DEIRDRE McMURDY September 20 1993


DEIRDRE McMURDY September 20 1993


Late in the afternoon of Aug. 24, Rhys Eyton stood alone before 2,000 employees of PWA Corp. in a cavernous airplane hangar in Vancouver. There, the normally reserved chairman and chief executive officer of the embattled company, which owns Canadian Airlines International Ltd. of Calgary, warmly lauded their efforts to keep PWA aloft. “We wouldn’t be here today but for your efforts,” he said, adding: “I can’t tell you how much strength you’ve given me over the past 18 months.” PWA’s employees have raised $200 million through voluntary salary cuts in exchange for a 25-per-cent equity stake in the airline. Those concessions have enabled Eyton to resume negotiating a lifesaving deal with AMR Corp. of Fort Worth, the parent company of American Airlines. But even more remarkable than Eyton’s nurturing words was his appearance. Rather than his usual, stiff business attire, Eyton appeared before his staff dressed in a soft blue shirt without a tie. By contrast, the union leaders he introduced following his speech wore crisp white shirts and ties. Says Bill Farrall, who represents PWA’s 6,000 members of the International Association of Machinists and Aerospace Workers (LAM): ‘To sustain worker’s co-operation, there has to be a change in the approach—and style—of management.”

While Eyton and the union leaders clearly intended to depict the new corporate order at the troubled airline, their efforts to bridge the traditional gap between management and labor extend far beyond a fashion statement. In an era of massive employee layoffs and spectacular business failures, a financial crisis has forced PWA managers and workers to focus on their common interests—salvaging the company and preserving jobs. The acknowledgment of that mutual objective and, above all, the transformation of employees into significant stakeholders, have profoundly altered the relationship between PWA’s six separate unions as well as that of labor and management. “There is a

lot of pressure involved in this process because there are no road maps,” notes Sidney Fattedad, who heads the Vancouver-based Council of Canadian Airlines Employees (CCAE). “All we know is that we have to discard traditional corporate models and that we can never turn back to them again.”

Such progressive pronouncements are far from hollow: PWA’s survival depends upon them. Even if the company clears the final hurdle—a controversial withdrawal from the Gemini computerized flight reservation system—and completes an alliance with AMR, it desperately requires additional new capital. The international financial community, however, has been burned by the collapse of the company’s share price and the scorched-earth financial restructuring of its operations. The introduction of employees as major shareholders is also a potential cause for concern outside PWA. It represents a potentially volatile new element at a time when PWA needs to present a stable, united front to attract new funds and confidence. In fact, in 1990 the three principal unions at United Airlines Ltd. failed to secure financing for a buy-out of the company precisely because outside investors were concerned about the fragility of their alliance.

The fragmented 50-year history of PWA made the challenge of forging solidarity especially challenging. The company has grown principally through mergers and acquisitions—five of them over six years. In 1989, PWA paid $250 million for Wardair Ltd., burdening itself with debt just as the global airline industry began its downward spiral. With each acquisition, there were layoffs, transfers and painful adjustments to a new corporate culture. Diane MaloneyHand, a flight attendant in Toronto, says: “In a service-oriented business, uniformity of service is critical. And in a family constructed of multiple corporate marriages, it takes huge effort and expense to achieve that seamlessness.”

Despite PWA’s patchwork pedigree, its employees across Canada did have one strong bond: they all came from entrepreneurial operations where Crown-owned Air Canada of Montreal was the common rival. And after the most recent and painful addition to the family, Wardair, the employees craved stability and job security. But on July 27, 1992, after initial negotiations with AMR broke off, cash-strapped PWA abruptly announced that it was proceeding with an Air Canada offer to merge. Although the two major domestic carriers had discussed such a plan in the past, they had been unable to conclude a deal.

