OST-98-3713 / Predatory / Comments of IAMA / May 27, 1998

The International Association of Machinists and Aerospace Workers, AFL-CIO ("IAM") submits these comments in response to the request of the Office of the Secretary of the Department of Transportation ("DOT"), published at 63 Fed. Reg. 17919 (April 10, 1998), regarding the DOT's proposed new enforcement policy pursuant to 49 U.S.C. S 41712 concerning alleged unfair exclusionary conduct in the air transportation industry. The IAM strenuously opposes the DOT's proposed policy because it singles out new entrant carriers for preferential treatment at the expense of established major carriers that employ 110,000 highly skilled IAM members and pay a living wage. The proposed policy is seriously at odds with the agency's statutorily mandated responsibilities to promote the economic stability and viability of the industry as a whole, to encourage fair wages and working conditions, and to ensure the highest standards of safety in air commerce. To the contrary, these ill-conceived proposed regulations threaten to again destabilize the industry, punish carriers that pay industry standard wages and jeopardize the margin of safety.

The IAM is the largest union in the air transport industry representing 110,000 employees in the crafts consisting of mechanics and related employees, dispatchers, office, clerical, fleet and passenger service employees, and flight attendants.

The twenty years since the passage of the Airline Deregulation Act in 1978 have been tumultuous for the airline industry and its employees. In that time, nine major carriers have gone bankrupt and over 100 small-size carriers have met the same fate. while some major carriers have been able to survive bankruptcy, carriers such as Eastern, Pan American, and Braniff were liquidated with the attendant loss of jobs and the disruption of thousands of airline employees and their families. In the last few years, many carriers once in the red have shown modest profit margins. However, it should be remembered that as recently as 1990 through 1994 the industry posted a cumulative net loss of $13 billion.

Several of our major carriers have been on the brink of financial ruin. The employees of these carriers have made substantial sacrifices in wages and work rules to ensure the survival of these carriers. When Northwest teetered on the edge of bankruptcy in 1993, IAM-represented employees granted the airline concessions valued at $886 million over three years. The concession package approved by IAM-represented employees in combination with similar concessionary agreements made by the other unions of Northwest allowed the carrier to restructure its debt and avoid a certain and potentially disastrous bankruptcy proceeding.

Perhaps nowhere else in the industry have employees struggled as hard to keep a carrier flying as at Trans World Airlines. In 1992, in order to enable the carrier to emerge from bankruptcy, TWA employees, both union and non-union alike, agreed to forego $220 million in annual compensation. For IAM represented employees this meant wage cuts of 15 percent, in addition to concessions in benefits and work rules. Despite such herculean efforts to right the ailing carrier, TWA continued to experience financial difficulty. Thus, in 1994 IAM-represented employees agreed to further concessions of approximately $85 million a year.

In an attempt to realize some benefit in return for their enormous sacrifices, at many of the major carriers unionized employees have become part-owners through employee stock option plans. At United employees received a 55 percent stake in the company in exchange for $4.9 billion in concessions in 1994. Similarly, in 1992 TWA employees received a 45 percent stake in the carrier and in 1993, Northwest workers acquired a 37.5 percent stake in that company. With ownership, however, there comes great risk. By becoming part-owners, the employees of these carriers have to an even greater extent wedded their own financial well-being to the financial well-being of the companies for which they work.

The stakes are very high for the employees of the major carriers. Airline employees have grappled with the uncertainties created by the industry's rocky transition from tight government control to the deregulated environment. These employees have sacrificed and have a vested interest in seeing that the economic recovery of their employers is not cut short by government policies which grant preferential treatment to new entrants to the detriment of airlines that pay their employees a living wage.

It was only a few years ago that lawmakers and the public were so concerned about the financial health of the airline industry that Congress set up a special airline commission to study the situation. In August 1993, this commission deemed the financial state of the industry so dire that it recommended the drastic step of setting up an external financial advisory board for the industry. In the five years since those grave pronouncements the financial position of the major carriers has improved in large measure due to the efforts of their employees and some fortuitous circumstances. Such factors as the robust health of the U.S. economy and, as of late, unusually low fuel prices should not lull this department into a false sense of security. Indeed, it would be premature and contrary to historical experience to proclaim the major U.S. carriers cured financially, especially in light of the large debt loads still carried by many of the airlines.

