The shipping news: Aloha Air Cargo closes

Less than a month after Aloha Airlines closed its passenger operations forever, it was forced to shut down its air cargo division as well. Now Hawaii shippers have a variety of not-so-good choices. The end came Monday afternoon when GMAC Commercial, the company lending money to Aloha, turned off the spigot. The bankruptcy judge elected not to order the tap turned back on, and that was that. This was the sequence of events:

1. Several companies expressed interest in buying the cargo operation, and two of them bid more than $13 million.
2. GMAC held out for $15 million but neither prospective buyer felt able to go that high.
3. Absent a buyer, GMAC then decided there was no reason to go on funding the operation.

The purchase price, whether $13 million or $15 million, would have been a small chunk of change compared to the cost of recovering lost business and restoring the health of the division. So why would a price difference of less than 8% be a deal breaker? One answer: a labor issue, pertaining to pilot seniority and compensation. Aloha pilot salaries ranged, according to seniority, from $30,000 to $82,000 for first officers and from $90,000 to $120,000 for captains. My thanks to a laid-off Aloha Air Cargo pilot for more specific data than I originally had in this paragraph! Cargo crews usually made overnight differentials as well, extra pay for working crazy hours. Their contract allowed pilots to choose their assignments based on seniority, and senior passengers pilots chose to bump into the cargo division rather than be laid off. (Some senior pilots were already working cargo as a matter of personal preference.) This alone probably would not have been a deal breaker, either; GMAC several times demanded resolution of the issue but did not dictate any terms. It just wanted something settled and set. In recent days, however, the Aloha chapter of the Air Line Pilots Association sued the airline over the issue, and took a strike authorization vote, despite the fact that Aloha was already training senior passenger pilots on cargo planes. Why was the union unwilling to take "yes" for an answer? It's possible that the national union wished to stand firm on an issue important to its members. But to some extent what happened was the inevitable result of human nature being what it is, both for union members and for business people. It is human nature that when things go horribly wrong we look for someone to take the blame. To be victimized by venal or incompetent management is somehow less scary than to be thrown out of a work by happenstance. And, in contract talks, both sides tend to bluster in the early stages. It would have been all too easy to assume that Aloha was in better shape, and its prospective buyers more deep-pocketed and eager, than anyone would admit. But this wasn't reality. Reality check: management was canny and creative in keeping Aloha funded and alive for a very long time, and it avoided layoffs that other managers would have undertaken long ago. The other human nature factor: people who own or run non-union companies inevitably believe that a union will interfere with the orderly operation of their business. For the companies bidding to buy the air cargo division, the pilots union squabble, and especially the strike vote taken after pilot training on cargo planes began, signaled a troubled company that would be a hassle to manage. By the way, this senior-pilots-bumping issue will be repeated all over the country this year. Most of the mainland giants plan to cut domestic capacity. Senior pilots who until now have elected to fly the routes that will chopped will keep their jobs, bumping onto other routes, and junior pilots will be the first to go if there are furloughs. Seniority is so important to pilots that American Airlines spent years merging seniority lists after acquiring TWA, US Airways has spent years sorting out seniority after merging with America West, and after more than a decade I think there still isn't full resolution of seniority issues for a regional carrier that Northwest Airlines acquired. When and if Delta Air Lines merges with Northwest, the merging of seniority lists will be a headache for years. It's possible that Aloha Air Cargo might be more attractive in pieces if Chapter 7 allows a purchaser to pick up the pieces without picking up the pilot contract. But if there is the slightest possibility of being saddled with that contract, some prospective buyers will decide it's more trouble than it's worth. This is, of course, for the pilots themselves, an unsavory message, but labor unions, like businesses, do best when they fully understand the costs of doing business.  

Comments

[S.L.Henion]

Curious about labor and unions in Hawaii. We have the Aloha Air Cargo fiasco with the Pilots Union right in the thick. What about construction here in Hawaii? Lay offs but hiring at non-union jobs. Have our illustrious island unions gotten caught in their own time warp? It is no longer you have to do business with the unions as they were 20 years ago. Explain to me what unions do these days besides take membership fees?

[S.L. Henion]

Ah so!! Now I think I get it about unions and the labor market in Hawaii. Somehow it seems that people will have to improve their communication skills instead of relying on "that's how we use to do it here" mentality. I still say Hawaii is kicking and screaming into the 21st Century.:-)
Again thank you for your clear, succinct thoughts. Your blog today about Bernadette's Vegas comments are telling.