This time, battered by recessionreduced air traffic volumes and industry-wide overcapacity, PWA had no choice. It was losing $500,000 a day, and, although the merger meant that as many as 10,000 of PWA’s 16,000 employees would lose their jobs, senior executives felt they had no other choice. “We were running out of bullets fast,” says airline president Kevin Jenkins. “Even so, it wasn’t an easy thing for any of us to accept.”

In fact, the employees refused to accept it. Within hours of the announcement of merger talks with Air Canada, they swung into action and began to work on an alternative bid to rescue their company. Leading that campaign was Fattedad, a former PWA vice-president who had recently taken early retirement. Fattedad was well-acquainted with Donald Carty, a senior executive at AMR with whom he had worked at CP Air in the past. Carty assured him that if the employees could meet certain AMR terms, an alliance

Airline machinists at a rally in Vancouver: ‘a lot of late nights and bad pizza’

between the two airlines—and an infusion of cash for PWA—was still possible.

To accomplish that, Fattedad had to win the cooperation of PWA’s six union leaders and convince the company’s board that the employee plan was viable—quickly. “My first reaction was, Who is this management fink and what does he want?’ ” recalls IAM’s Farrall. “He was asking me to sell my members on giving up wages to buy shares in a company that was going down the tubes.” Farrall notes that he was especially skeptical of the proposal because employee investment initiatives at United Airlines and Eastern Airlines had ended badly. Buzz Hargrove, national leader of the Canadian Auto Workers Union (CAW), was so skeptical that he forbade his members—PWA’s 3,500 ticket and reservations agents—from participating at all. “The workers are being asked to take financial risks that no other lender would touch,” Hargrove told Maclean’s in August.

The unions were not the only party to view the proposed deal with a jaundiced eye. According to several senior executives, PWA managers were initially reluctant to take the employee plan seriously. Over the previous year, they had unsuccessfully tried to enlist the help of employees in averting a financial crisis, resulting in some mutual ill will. “The unions dug in their heels and accused management of crying wolf,” says Kevin Howlett, PWA’s vice-president of human resources.

¡S Such mistrust was also rife among the ranks. Once the individual union leaders agreed to considii er the plan—which entails graduated salary conâ cessions from each group of workers over four years to save PWA $200 million—they confronted an even greater challenge: working together. On Aug. 10, when the leaders of five PWA unions first met in Vancouver, they were defensive and guarded. Few of them had ever met before, and in some cases there was open antipathy over past violations of picket lines and related workplace grievances. “There was a lot of mistrust and negative body language during the first few meetings,” admits Farrall. “It took

a lot of late nights and bad pizza to build a bond.”

Labor and management band together at Canadian Airlines

By Aug. 14, however, the council was able to present its plan to PWA’s board of directors. It included the employee contribution, a $246-million cash infusion from AMR, and the pledge of provincial loan guarantees from British Columbia, Alberta and Manitoba. The board agreed to consider the proposal, although some directors, including influential Calgary businessman Ronald Southern, openly opposed the employee initiative and urged the merger with Air Canada. Senior company officials, meanwhile, were placed in the awkward position of enforced neutrality, unable to communicate directly with workers because of the confidentiality requirements in cases of competing bids.

To sustain employee morale at a time of great uncertainty, the council set up a so-called war room in Vancouver to oversee communication with the company’s sprawling roster of employees across Canada. A “Rescue Update” newsletter was sent out daily to keep PWA staff informed about all council developments, and a national network of employee activists was formed to support the council’s work with local rallies, political lobbying and publicity campaigns. Norma Hatchwell-Mozer, a Toronto flight attendant who has worked on a variety of employee projects over the past year, says: “I’m amazed at what we’ve been able to accomplish. I was never even active in my union, let alone banging down doors and confronting politicians.”

