Associated Press
War Could Give Airlines Room for Layoffs
Wednesday March 19, 4:38 pm ET
By Brad Foss, AP Business Writer
War Could Give Airlines Legal Wiggle Room to Lay Off More Employees
NEW YORK (AP) -- While a war in Iraq will most likely weaken demand for air travel, it could also provide struggling carriers with legal cover to reduce bloated costs by laying off significant numbers of employees without violating existing labor contracts.
As they did shortly after the terrorist attacks of 2001, major carriers could invoke "force majeure" clauses in labor contracts, freeing them from union-negotiated agreements related to seniority and work rules -- stipulations that can make it difficult to cut jobs.
Force majeure is the legal term for uncontrollable events that release parties from their contractual obligations.
"It's something they would have to look at if they see their losses multiplying as a result of war," Jim Corridore, an airline analyst at Standard & Poor's in New York, said Wednesday.
Analysts blame the airline industry's whopping losses over the past two years on excessive labor expenses, poor economic conditions and the decrease in spending by business travelers.
Corridore said industrywide capacity needs to be reduced significantly to better reflect today's diminished demand. And with fewer planes, the airlines would need fewer employees, Corridore said.
"Force majeure would allow them to impose furloughs on employees without going up against labor agreements," he said.
Of course, unions would likely respond to any force majeure invocations by suing the airlines -- just as they did after the Sept. 11 attacks -- claiming that the industry's woes are really tied to the weak economy.
"We'll probably wind up in court to fight it," said O.V. Delle-Femine, national director of the Aircraft Mechanics Fraternal Association, which represents 13,400 workers at Northwest Airlines. In fact, a lawsuit the union filed on behalf of 600 workers fired after Sept. 11 is still pending, Delle-Femine said.
Last month, Delta Air Lines was forced by an arbitrator to cancel the planned furlough of 20 pilots because of a lawsuit filed by the Air Line Pilots Association. Earlier battles against the Atlanta-based carrier's use of force majeure were unsuccessful, though.
Ray Neidl, an analyst at Blaylock & Partners, said there's evidence that passenger traffic has already dropped off in anticipation of war and that this could weaken carriers' claims that a decrease in business was unforeseen.
It really depends on the length and severity of the military conflict, Neidl said.
The chief executive of Northwest Airlines, Richard Anderson, said earlier this week that war would necessitate "further cost reductions" at the Eagan, Minn.-based carrier.
That could signal Anderson's intention to declare force majeure, said Peter Capelli, professor of management at the University of Pennsylvania's Wharton School of Business. "Once one of them does it, they all will," Cappelli said.
Since the Sept. 11 attacks, major airlines have laid off roughly 100,000 employees and industrywide capacity is down about 14 percent from where it was two years ago. But passenger traffic and ticket prices have also fallen sharply, resulting in bankruptcy filings by US Airways and United Airlines and industrywide losses of $9 billion in 2002.
War Could Give Airlines Room for Layoffs
Wednesday March 19, 4:38 pm ET
By Brad Foss, AP Business Writer
War Could Give Airlines Legal Wiggle Room to Lay Off More Employees
NEW YORK (AP) -- While a war in Iraq will most likely weaken demand for air travel, it could also provide struggling carriers with legal cover to reduce bloated costs by laying off significant numbers of employees without violating existing labor contracts.
As they did shortly after the terrorist attacks of 2001, major carriers could invoke "force majeure" clauses in labor contracts, freeing them from union-negotiated agreements related to seniority and work rules -- stipulations that can make it difficult to cut jobs.
Force majeure is the legal term for uncontrollable events that release parties from their contractual obligations.
"It's something they would have to look at if they see their losses multiplying as a result of war," Jim Corridore, an airline analyst at Standard & Poor's in New York, said Wednesday.
Analysts blame the airline industry's whopping losses over the past two years on excessive labor expenses, poor economic conditions and the decrease in spending by business travelers.
Corridore said industrywide capacity needs to be reduced significantly to better reflect today's diminished demand. And with fewer planes, the airlines would need fewer employees, Corridore said.
"Force majeure would allow them to impose furloughs on employees without going up against labor agreements," he said.
Of course, unions would likely respond to any force majeure invocations by suing the airlines -- just as they did after the Sept. 11 attacks -- claiming that the industry's woes are really tied to the weak economy.
"We'll probably wind up in court to fight it," said O.V. Delle-Femine, national director of the Aircraft Mechanics Fraternal Association, which represents 13,400 workers at Northwest Airlines. In fact, a lawsuit the union filed on behalf of 600 workers fired after Sept. 11 is still pending, Delle-Femine said.
Last month, Delta Air Lines was forced by an arbitrator to cancel the planned furlough of 20 pilots because of a lawsuit filed by the Air Line Pilots Association. Earlier battles against the Atlanta-based carrier's use of force majeure were unsuccessful, though.
Ray Neidl, an analyst at Blaylock & Partners, said there's evidence that passenger traffic has already dropped off in anticipation of war and that this could weaken carriers' claims that a decrease in business was unforeseen.
It really depends on the length and severity of the military conflict, Neidl said.
The chief executive of Northwest Airlines, Richard Anderson, said earlier this week that war would necessitate "further cost reductions" at the Eagan, Minn.-based carrier.
That could signal Anderson's intention to declare force majeure, said Peter Capelli, professor of management at the University of Pennsylvania's Wharton School of Business. "Once one of them does it, they all will," Cappelli said.
Since the Sept. 11 attacks, major airlines have laid off roughly 100,000 employees and industrywide capacity is down about 14 percent from where it was two years ago. But passenger traffic and ticket prices have also fallen sharply, resulting in bankruptcy filings by US Airways and United Airlines and industrywide losses of $9 billion in 2002.
