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Risis rocks Aer Lingus

Aer Lingus, the Irish state airline, faces an uncertain future, having been hit by a severe crisis following the attacks on the USA on 11 September 2001. Company management has responded by proposing a draconian cost-cutting plan, incorporating extensive redundancies, wage freezes, changes in working practices and productivity improvements. The crucial issue, in terms of trade union and worker 'acceptance' of the plan, is whether a sufficiently attractive voluntary severance package can be devised. If not, conflict may ensue.

The Irish state-owned airline, Aer Lingus, has been hit by a severe financial crisis following the downturn in the air transport industry in the wake of the terrorist attacks on the USA on 11 September 2001 (IE0111203N). At the time of writing (9 November 2001), the outlook for the ailing airline remains precarious. Before the events in the USA, the company employed approximately 7,000 staff. The 'removal' of 700 temporary staff is already well under way, while 2,026 permanent staff look set to lose their jobs over the winter months.

Company response

The new senior management team at Aer Lingus, which is headed by new chair Tom Mulcahy, has responded to the crisis by unveiling a restructuring plan, which is set to take effect immediately. The main details of the restructuring plan, which was directly communicated to the workforce by the newly appointed chief executive, Willie Walsh, are as follows:

 

* IEP 148 million in overall cost cuts, made up of payroll reductions and cuts in direct costs/overheads;

* a permanent staff reduction of 2,026 across all areas and grades (31% of the workforce);

* radical changes in work practices to boost productivity;

* a new business model based on a more efficient delivery of products and service;

* a complete freeze on pay for 2002 and 2003; and

* funding for a redundancy programme.

 

The proposed staff reductions are broken down throughout the company as follows:

* a 38% reduction in managers (23 posts);

* a 33% reduction in clerical grades (563);

* a 33% reduction in operatives (427);

* a 32% reduction in information technology specialists (37);

* a 31% reduction in superintendents (93);

* a 31% reduction in cabin crew (476);

* a 28% reduction in technical grades (50);

* a 27% reduction in pilots (156); and

* a 27% reduction in specialists (19).

Government response

The political difficulties facing the Irish government in dealing with the Aer Lingus crisis are considerable, especially given that 2002 is an election year. The government has strongly emphasised its commitment to saving the airline. There has been much speculation and uncertainty regarding the government's response to the crisis. As of early November 2001, the government's strategy remained unclear. One possible scenario, that of a guaranteed loan from the government to the company, may not materialise, as the EU transport Commissioner, Loyola de Palacio, has so far appeared unwilling to countenance such a move. This is despite the fact that the US government recently granted a USD 15 billion rescue package to struggling US airlines which, various commentators suggest, has created an uneven playing field between the USA and the EU. The Irish government is still trying to persuade the EU to grant it permission to issue a loan to assist Aer Lingus.

Another possible scenario is partial privatisation. The government recently approved a partial sell-off of the company to potential private sector investors. The government, at least in the short term, would maintain a majority shareholding, while the employee ownership stake in the company would potentially increase from 5% to 15%. Indeed, the search is now underway for a potential investor. Any private investor would be expected to use part of its investment to fund a redundancy programme for departing staff. However, in the longer run, any private investor is likely to seek greater control and ownership of company operations and corporate governance. This move towards private ownership appears to be the option most politically acceptable to the EU, which seems determined to rationalise European airline operations.

Union response

In a climate of deep crisis, the Aer Lingus restructuring proposals have been developed unilaterally and speedily by company management, without prior negotiation and consultation with trade unions at the company. The unions distrust the new senior management team, and have accused it of adopting a short-term accountancy-driven exercise. Local 'negotiations' between management and unions are due to take place over the finer details of these proposals, such as the nature of new working arrangements and productivity improvements. The aim of the unions will be to limit the detrimental consequences for their members. The national third-party body, the Labour Relations Commission (LRC), is likely to play an important part in any talks.

