B]Singapore 24.02.04
Pilots to SM: We will cooperate[/B]
The Singapore Airlines pilots' union hit a rough patch after members ousted the leadership last November. Senior Minister Lee Kuan Yew warned the pilots against taking such a confrontational route. In an exchange of letters made public yesterday, the pilots listed their past grievances with SIA management... but assured Mr Lee that they now want to resolve outstanding issues amicably with management and keep negotiations 'within the family'. Mr Lee welcomed their decision and set out what each must do to move on. We give here the main points of the letters, reproduced in full in these two pages
Jan 16, 2004
Senior Minister
Mr Lee Kuan Yew
Dear Sir,
I AM most grateful for your kind attention in this matter of low morale among SIA pilots. Enclosed is a brief that I hope you will find useful.
Your timely intervention will, without doubt, result in a workable framework that will help propel SIA to greater heights. I, too, am convinced that old baggage between Alpa-S and the company will not serve any useful purpose. Common objectives and focused efforts are indeed necessary if we are to thrive in the challenges ahead.
On behalf of my fellow members, please accept our heartfelt gratitude and appreciation.
I await your instructions and guidance.
Your humble citizen,
Mok Hin Choon
Attachment to letter to Senior Minister
For the Senior Minister's information, we have compiled below a number of incidents over the past two years or so which we feel led to the deterioration of staff morale.
1. The Sars pay cut
Alpa-S had, right from the beginning, said we were prepared to take painful measures such as pay cuts and no-pay leave, if necessary. All we wanted was a chance to work out, with the company, a formula that was equitable.
The company had initially demanded, of captains, a 23 per cent pay cut plus 12 days of Compulsory No-Pay Leave (CNPL) every two months. This CNPL is the equivalent of a further 20 per cent reduction in our monthly take-home pay. Add on the reduction in flying allowances, and captains were looking at no less than a 50 per cent total reduction in pay. (The cut for first officers was of a similar magnitude). We baulked at first at such a sizeable and sudden reduction in pay. We wanted the company to first look into the possibility of getting the overseas-based pilots to take some form of furlough. (Most of these pilots were retired, and receiving pensions from, their previous airlines.)
The reaction by management to our initial resistance to this was a public castigation at the press conference for the 2002/03 financial results. At the same public event, management threatened that they were prepared to give Alpa-S only two meetings to agree to this, after which they would take us to the IAC to force the issue.
As it turned out, more than half the savings in staff costs in the second quarter of the 2003/04 financial year (excluding provision for profit-sharing bonuses and retrenchment) were borne by flight crew (about 8,000 cabin crew and pilots) in the form of wage cuts, CNPL and reduced hourly flying allowances because of a reduction in the number of flights. The other half was in the form of wage cuts alone from the remaining 21,000 SIA staff.
Unlike cabin and cockpit crew, the latter were not subjected to CNPL. Nor do they have any flying allowance, which is in fact a variable form, and a substantive portion of the monthly wages of flight crew. Thus, a significantly greater burden fell on the cabin and cockpit crew, compared to the rest of SIA's staff.
Insensitively, the company - in the middle of pay cuts and retrenchment - announced its intention to remove the cap on the share options it rewards its senior executives with. This was reported in The Straits Times on June 27, 2003. Prior to the removal of the cap, SIA could give its CEO and senior executives up to 240,000 and 200,000 share options a year respectively.
2 The 9-11 pay cut
Immediately following Sept 11, 2001, SIA staff agreed to five months of voluntary pay cuts. The airline subsequently made a profit after taxes of $631 million for the year ending March 2002. However, it refused to accede to the request by its five unions for at least part of the pay cuts to be refunded. This was the start of a general feeling among staff that management is quick to take from its staff when times are hard, but unwilling to reciprocate when things get better.
3 The Business Class seat issue
Contrary to what was reported in the press, we did not insist on being seated in First Class. We merely wanted to retain what had been agreed on by the company in the CA - namely, both crew rest seats in Business or J class. That is now water under the bridge as we have since agreed to give up one of the two seats that we were entitled to.
But more importantly, management handled this matter in a very high-handed manner. After 13 years of providing J class seats for crew rest, in accordance with the CA, it suddenly informed the association that henceforth, pilots would take their rest in three Y (Economy Class) seats instead of two J seats. It had unilaterally (and disingenuously) reinterpreted the CA and decided that 3Y = 2J, without consulting Alpa-S.