There can be no doubt that DOT's proposed policy constitutes a form of preferential treatment for new entrant carriers who pursue a particular business strategy of paying substandard wages and initially charging low fares. Such preferential treatment is violative of the Department's statutory mandate to encourage the financial health of the airline industry as a whole. Pursuant to 49 U.S.C. § 40101(a) (14), the DOT is to promote a "viable" air transport industry. Similarly, 49 U.S.C. § 40101(6)(B) directs the Department "to encourage efficient and well-managed air carriers to earn adequate profits." The Department would be wholly in error if it continues to pursue a regulatory course that threatens to return the largest segment of the industry and its employees to the financial insecurity of a few short years ago. Moreover, the Department has an obligation "to encourage efficient and well-managed air carriers." Quite frankly, all too often new entrants have been inadequately managed, frequently lacking sufficient financial depth to maintain their operations.

Moreover, at present competition in the air transport industry is intense. From 1978 to 1996, the latest year for which the DOT provides statistics, the percentage of passengers traveling in markets where the leading carrier's market share equals less than 40 percent has risen from 23.8 percent to 41.2 percent. Additionally, in markets with more than 10 million enplanements in 1996 the average number of competitors rose from 15.1 in 1978 to 20.1 in 1996. Even more dramatic is the increase from an average of 8.0 competitors in 1978 to an average of 15.5 competitors in 1996 in markets with 1-10 million enplanements. Most significantly, in the period since deregulation air fares have decreased by over 40 percent. Congressional Testimony of Prof. Steven A. Morrison before the Senate Committee on Commerce, Science and Transportation, Aviation Subcommittee, April 23, 1998 at 2. It is estimated that from 1978 to 1993 air travelers have enjoyed saving of $12.4 billion annually. Id.

In favoring cut rate, low-wage carriers, the Department seems to ignore its mandates to "encourag(e] fair wages and working conditions, " 4 9 U. S. C. § 4 0 101 (a) (5) , and to "f urther the highest degree of safety in air transportation," 49 U.S.C. § 40101(a)(3). Clearly, in its zeal to encourage entry into new transportation markets, the Department should not sacrifice fair wages and working conditions and the highest possible level of safety for a few short term start-up carriers who seek reregulation only for their parochial benefit.

Because the employees of new entrant carriers are recent hires, poorly paid and transient as a matter of course, they are generally not with a carrier for a sufficient time to organize and bargain collectively. Even if the employees of a new entrant become organized, the process of obtaining an initial collective bargaining agreement is often extraordinarily drawn out and time consuming. Thus, new entrants can set below market wages and working conditions unilaterally and therefore enjoy an artificial advantage over carriers that bargain collectively with their employees. The DOT would utterly fail to live up to its obligation to encourage fair wages and working conditions if it were to permit preferential treatment for a segment of the industry that does not pay a living-wage and frequently does not provide health or retirement benefits to its workers.

While the overall level of safety in the U.S. air transport industry is very high, the fact remains that new entrant carriers, particularly those of the low-cost variety, can not achieve the high level of safety set by the majors. A report issued by the General Accounting Office in October of 1996 found that "during their first 5 years of operations, new airlines, on average, had higher accident, incident, and enforcement action rates than established airlines." GAO Report, "New Airlines Illustrate Long-Standing Problems in FAA's Inspection Program," October 1996 at 3. Specifically, the accident rate for new entrants, 0.60 per 100,000 departures, was almost double that of established carriers, 0.36 per 100,000 departures. Id. at 7. In addition, the rate of incidents for new carriers was 52% higher. Id. at 8. The GAO also found that the FAA had to initiate enforcement actions against new entrants at over twice the rate of established carriers, 14.8 per 100,000 departures for new entrants as compared to 7.3 per 100,000 departures for major airlines. at 13. A study by the National Transportation Safety Board released in May of 1996 focused specifically on low cost carriers. That study surveyed a group of 13 low-cost carriers and determined that the average accident rate for these carriers was nearly four times the rate of the nine major carriers included in the study. Report of the NTSB Safety Analysis Branch, office of Accident Investigation, May 2, 1996.

Pursuant to 49 U.S.C. § 41712, the DOT may only take action consistent with the public interest. In this case, we submit that the Department has misplaced its emphasis on providing the public with temporary bargain airfares to the detriment of the broader public interest in maintaining high-wage, high-skilled jobs with health and retirement benefits, which produce the highest possible level of airline safety.

For all these reasons, the IAM respectfully submits that the DOT should not adopt the proposed enforcement policy regarding alleged unfair exclusionary conduct.

Respectfully submitted,

Thomas Buffenbarger

International Association of Machinists and Aerospace Workers

9000 Machinist Place

Upper Marlboro, Maryland 20772

(301) 967-4503

Dated: May 27, 1998