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As Eastern Burns, Bush Shouldn’t Fiddle

<i> F.A. Spencer is emeritus professor of transportation and industrial relations at Northwestern University's J.L. Kellogg Graduate School of Management. </i>

Eastern Airlines now looks to be a terminal case--a sad ending for a once-proud major airline with a history dating to the early days of commercial aviation.

Decisions by top management have resulted in employee dissatisfaction unparalleled in American industry. After Eastern was acquired by Frank Lorenzo as a part of his Texas Air Corp., this dissatisfaction reached new heights, culminating in the strike by its machinists with the full support of pilots and flight attendants.

As with his other unions, Lorenzo has been at loggerheads with Eastern’s pilots. But in taking on the machinists’ strike, he relied on the thought that the pilots historically have not honored the machinists’ picket lines. In particular, the pilots did not support a machinists’ strike at United Airlines in the 1960s. Nor did the machinists support a 29-day pilot strike at United earlier in this decade. In fact, a recent machinists’ contract at United served to block a takeover of that company by the pilots. Lorenzo hence concluded he could fly through the Eastern machinists’ strike.

At first blush, his conclusion appears to have merit. But to organized labor, Lorenzo’s name has come to be associated with everything bad. A few years ago he declared Continental Airlines to be in bankruptcy, then started it up as a non-union carrier at 50% of former wages. This unleashed a desire by other airline managements to spread these lower wage scales to their companies. Simply put, by causing employees of other lines to fear they would be next, Lorenzo has managed to galvanize organized labor into forming a unified front against him.

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In the recent negotiations, each side painted itself into a corner. Thus we come to the question of the role of government. The Bush Administration says that this is a private matter in which it will not interfere. The Administration’s main argument is that it is ideologically wedded to the “free market” concept, so the parties should work it out themselves.

A review of history plus the current facts suggest that the Administration’s reasons for failing to appoint a presidential emergency board are flawed.

In 1926, after serious consideration, Congress passed the Railway Labor Act to govern the handling of major and minor labor disputes on the railroads. Briefly, the law mandated notice of contract changes (otherwise, contract terms stay in force even after a contract has run out), negotiations, mediation and a government proffer of arbitration. If the latter was turned down by either party, the President could appoint an emergency board to look into the facts and make recommendations that might be the basis for a settlement.

The Railway Labor Act worked well enough that when airlines came on the scene some years later, Congress made the law applicable to this new mode of transportation as well. More than 30 such boards have been appointed to wade through a morass of claims and find the real facts. Using their considerable public stature, they formulate recommendations (although not necessarily to their liking) that each side finds difficult to refuse. If the boards were “off base,” the two sides often got together and ironed out the problem.

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Of course, there have been cries to abolish the Railway Labor Act and use the National Labor Relations Act instead. But both management and labor have chosen not to press for this. They have preferred to stay with a law they understand.

The arguments advanced by President Bush for not establishing an emergency board--that the government should not impose a settlement and that the free market should govern--lack validity.

In appointing a board, the President is not imposing a settlement. All he is doing is permitting three neutral figures to sift through the welter of claims (which themselves have be sifted by the parties) and make a fair recommendation. As a participant in this process, I can attest to the fact that the parties carefully screen their own proposals and that they are more “salable” than those offered in negotiations. When the report comes out, the parties usually “massage” these recommendations into contract language.

The free-market argument is equally flawed. The airlines, even under the Airline Deregulation Act of 1978, do not operate in a free, competitive market where price is neatly equated with optimal cost, including return on investment. For example, supply is constrained by the number of airports, the capacity of those airports, landing and takeoff slots, gate space and terminal space. On the labor side, there are licenses and other requirements that limit the exercise of free-market privileges.

To this observer, it appears that much economic and personnel waste could have been minimized if the President had appointed an emergency board rather than stopping one step short of previous legislative intent by failing to exercise such an option.


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