There are two main unions at Aer Lingus. The union representing the majority of workers is the Services Industrial Professional and Industrial Union (SIPTU), which predominantly represents catering, cleaning, clerical, and operative staff. The other key union is the Irish Municipal Public and Civil Trade Union (IMPACT), which represents mainly 'front-line' staff in the form of cabin crew and pilots. Although relations between the two unions have been tempestuous in recent months - as a result of cabin crew opting to leave SIPTU to join IMPACT earlier in 2001 (IE0105236N) - the crisis appears to have brought a closer relationship, and convergence towards a common position is evident.

SIPTU is still formally opposed to any private ownership of the company, although it has recently softened its view somewhat, given the severity of the crisis facing the company. In this sense, it may have little option but to accept a partial sell-off if the government presents this as the only viable option. Faced with this scenario, SIPTU would seek to negotiate the best possible terms for its members. Whatever happens, SIPTU is likely to face greater industrial relations difficulties than IMPACT, because its members work in areas more vulnerable to job cuts, such as catering and cleaning.

 

IMPACT, meanwhile, is not opposed to private ownership per se, having perceived that private sector involvement is largely inevitable. If private sector involvement was to occur, IMPACT has stated that one of its key objectives would be to increase the employee share holding in the company to 20% (it currently stands at 5%).

The two unions are on common ground in agreeing that an attractive voluntary severance package will be required. They are opposed to compulsory redundancies. To this end, the contents of any prospective severance package are likely to prove crucial in terms of whether the industrial relations climate improves or deteriorates further. The latest news in this respect does not bode too well. On 31 October, management unveiled a redundancy programme. It directly informed staff that IEP 40 million would be available to fund redundancy payments, which amounts to approximately IEP 15,000 to IEP 20,000 per worker.

The unions were angry that management announced these details without first consulting them. While the figures represent a larger amount than allowed for under statutory redundancy provisions, they fall far short of the terms of the 'Cahill' Aer Lingus rationalisation plan of 1993, when IEP 50,000 (IEP 90,000 in today's terms) was the average redundancy payment. As a result, the current terms are unlikely to attract the 2,000 plus volunteers that are required, even though worker and union expectations have been lowered as a consequence of the severity of the crisis. The company has imposed a deadline of 30 November for acceptance or rejection of the offer. Compulsory redundancies may be initiated if sufficient volunteers do not come forward. If this happens, conflict may be inevitable.

SIPTU and IMPACT have also called for an exploration of a range of possible alternatives to redundancies, such as special unpaid leave arrangements and job-sharing, in an attempt to minimise the social impact of restructuring. However, the new senior management team is not too keen on these proposals, preferring a harder 'slash and burn' cost-cutting approach to achieve short-term financial targets.

EU response

At the present time, the EU transport Commissioner, Loyola de Palacio, appears to be unwilling to allow the Irish government to provide financial assistance to Aer Lingus, although negotiations are continuing on this issue. The transport Commissioner appears to view a partial privatisation as the only acceptable option. There is a feeling in some quarters that key voices in the European Commission perceive that there is overcapacity in the European airline industry and that a degree of rationalisation may be necessary. It may yet be the case that other political voices in the Commission will have some say in what happens, such as the Employment and Social Affairs Directorate-General.

Commentary

The immediate outlook for industrial relations at Aer Lingus remains unclear, given the severity of the crisis facing the various actors involved, and the uncertainties surrounding their actions. What is certain is that staff at the company will be hit by a range of draconian cost-cutting measures over the winter months, such as redundancies, wage freezes and new working practices, that will have a negative impact on themselves and their families. Seven hundred temporary workers have already been let go, and the pay award due on 1 October 2001 under the national agreement, the Programme for Prosperity and Fairness (PPF) (IE0003149F), has been rescinded.

It remains to be seen whether these cost-cutting measures can be implemented without provoking a serious outbreak of conflict. To this end, it is likely that some trade-off will be required to lessen the pain for workers. The key issue, in terms of fostering a 'palatable' trade-off, is whether a voluntary severance package can be devised that attracts sufficient volunteers. If not, and compulsory redundancies are on the agenda, conflict appears inevitable. Moreover, the unions and their members are unlikely to welcome prolonged wage freezes, a re-entrenchment of a low-wage culture, and poorer working conditions. Given such a poor industrial relations climate, it will not be easy to restore employee cooperation and trust.

source : Tony Dobbins, CEROP, UCD

 

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