Despite the aggressive efforts of the council and its backers, on Sept. 9 the PWA board rejected the employee offer when the government of Manitoba withdrew its loan guarantee at the last minute. Some board members also expressed concern about AMR’s condition that PWA abandon the Gemini reservation system that it shared with Air Canada and other airlines, in favor of AMR’s own Sabre reservation network. The employees—and even their outside advisers—were

shattered by the rejection, which officially forced them to disband. Eyton told Maclean’s recently that turning down the employee bid— as chairman of PWA’s board—“was the most difficult thing I’ve ever faced in my career.” He noted: “I’d helped to build the airline for 20 years and I knew what the employees were feeling and exactly what they had gone through.”

The council, however, continued to operate covertly. And when Air Canada’s board of directors announced on Nov. 4 that the merger proposal was “unachievable” because of the $4.5-billion combined debt of the two airlines, the employees were ready for action. But by then, the delay caused by Air Canada’s review of its rival’s finances left PWA weeks away from collapsing. “If Air Canada’s tactics weren’t a deliberate ploy to weaken us, they were certainly irresponsible,” Eyton says.

Despite the federal government’s decision to allow the airline a $50million temporary loan guarantee on Nov. 24, PWA was forced to cease payment to most of its creditors on Nov. 29 to conserve cash and to embark on the $750 million debt restructuring plan. Bolstered by loan guarantees for $50 million from Alberta and $20 million from British Columbia, AMR and PWA concluded the terms of a “strategic alliance” on Dec. 29. By early 1993, even the CAW members were allowed to participate in an employee investment plan that will make them PWA’s largest shareholders with a 25 per cent stake. The tortuous struggle to survive has had a direct impact on both the relations between employees and the relations between employees and managers. According to Rod MacTavish, an Ottawa-based airport agent, there has been a “steady blurring of the lines between union members and their job responsibilities—everyone pitches in now with everything.” He also said that workers are now much more willing to generate cost-saving ideas and that there is “less frustration” in advancing those ideas to managers. In part, that is because PWA adopted a “total quality management” program in 1989, expressly to encourage workers to take initiatives that improve customer service. “It’s not all peace and love in lotusland—differences will always exist,” says Howlett. “But ownership has certainly changed the dynamic all around.”

Perhaps the most obvious sign of that is the presence of Fattedad

on PWA’s board of directors, representing the interests of the employee investors. A formal labor-management advisory team has also been formed to create a forum for quarterly dialogue—and financial disclosure—between employees and managers. The objective is to eliminate surprises for both sides and to defuse points of conflict before they erupt. Bruce Fingarson, who heads the union of simulator technologists at PWA, says that “as a traditional employee you draw conclusions with little information and that makes it easy to conclude that management are idiots. With more information, you get a different perspective.” Adds Howlett: “Labor and management are accountable to each other now and their long-term interests are no longer mutually exclusive.”

Still, both sides concede that the common struggle to survive and the bitter rivalry with Air Canada has made co-operation necessary I and relatively easy. The test of 5 their new corporate model lies in 1 sustaining it—whether the company’s fortunes improve or not. Fattedad acknowledges that “we’ve focused on crisis response so far—we haven’t had time to fully consider what we’ve created here and where to take it.” He and his colleagues on the council see their leadership role gradually narrowing to the management of the employee investment. “We do not aspire to be a shadow management team,” he insists.

Despite some concerns among employees, Eyton and Jenkins are adamant that PWA management will not gradually revert to former, hierarchical patterns of behavior once the crisis abates. “The change has been built into our corporate structure now,” says Jenkins. ‘We can’t turn back if we’re going to succeed as a company.”

In fact, Jenkins insists that the “team” approach, which relies heavily on input from frontline employees, is the key for service-oriented industries in the 1990s. It allows the company to keep in touch with shifts in customers’ habits and provides a flexible and rapid response to them. “It’s a new game and we have the employees onside,” he said. “That gives us a huge advantage while our competitors are struggling to work things out.” As the global airline industry struggles to return to profitability—and Air Canada continues its cutthroat rivalry with PWA—the embattled company will need every advantage, and every ounce of employee support, that it can muster.