Saturday, December 21, 2013

Airlines Say US Should Deny Operating Certificate to Norwegian's "Shell Company"

Bjorn Kjos is interviewed in Oslo in 2012
Four major U.S. airlines and the largest American pilots union are calling on the U.S. Department of Transportation to deny Norwegian's attempt to fly into the United States under a new subsidiary based in Ireland. This could threaten the low cost carrier's rocket-like ascent into the U.S. and Asia markets from hubs in Scandinavia. 

The U.S. government must approve a new operating certificate for Norwegian now that the company has separated its cockpit crews into two groups to evade labor laws. Low cost carrier, Norwegian has divided its 737 pilots who are paid a union-negotiated wage hitched to the country's high cost of living from its contract Dreamliner pilots who will fly long haul, live in Bangkok and work under contracts with an outside hiring firm. 

As I reported for the Runway Girl Network on Friday, Norwegian offers bargain basement fares between a growing number of American gateways and Scandinavia and soon, England. But the high-flying plans may become snagged by the airline's need to get operating certificates in Ireland and the USA. The effort is being challenged by the Air Line Pilots Association the trade group Airlines for America and four airlines, US Airways, Delta Air Lines, American and United. 

In a filing on Friday, the four airlines said Norwegian's plan violates a prohibition on "flags of convenience to evade labor protections and thereby derive a competitive advantage in the marketplace." The airlines also charge that beginning flights from London to America without stopping in any Scandinavian country is a key piece of the Norwegian strategy and would not be possible without Norwegian obtaining an operating certificate in Ireland.

I'd call the Norwegian plan - involving a lot of legal paperwork and fractionalizing of the company - eyebrow-raising except Norwegian is not alone. It follows European low cost carriers Ryanair and easyJet, both of whom employ similar schemes and who have gone crosswise with the tax and labor departments in Europe. 

Earlier this year the French government ordered Ryanair to pay 9 million euros for breaching labor laws by putting French pilots under Irish work contracts thereby paying lower social security and taxes. EasyJet tried and was caught doing the same thing in 2010, though the company spokesman at the time blamed confusion rather than an active effort to save money on pilot salaries. 

Some airlines consider these efforts to cut costs in the cockpit "right sizing" of paychecks, including Norwegian's Bjorn Kjos, who explained the strategy to me when I interviewed him last year about the airline's propensity to contract out for personnel services. 

"Isn't it harder to keep control?" I asked him.

"On the contrary. If it is your own people you cannot change them out. If you have a contractor you can do it. If they aren't slim and trim to the last number," he said of the airline's suppliers, "they will loose the contract."

Airlines with unionized cockpit crews and those in countries with strong worker protection laws don't have this freedom which explains why the lawyers are making hefty fees finding ways around the restrictions. Just ask the pilots at Austrian

Faced with years running in the red, the flag carrier did a little legal re-configuring so that it could transfer its long haul pilots into the regional carrier, Tyrolean, a change that went into effect over the union's protests in 2012. 

"Tyrolian operates the flights. The staff, the crew uniform are the same," explained the airline's CEO Jaan Albrecht at status meeting for reporters in Vienna earlier this month. What's different is staff salaries. By stopping automatic increases for this work group Austrian saved 45 million euros. If we had not done anything, Albrecht said, "personnel expenses related to flying staff, in the year 2012 we would have seen an increase of 8 percent in our costs."  This from a former airline pilot who was an officer with the International Federation of Air Line Pilots Associations

CEO Jaan Albrecht photo courtesy Austrian 
He was also an executive at Mexicana, the chief executive officer of AeroPeru and the CEO of the Star Alliance. If it seems a little startling for Albrecht to share space with renegade Bjorn Kjos and industry bad boy Michael O'Leary, note that neither Mexicana nor AeroPeru are still flying today. That may be enough of a reminder to the chief of a struggling airline of the penalties of not keeping costs in line. 

Pilots are far from the only ones feeling the pinch during this monumental transition in commercial aviation. Flight attendants, ground crews and even passengers are being squeezed as well. Still, because of the significant role pilots play in the level of safety air travelers enjoy, controversies affecting them always get more attention. 

This is why the challenges filed by ALPA, A4A and the four U.S. airlines to Norwegian's complex two-tier salary scheme are significant beyond just one airline. Not only could the Norwegian debate instigate clarification about the right way and the wrong way to "right size" salaries during challenging economic times, it could prompt a much needed discussion about how to ensure fair competition in a global market where salaries differ widely. 


Anonymous said...

Norwegian operates in the most expensive country in the world. They need to do this to compete with the rest of the world.

Anonymous said...

They don't 'need' to do this. We don't need again another airline because someone wants to make money at the expense of hard working men and woman who are payed too little.

Anonymous said...

It's a trick to import asian crew, to get a competitive advantage. They do not have working permit in Europe (the planes are registered in Europe and the "Shell" - company is based in Europe.

If it's ok to do this, all airlines must replace hundred thousands european and american crews with "low cost" crews, to have the same competitiveness.

Anonymous said...

Norwegian dont "need" to do this, they're in this business to make money. Governments and tradeagencies really need to regulate how bad they can act.
Fair competition is what we need, not pirates who lack moral..

Anonymous said...

It's about time there was another challenge to the major airlines who have for years code shared in order to keep prices up. Hopefully Norwegian will be able to survive the bully boy tactics from BA & the US airlines that saw them see off Freddy Laker when he dared to challenge their monopoly