The conversion of the J class seats to SpaceBeds that could be adjusted to provide horizontal rest resulted in the number of seats in Business Class falling from 58 to 50. The company claimed that with this reduction, it had to ensure that paying passengers were given priority for these seats. However, it continues to accord its senior executives (divisional vice-presidents and higher) the right to travel in Business Class on a confirmed booking basis - in other words, they can dislodge paying passengers from J class. (Also, cabin crew have firm instructions to treat SIA board directors and their dependents as commercial passengers - for example, they are not even to be approached for seat changes in the event paying passengers have been allocated seats that have defective entertainment systems, or request to be seated together when travelling in a group.)
4 Retrenchment criteria
When the retrenchments started, the startling thing was the company's policy on whom to let go. No longer are years of service or one's status as a national pilot (versus expatriate and overseas-based ones) a criterion. Instead, management will select pilots for retrenchment solely on the individual pilot's 'competencies'.
But by and large, a pilot is either competent or he should not be employed as one in the first place. A comprehensive set of recurring base checks, line checks, safety/emergency procedure tests and medical examinations, all mandated by the Civil Aviation Authority of Singapore, ensures that there should be no incompetent pilots. The flying public demands this. Experience counts, as do loyalty and nationality. Take an overseas-based (OBS) pilot residing in Britain or Australia with, say, a year's service in SIA Mauritius, retired and receiving a pension from his previous airline. Then consider a national pilot based in Singapore, with some 20 years service in SIA, and who depends on his job for his and his family's livelihood. The company now says that the two should be treated no differently when it comes to retrenchment, and will be judged solely on which pilot is more 'competent'. To us, this was drastically changing the rules of the game.
5 Management of crew numbers
From late 2001 till the end of 2002, the company deliberately over-recruited expatriate and OBS pilots (all captains), to clear a huge backlog in owed annual leave by mid-2003. For reasons known only to itself, it wanted to accelerate this process rather than clear the owed annual leave at a more measured pace.
Pilots were made to clear two to three years' worth of annual leave over a few months in early to mid-2003, regardless of whether they were able to use the leave meaningfully. When Sars came, it was further mandated that all outstanding and current (namely, 2003) leave must be cleared by September that year. Some who urgently needed to use their leave entitlement later in the year had to take it earlier anyway. (They were told that they could apply for advance, or 2004, leave should they really require it later. But with the upturn in business, the advance leave applications could not be approved when the time came.)
The company knew very well that with the extra numbers required for this accelerated programme of clearing leave, there had to be a sudden surplus of some 50 to 60 pilots come mid-2003 (not counting Sars), once all leave was cleared. But despite this, when Sars came, it was happy to jump on the bandwagon and make the pilots pay for the entire surplus (including the self-inflicted surplus in management's crewing plans) in the form of CNPL.
This deliberate surplus not only incurred high wage and training costs unnecessarily, but also put a strain on the existing instructor and simulator resources. One also wonders: What would the company have done with the surplus, had Sars not conveniently come along? Carrying it would be expensive, wasteful and inefficient regardless. Let the pilots go once the backlog is cleared? This, especially if premeditated, would be too callous, with scant consideration of the disruption to the lives and livelihoods of them and their families.
6 Proliferation of management cost
While eager to cut staff wage costs, management has not set a good example because the number of managers and executive staff has ballooned in the last two to three years. A shining example is the flight operations division. In June 2000, with a total of 92 aircraft, there were 30 managers (including management pilots) and 33 administrative officers (AOs) in flight operations. Last month, with 102 aircraft, the numbers have swollen to 44 managers and 49 AOs - a 50 per cent increase. Management must set a good example of cost-consciousness by being prudent in increasing its strength and making a virtue of being lean.
Alpa-S brief for Senior Minister
1 The executive council
Although there has been considerable speculation in the press, it is not true that the new Alpa-S Executive Council was elected to press for restoration of the pre-Sars salary. What we have agreed with the company will be honoured.
2 Our immediate task
We fully appreciate the new challenges facing our airline, and the new competitive environment we are now in. Of urgency is a new employment package as the last CA (collective agreement) has expired. We are supportive of the need for a more flexible wage structure, as identified by the National Wages Council. We will not be benchmarking our proposed salaries with those of the most highly paid international pilots.
3 Working with management
While morale has slipped significantly in the past few years, (please see attachment), and we have a number of outstanding issues and grievances with the company, we are committed to working with management to try and resolve these amicably. Our approach will be one of cooperation and not confrontation. We will keep it 'in the family' and avoid, as far as possible, taking the issues public and airing them out in the media.
