Pilots agree to cuts, but trouble still ahead for BA

It seems as though British Airline Pilots Association (BALPA) members are actually buying British Airways CEO Willie Walsh's statements that the airline is facing its largest-ever crisis, since 94% of them voted today in favor of a 2.6% cut in salary, a move that should save the airline £26 million. "We have pressure tested the company's trading position and cost base, and are satisfied that this step is necessary to help BA recover its position as one of the world's most successful airlines," said Jim McAuslan, general secretary of BALPA.

BALPA's agreement to pay cuts is a relief for Walsh, who is going to have a much harder time convincing cabin crew and ground handling staff to take a salary cut. Four weeks of negotiation have failed, and the threat of a strike looms large for the airline. “There is every sign that a conflict is looming if this last throw of the dice does not succeed," said Mick Rix, who heads up the GMB union. The Unite union evidently doesn't buy Walsh's message as BALPA did, saying that "BA’s management are opportunistically using the recession to force through changes which are more far-reaching and damaging to BA’s future.

The pilots have seemed to recognize that the airline's future is at stake during these critical next months. While painting gloom-and-doom pictures has always been a management strategy used to extract concessions from unions, I think that British Airways is genuinely in a "fight for survival," as Walsh put it. Naturally, it was under Walsh's nose that the airline went from making record profits one year to posting record losses the next, and once the dust settles after the current crisis, Walsh might find that he needs to move on. But to be fair, BA is saddled with outdated, expensive labor contracts - ones that need to change, and change in a hurry.

"The problem is that there’s no flexibility with the cabin staff," said Howard Weeldon, a senior strategist at London's BGC Partners LP. "It’s been entrenched for 20 or 30 years... There has to be some form of compromise, because you can’t have an airline without cabin crew and the cabin crew need the jobs. A strike would be very, very foolish and it would only make things much worse.” But unless the cabin and ground staff agree to a reduction in wages, a strike might be just the thing that Walsh finds himself facing later this summer. He's also going to have a difficult day tomorrow, when he addresses BA's shareholders at their annual meeting - and they can't be happy about the fact that the airline has stopped issuing a dividend. The airline has even talked with key shareholders about an emergency rights issue for £500 million, although that would probably be a last-resort option.

photo by michal818 from Flickr, licensed under the Creative Commons