ANALYSIS: Transport Union Head States Case Against Norwegian

Low cost carrier (LCC) Norwegian Air Shuttle’s entry into the US market has been an inarguable boon to consumers, who have been able to take advantage of dirt cheap fares as low as $300 roundtrip on European routings. Last month, the US Department of Transportation (DOT) issued a show cause order tentatively granting approval for the next phase of Norwegian’s long haul plans. Under the moniker of Norwegian Air International (NAI), Norwegian (the parent company) plans to create an Irish subsidiary that it will use to fly routes from the rest of Europe, including a well publicized route from Boston to Cork, Ireland using narrowbody Boeing 737 aircraft.

Critics claim that the airline would staff NAI flights with foreign flight crews via employment agencies in Bangkok and Singapore, a so-called “flag of convenience model.” This business model would exempt Norwegian from the expenditure required by high cost labor regulations in Europe, which are particularly onerous in Norway.

However, we spoke with Norwegian’s Director of Communications USA Anders Lindstrom, who claims that this is actually a misrepresentation of its completely legitimate Asian crew base that was put in place to service the carrier’s routes to Bangkok.

NAI does not have any Asian-based crew. Our opponents are claiming we will use Asian-based crew just because we have a crew base in Bangkok and some pilots based in Asia. These pilots are Europeans who have worked for various legacy carriers but now live in Asia. They are paid almost identical to, for instance, our long-haul pilots based in Norway. The Asian crew base was set up to support our Bangkok routes.

However, under the assumption that NAI is a flag of convenience operation, its plan has engendered fierce opposition from labor unions on both sides of the Atlantic, but particularly on the US side. We spoke with Edward Wytkind, head of the Transportation Trades Department (TTD), a parent organization to a variety of US transport worker unions including the Association of Flight Attendants CFA (AFA-CWA), the Air Line Pilots Association (ALPA), the Transport Workers Union (TWU),  and the International Association of Machinists and Aerospace Workers (IAM). TTD is one of the leading voices calling on the US government to “Deny NAI”, and last week several hundred TTD members and allies even rallied in front of the White House advocating on the same issue.

TTD believes that the legal argument isn’t cut and dry

As we noted in our earlier column on the subject, Norwegian has been advancing an argument (with the backing of the EU) that since it is legal for Norwegian to establish an Irish subsisidary, and since NAI doesn’t violate Irish labor laws, then as per the US – EU Open Skies Agreement, the DOT does not have any grounds to block NAI. This apparently, is what led the DOT to issue its show cause order last month that stated that Article 17 bis (see below) wasn’t enough to deny NAI the right to serve the United States. But Wytkind, naturally, doesn’t believe that Norwegian’s legal argument is so cut and dry:

No matter what Norwegian Air International says, that business model is a very clear violation of the labor article that was negotiated into the US – EU open skies agreement. Now what we are facing is a struggle to convince our government that those provisions are indeed enforceable, because if you read the show cause order that the government issued they didn’t really rebut our arguments. In fact, they acknowledge the legitimacy of our argument on core labor issues but for reasons that are completely inexplicable to anyone involved on our side they somehow are arguing that those are not basis for denial, which renders the labor article toothless and useless if you’re not willing to enforce it.

Wytkind is specifically referring to Article 17 bis of the US-EU Open Skies agreement, the so-called “Social Clause” of the agreement. Article 17 bis is all about labor standards and contains the following language regarding labor standards as they apply to airlines flying trans-Atlantic routes:

The opportunities created by the Agreement are not intended to undermine labour standards or the labour‐related rights and principles contained in the Parties’ respective laws… The principles in paragraph 1 shall guide the Parties as they implement the Agreement, including regular consideration by the Joint Committee, pursuant to Article 18, of the social effects of the Agreement and the development of appropriate responses to concerns found to be legitimate… The Secretary of Transportation shall consider the following matters, among others, as being in the public interest and consistent with public convenience and necessity: coordinating transportation by, and improving relations among, air carriers, and encouraging fair wages and working conditions.