4 Our past record
It is true that over the years, there have been several occasions when the Manpower Ministry or lndustrial Arbitration Court (IAC) had to become involved in resolving industrial disputes between Singapore Airlines and Alpa-S. However, without fully examining each case on its merits, it would not be fair to imply that the pilots alone were to blame all the time. Such a one-sided presentation of the picture also ignores the fact that in all the years since SIA was formed, the pilots have played a significant role in the phenomenal growth and prosperity of the company.
There have been countless times when, at the company's request, dispensations to work beyond the flight and duty time limits of the collective agreement were granted by the association, so as to minimise flight delays and disruptions, thereby promoting the good public image of SIA, reducing costs, and optimising operational efficiency.
Whenever the demand for flights has pushed our growth rate such that it outpaced manpower planning estimates, we have never denied the company's requests to defer our annual leave, in order that new schedules and ad hoc charters could be manned, thereby maximising profits for the airline. Our willingness to volunteer and cooperate has enabled SIA to keep its pilot strength lean throughout the years, thereby saving on salary, training and other labour costs. The latest manifestation of this cooperation resulted in some 15,000 outstanding leave days owed to our members at the end of 2002.
5 Restoring industrial harmony
We need to reach agreement with the company on an equitable remuneration package expeditiously. This will pave the way towards an improved industrial relations climate in which we can restore morale and stem the recent spate of resignations by not only expatriate but also, for the first time, national pilots.
We will strive for better communication between ourselves and the company, and a relationship based on mutual trust and respect.
SM Lee's reply
Feb 9, 2004
Dear Mr Mok Hin Choon,
THANK you for your letter on Jan 16 and the attached briefs concerning Alpa-S.
I welcome your positive approach to the problems facing the airline and this in spite of what you describe as the low morale among SIA pilots.
I intervened after the Alpa-S committee that negotiated the cuts in wages and allowances was ousted.
I believed something fundamentally was wrong when 55 per cent of your members disavowed the agreement that they had earlier endorsed.
That they did so betrayed a lack of appreciation of the severe challenges SIA and our aviation industry are up against. It showed that SIA management either had not succeeded in convincing their employees to make the necessary changes for their company to survive and grow, or perhaps had not tried to do so.
I note that you are now not pressing for restoration of pre-Sars salaries, that you support the need for a more flexible wage structure as identified by the National Wages Council (NWC) and that you are not benchmarking your proposed salaries with those of the mostly highly-paid international pilots.
I welcome these positions because they are necessary to keep SIA competitive and make the jobs of its employees safer.
Most of all, I am encouraged by your commitment to work with management to resolve the outstanding issues and to negotiate 'in the family', without taking issues out to the media.
SIA was facing acute pressures when it undertook the last round of cuts in pay and allowances because of Sars. There was no guarantee that Sars would not return after June. There was no assurance, after we declared Singapore free of Sars on May 31 last year, that passenger loads would recover soon. The airline had made an April-June quarterly loss of $312 million. This was SIA's first ever loss.
It made a profit of $306 million for the subsequent quarter only after implementing the pay cuts and other economising measures. And as the profit level improves, employees will be progressively rewarded according to the agreed formula.
SIA has to earn an after-tax operating profit above its cost of capital to justify its existence. SIA's weighted average cost of capital (WACC) is about 8 per cent. SIA's parent company deploys some $11 billion of capital for its premium airline business. It would need to achieve an after-tax operating profit of $900 million just to cover its cost of capital.
As a group, SIA needs to earn at least $1.4 billion after tax. SIA can do so only if everyone in the company, including unions and management, work together towards shared objectives.
It will not be easy, but it can be done. Sustainable and robust frameworks need to be put in place with the support of management, unions and staff, using their good sense.
There needs to be a collective-agreement framework based on the NWC tripartite guidelines for wage flexibility, retrenchment and medical co-payment benefits that most progressive companies have already implemented.
With a flexible wage structure, I favour a formula that enables pilots and all other staff to share in the economic profits of the company. In this way, all staff have a common stake and shared interest in the performance and continued success of the company.
At the same time, we have to move away from seniority-based wage structure, and increase the proportion of variable pay pegged to the performance of both the company and the individual. This provides more flexibility for the company to adjust quickly to the realities of the market in the event of a downturn, while giving employees a bigger stake in the success of the company.
Singapore is special, one island just over 600 sq km after reclamation, with three million citizens and one million non-citizens working here.
To reach First World standards of performance in key areas of our economy, we have built up a unique system. In other countries, unions are adversarial, with strikes, work-to-rule and other industrial methods of pressure. In Singapore, our unions work with employers and the Government makes sure that employers and management, including those from foreign and multinational companies, play fair by the workers and their unions.
