fine Gael Transport spokesman, Phil Hogan, said the company has a very strong order book, and can now plan for the future. On the question of selling off some of the company’s assets, he called on Minister for Transport, Energy and Communications, Mr. Brian Cowen, to spell out exactly what he has in mind in relation to what assets would have to be sold in order to ensure the viability f the entire group.

AFTER marathon negotiation sessions it would appear that management and unions at TEAM Aer Lingus may conclude an agreement on major work practice changes when they meet today. They have already agreed in principle to a package which would include flexible rostering and longer shifts during peak times.

Of course, the real test of the agreement will be in the reaction of the workers. Many of them may feel that the unions have made too many concessions and oppose it while others will take a more long term view that changed working conditions may be more acceptable than no work at all.

That is precisely the question which will be underlying the debate which will now take place before the ballot. No one should be in any doubt about the disastrous state of the company at present. If the agreement of the 1,600 craft workers is not obtained, it simply cannot survive.

With agreement, Aer Lingus can inject £25m equity and the last part of the Cahill plan will be in place. It guarantees some sort of a future for the airline’s companies — in fact, the only future that the Government could support.

Appendix 2

CAHILL PLAN COST REDUCTION

Re: Restructuring Team

I have been asked by the craft unions to request the following information:

(i)Has £75m cash injection been paid to Aer Lingus; does this tranche include £25m for Team?

(ii)Target is payroll savings of £11m, o/h reduction £3m. Could we have detailed breakdown of annualised savings already achieved?

(iii)How do the following fit into the target savings and how much is involved in each.

a)Savings from financial restructuring.

b)Savings from inventory policy changes.

c)Savings from non payment of PESP and Cap (3%) from July 92.

d)Savings from non payment of second phase of PESP (3.75%) from July 93.

e)Savings from shift work on aircraft overhaul.

f)Savings from withholding annual increment increase.

g)Savings from PESP and Production Plus payments on offscale payments.

h)Savings on all off scale payments.

i)Savings from use of temporary workers.

j)Savings from reduced overtime working.

(iv)Identity the key remaining areas for savings to be agreed.

(v)Possible impact of bringing early retirement of 83 craft workers forward from Jan 95. Is this practicable?

(vi)£11m of work sent out through Shop 16. ? of this could be done in house.

(vii)130 additional people to go because of sale of Jumbo’ ? annual savings does this produce.

Additionally, the following information would be helpful:

(i)Monthly analysis of hours worked and paid by skill/business unit taking 92/93 as a base/showing savings achieved in 93/94 and/showing target for 94/95 (John Murphy will liase with you on this data).

(ii)Implications for Plan of revenue being 10% ahead of budget year to date?

(iii)Confirmation that there will be adequate working capital with £25m injection.

Starus of Aer Lingus Group loans to Team going forward or how those might be replaced.

Dear John

Thank you for your fax of yesterday requesting answers to some questions raised by the Craft Unions.

As I said to you on the telephone, some of the questions can be answered straight away, and this I have done below; I will get you responses on the remainder as soon as possible - I am conscious of your meeting this afternoon with Paul Sweeney.

(i)Aer Lingus have received the £75m equity injection, including the £25m for TEAM.

(ii)Annualised savings achieved to date are:—

(iii)The detailed analysis required to answer this question is quite time - consuming, and will not be available in the time-scale which exists.

(iv)a) The remainder of the savings arising from terminations can only be achieved when the work practices/patterns needed to make their release possible have been agreed and implemented. This amounts to 2.4 annually.

b)Payroll savings on shifts/R.D.A’s/overtime are also dependent on the changes being sought - £3.8m.

c)Residual savings on non-payroll costs are not yet achieved, but the structures are there - £0.3m.

However, failure to get agreement on the changes sought in the Eestructuring Plan will, for example, make the achievement of interest savings impossible, if not irrelevant.

(v) This matter is not being actively pursued at the moment, because the issue of fudning needs to be addressed.

(vi)The total amount of “shop 16” or sub-contract work budgeted for 1994/95 is £2.2m. This work is only sub-contracted for sound commercial reasons - for example, the need for very expensive test equipment to overhaul low volume items. This issue is constantly under review.

(vii)The loss of maintenance on Aer Lingus B747 fleet is 130,000 manhours annually from 1995/6. See (v) above.

Additional information:-

(i)This will be worked on, and John Murphy involved in the preparation of the data.

(ii)The revenues variance year to date is in non-core areas, specifically materials sales and exchanges, plus base kit leasing. The plan addresses core issues, which must be improved.

(iii)As has been commented on, the equity injection is sufficient, but still leaves TEAM’s working capital situation tight into the future.

(iv)The Plan provides for a gradual reduction in Aer Lingus Group loans to TEAM as the cash flow permits. Details of the reduction are currently being agreed with Group Management.

John Howard

Mr Frank O’Reilly

General Secretary

TEEU

5 Cavendish Row

Dublin 1

RE: Team Restructuring

Dear Frank

Further to the meeting with yourself and your colleagues on Wednesday last I sought the information requested. The questions and John Howard’s reply are shown in the Appendix to this letter.

I understand that there is great urgency with your deliberations. Consequently, I am summarising my views below based on a limited amount of data and time which I have at my disposal. I understand John Murphy and Paul Sweeney will be submitting separate reports.

In terms of the main restructuring issue it seems to me the kernel of the restructuring programme that remains revolves around payroll savings being sought on shifts, rest day allowances and overtime to produce £3.8m p.a. This is linked to further savings from terminations of £2.4m. These two together with payroll savings already achieved of £4.8m (annualised) provide the £11m in the Plan.

I have referred previously to the difficult financial position which will prevail in Team even after the injection of £25m has been received (without this cash injection the financial position of Team is unsustainable). I set out overleaf what I believe to be the current and projected position to end March 1994.

The end March 1994 debt figure of £47.3m, which still leaves Team very dependent on Aer Lingus Group financial support is after taking account of the £25m cash injection. This money will have been utilised as follows:

John Howard acknowledges the continued dependence of Team on the Group for financial support when he states.

“The Plan provides for a gradual reduction in Aer Lingus Group loans to Team as cash flow permits. Details of the reduction are currently being agreed with Group Management.”

This issue is of particular concern to your members because of the decision to dispose of the 747 fleet and the redundancies which will arise therefrom in 1995. It would seem reasonable that some commitment on how these known redundancies are going to be financed be sought as part of any overall restructuring package.

I hope this is of some assistance to you in your deliberations. I will be delighted to deal with any specific queries you or your members might have. Paul Sweeney and myself are willing to discuss some of these issues, particularly financial support and relationship between Team and Aer Lingus with the Parent Company.

Yours sincerely

John J Hogan

APPENDIX

RESTRUCTURING TEAM

Appendix 3

THE BIG LIE

Team Aer Lingus Management LRC proposals are the best solution to the immediate crisis.

% REDUCTION IN TOTAL COSTS 2.6%

Appendix 4

AIRCRAFT OVERHAUL

Appendix 5

TEAM AER LINGUS SOME OF MANAGEMENT’S ERRORS

Appendix 6

SUMMARY TRADING FIGURES

3 Years to 31st March 1994

AIRLINE ENGINE MECHANIC - EARNING IR£ PER HOUR - 1992

THE CRAFT UNIONS

* Responsibility of Management and Aer Lingus