Thus clear language was written into the overall agreement about preserving labor standards, which the NAI scheme is more or less in violation of. Article 17 bis leaves a lot up to the subjective interpretation of governments on either side of Atlantic, and this is the basis on which the TTD is calling for the DOT to block NAI. In fact, Wytkind claims that flag-of-convenience operations such as NAI were one of the specific drivers behind the adoption of Article 17 bis:

The history regarding the US – EU agreement and its negotiations very clearly shows that this is not true. In fact, you can find comments made by Europe itself, that it was very wary of this business model and in fact said that it was concerned that the US-EU agreement would enable this kind of flag of convenience business model. Norwegian is allowed to use workers from Norway, Ireland, or anywhere in the EU to fly routes from Norway and Ireland. What they are not allowed to do is forum shop as per the US-EU agreement.

This legal argument is reasonably compelling. Irrespective of one’s personal position on whether NAI should be allowed into the US market, the language in Article 17 bis is vague enough with plenty of references to “high” wages and labor standards that the TTD and its allies may well have legal standing in their argument.

However, Lindstrom counters that flights by NAI will be staffed by US and European crew, which would render much of TTD’s argument moot:

Norwegian has filed in the DOT docket that NAI’s U.S. routes will be operated by U.S. and European crew. We have two crew bases in the U.S.: JFK and FLL. Sadly, not once have our opponents acknowledged the fact that we have American crew, let alone the fact that we have more U.S.-based crew than any other foreign airline. On top of that, we’re looking to triple, if not quadruple our American crew in the very near future as we continue to expand… Our opponents have created a wildly inaccurate fear-mongering situation. They are completely ignoring the fact that NAI does not have any Asian-based crew and that we have filed a document with the US government that NAI’s U.S. flights would be operated by U.S. and European crew.

TTD believes that discussion of consumer interest is a side show

The natural corollary to this is that the arguments Norwegian brings about the consumer benefits posed by its entry into the market are nothing more than a distracting sideshow. In fact, as Wytkind points out, Norwegian could operate the routes it plans for NAI right now under its existing operating certificate, as it already does for US routes from Scandinavia:

If Norwegian wants to fly to Boston, which is one of many falsehoods that they use in their arguments in favor of their application, they can do that tomorrow just like they fly to California or Florida.

Norwegian would of course argue that matters are not so simple, as its longhaul operations are simply not profitable when it has to operate under European labor standards. And even if not all of the consumers are flying on $350 round trip tickets, most are flying on fares under $700, yielding average benefits of at least $500 per passenger. On one of Norwegian’s 344 seat Boeing 787-9 aircraft, that works out to at least $150,000 in consumer benefit assuming 80% load factors.

As any economist will tell you, in considering aggregate economic benefits, a dollar saved by a consumer is no different than a dollar earned by a worker (in that both dollars will be either spent or put into savings/investment). So even if a pilot loses his or her job every single time Norwegian completes a roundtrip flight to Europe (which is clearly not true), the overall impact on the economy is a net zero. Since individual pilots aren’t losing their job as a result of each flight (perhaps one for every 1,000 operated), the consumer benefits are pretty much inarguable.

Wytkind, naturally, is skeptical of this argument, and emphatic in condemning it:

That’s a business model that the global aviation industry ought to condemn. You shouldn’t be using working people as your collateral to undercut the market and dump on the market cheap fares.

But Lindstrom is also able to cite hefty job creation figures on its own behalf:

Approving NAI would result in more U.S. jobs, both directly and indirectly. Norwegian plans to grow its already large pool of American crew and is looking at a third, potentially fourth crew base in the U.S. to complement the two existing ones in JFK and FLL. Our $18.5 billion order with Boeing for new aircraft and engines from Pratt & Whitney alone result in supporting and sustaining more than 90,000 American jobs, according to the Department of Commerce… We have been accused of stealing American jobs which is utterly incorrect. How can we be stealing American jobs when we have more hired more American crew than any other foreign airline? Most of them have worked for other major U.S. carriers, and most of them say they make more money working for Norwegian and that they’re much happier. We can, however, at this point, not hire American-based pilots, as they require European pilot certificate since we are a European airline.

Safety argument has some validity but overreaches

In fact, Wytkind goes a step further and links the concept of flag of convenience airlines as creating potential safety and regulatory issues:

As you start dotting the globe with flag of convenience airlines when they are based here and employ workers there, it’s almost impossible for government authorities to even regulate their operations. So what this model lends itself to is a conversation about what should the global aviation industry do if it actually wants to set the standard for flying passengers around the world? Do we actually want an industry that’s so globalized that it’s hard to even figure out how to regulate those companies?… [W]hen you look unto the underbelly of that business model what does it really look like? Exploited workers, potentially serious safety issues, and as you spin these things out more and more into a global environment and suddenly the service doesn’t look so good once you start looking at the underbelly of it.