Because of the partnership between unions, management and the Government, we have been able to advance the interests of all Singaporeans, so that, within one generation, we have moved from Third World to First World.
This does not mean our workers can act as if we are a First World country. We do not have the wide economic base to take the liberties of being a First World country. It is the maximisation of our assets - human, geographic position, historic and other infrastructures - that has enabled us to reach this level, so much so that SIA is flying and competing against First World airlines.
The costs and other competitive pressures facing SIA are not temporary. Sars and slow economic growth have masked some fundamental changes taking place in the airline industry: consolidation and restructuring of airlines in America and Europe; success of low-cost, short-haul carriers; new long-haul carriers that can bypass Singapore; a unified European Union civil aviation market; and moves in EU civil aviation market and, later, in Asia, towards open skies.
Other carriers are also learning from SIA's success, to innovate and provide consistent quality service. Low-cost, long-haul carriers may emerge. These changes will erode SIA's position as a price leader out of Singapore. SIA will become a price-taker, and not a price-maker.
SIA's ability to charge a large premium for superior service will be severely pressured. With less control over fares and no domestic network to buffer it, SIA yields will erode.
The aviation world has changed permanently. SIA must change and adapt to this new reality. Globalisation and liberalisation will increase, not reduce, competition over time.
To succeed against competition, there needs to be a new climate of mutual confidence and partnership between management and Alpa-S. Both have to break with the past.
Management has to operate on clear and fair principles with a clear eye on the competitive landscape. They have to take union leaders into their confidence and be open about the vulnerabilities and opportunities of the company.
They need to win the trust and confidence of SIA staff and unions. Line managers and supervisors must play an active role in the welfare of its staff, and build a culture of meritocracy, innovation, empowerment and ownership at all levels of the company.
Only in this way can SIA workers become real partners in the company's battle against the best of airlines in the world, many of whom have the advantages of large domestic markets, favourable locations or lower labour or fuel costs.
Alpa-S must recognise that both long-term adjustments and short-term sacrifices may have to be made to secure the long-term career opportunities of its members. It can be a constructive partner to work with the company to adjust nimbly to changing market needs.
The need for members' ratification of what has been negotiated encourages unproductive gamesmanship in negotiations. Alpa-S should also not infringe on the operational prerogatives of the management. These negotiation ploys are not conducive for the development of a culture of mutual support and trust, and must be stopped.
Alpa-S too needs to communicate and earn the trust of its own membership and management.
As for your attached list of grievances, let me assure you that I do not consider SIA management or Alpa-S to be blameless. I have passed the list to management which will address these issues with you.
It is for management and unions to work through such issues and thereafter put them behind and move forward. Failing which, the issues will have to be taken through due adjudication with the Ministry of Manpower and the Industrial Arbitration Court.
This will minimise bruising contests of wills and festering suspicions. Issues should be resolved expeditiously as a long period of uncertainty will cause a drop in staff morale.
An opportunity now presents itself to start afresh, with a new CEO in SIA, Chew Choon Seng. On the union side is your new committee. The union and management have to agree on a common framework for the future.
The Government will do its part to ensure that the future of SIA is not needlessly jeopardised, and that the agreements represent a fair and equitable balance of interests of workers and company.
I am confident that if Alpa-S adopts the principles of tripartite cooperation of NTUC unions to optimise their benefits, it will succeed in helping management to build a stronger company. This is the way forward.
If Alpa-S tries to work against the system, it will not succeed. The system is too long and well-established to be broken.
The Government has made clear to SIA management that it is committed to maintaining Singapore's hub status and expects SIA to outlast the competition.
It may have to incur losses but Changi and SIA are going to stay the course.
To succeed, we need all workers and their union leaders to work with management, and both must move in tandem with the Government. A thriving national airline is a key factor to keep Changi Airport a vibrant hub.
SIA did not become one of the world's most successful airlines by accident. Management and workers did many things right to take full advantage of our position as a first mover in the airline and the air-hub business.
SIA grew on the back of a sound and robust economy, and in turn contributed to Singapore's success as a business and logistics hub.
I am confident that there is a deep well of pride among SIA staff in the airline's international standing because of its high standards in so many areas. This pride and the wealth of experience and learning within the company will ensure that SIA remains competitive and successful.
Yours sincerely,
Lee Kuan Yew
PS: I send you a copy of my speech I made on Jan 30 at the Tanjong Pagar GRC Chinese New Year celebration. If your committee members read it, they will understand the background against which the Government is framing its policies.