Wytkind’s observation about flag of convenience operations creating potential holes in the regulation of airline operations worldwide is an astute one, though it is more a condemnation of the inability of the government regulatory apparatus to evolve and innovate than it is one of the business model itself. More to the point, Wytkind’s attempt to tie the use of foreign pilots and flight attendants to potential safety issues seems off base, given that pilot training standards compensation are reasonably uniform worldwide. Remember that the effective take home pay of most pilots worldwide is basically the same – and the lower costs for the Thailand-based pilots is driven by lower cost of living and a heftier tax bill in Europe. Flight attendants too have a similar economic calculus.

Lindstrom, of course, vehemently disagrees with Wytkind’s characterization:

To say that we compromise safety is incredibly offensive to our hard-working crew. They undergo rigorous safety training, and we have been told by U.S. crew members that their training with Norwegian was far superior to that of their other previous American carriers. All our aircraft maintenance takes place in Scandinavia or London, not Asia as our opponents claim. Again these are malicious and misleading claims that are utterly incorrect.

Wytkind’s point would be better made about outsourced aircraft maintenance, where Thailand’s current status as a Category 2 country as judged by the Federal Aviation Administration would pose a tangible safety risk. But pilots and flight attendants in Singapore are amongst the best in the world (as Singapore houses several of the world’s safest airlines) and plenty of fine flight crew operate to and from the region without incident.

In fact the overall argument, though this is clearly not the sentiment of Wytkind or the TTD leadership themselves, smacks suspiciously of the kind of racism and preying on anti-foreign bias that are is one of the main, if underreported legacies of the organized labor movement in the United States. There is a valid point about regulatory uncertainty as it relates to the broader notion of flag-of-convenience airlines, but attempting to cite this as an argument against the hiring of Asian flight crews is at the very least disingenuous.

TTD continues to fight against undercutting of labor standards

Independent of the safety argument, Wytkind also notes that NAI’s employees will not be given the same privileges and benefits as other European airline workers:

We found evidence of undercutting European standards, especially Norwegian standards, by 40%. This is why Norway’s unions oppose this thing, and they have very strong labor laws. They have very mature collective bargaining relationships in Norway. It’s one of the most unionized countries in the world and one of their flag carriers is shopping the globe for the cheapest labor they can find and they’re refusing to abide by their own collective bargaining commitments to their own employees.

And this, Wytkind asserts is grounds for the DOT to take a hard look at NAI under the broad powers ascribed to it by Article 17 bis:

Just that is enough to declare that a violation of Article 17. That’s what we’ve been trying to argue: you don’t need to look that deep under the hood just pop the hood open and look right at the top. Norwegian Airlines has decided to base itself in Ireland, and they won’t even hire Irish employees and put them under collective bargaining agreements in Ireland. Instead, they are going to hire them through a hiring agency in Thailand and then tell us that they are flying from Europe to the United States and this is a European airline. How that doesn’t violate Article 17 bis, we just are completely baffled by and that’s why we want to keep redirecting the energy back to that conversation.

Norwegian rejects this claim fundamentally:

Ireland is not a flag of convenience for NAI. NAI has had an office in Dublin for several years, with about 80 employees, and most, if not all of them, are Irish. NAI also currently operates a number of European routes from several European bases, including London and Barcelona. Ireland is part of the E.U., which Norway is not, and we looked at several E.U. countries to base a subsidiary in. We chose Ireland because it has one of the world’s highest-ranked civil aviation authorities, is home to several of our aircraft leasing management companies, and has fully adopted the Cape Town Convention.

Based on the wording in Article 17 bis, the TTD might appear to have enough of a legal standing to at least mount a case against NAI. The language is subjective enough that the DOT would have the power to block NAI if it were truly offering lower labor standards. There is some question as to whether NAI will pay lower wages and skirt the standard set of European worker regulations that apply to its existing workforce. But it is inarguable that Norwegian’s entry into the US market is a major boon to consumers, and perhaps this is why the DOT chose to look the other way. Regardless of the legal merit of TTD’s argument, it may well be running out of time to block NAI’s entry into the US market.

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