Troubled times

Posted on 26 Feb 2010 by The Manufacturer

Howard Wheeldon: Worrying industrial relations signals from BA and Lufthansa while Toyota and Fiat send other negative messages.

Investors take note: Just as the strike by French based Total refinery workers heads into a seventh day, pilots at Lufthansa in Germany have at least shown good sense by returning to the negotiating table. One may hope that now they have got the backing of 81 per cent of the current workforce, the negotiators representing British Airways’ cabin staff now do the same rather than talk the talk about going on strike. Even so, while Lufthansa pilots were busy grabbing headlines this week by taking unwarranted industrial action that grounded over 80 per cent of flights, it seems that others are waiting in the wings to get in on a similar strike threat acts. For instance, as if not to be left out, late yesterday French air traffic controllers announced they too would strike soon on a ridiculous pretext that objects to planned implementation of Europe wide control of air traffic regulation. Bad industrial relations situations somehow seem evenly spread across Europe right now. Of course, I am hardly surprised by the British Airways’ cabin staff vote that will no doubt lead them to go out on strike soon which I am left to conclude will seriously damage the airline, just as it will the very survival of the striking staff’s jobs.

Leaving national stoppages in Greece aside it seems that through the rest of Europe it is transport that in one way or another is bearing the brunt of current industrial action right now. Led by occasional strikes on the French railway system no surprise either that those worst and first hit by disgruntled workers would be employers of state owned enterprises or regulated activities for which competition is so often limited. Markets should always be concerned when evidence appears of increased break down in industrial relations. True, ignoring the odd exception, inflation across the EU and particularly the Eurozone area has been fairly low over the past couple of years although rising commodity prices lately including oil provide some little concern we doubt the period of low Eurozone area inflation and thus low interest rates will be over any time soon. Thus even if we do see an increased number of pay claims and even strikes we remain of the view that still struggling employers will not be able to meet.

Given the fragile nature of global recovery plus confirmation that what we are looking at appears to be a jobless recovery it would seem self evident that taking industrial action is these days no automatic route to success. For this reasons we suspect that employees and trade unions representing the majority of private sector will shy away from making ridiculous claims in the immediate future although we would be concerned that this may change in 2011. However, even though EU companies have made great effort to take cost out over the past two years we do not believe that process is anywhere near complete yet. That suggests that jobless numbers will increase although we may hope that the net effect of continuing low scale recovery across the Eurozone area at the very least could lead to some small level of new employment created. Not yet though if Germany is to be the example and where the latest Ifo business climate index has somewhat suddenly fallen on the back of further confirmation that consumers are as yet in no mood to spend. Of course, there can as yet be no certainty that inflation will resume although that said we doubt that the EU area is about to endure that much deflation. The word stagnation though is hardly lost in this particular argument.

The dangers of pricing oneself out of a job have nowhere been more apparent than they are today. We have long talked of the UK being uncompetitive buy arguable that view stretches through mature nation’s right across the EU. The solution is as we know is for companies to be even more efficient and that of necessity means employing fewer staff. The dichotomy of the problem is easy to see and it is this that in different forms provides problems for airlines like British Airways and Lufthansa today. However, despite obvious dangers of pricing themselves out of jobs we suspect that in the public sector we could well see more industrial action over the next year.

Given that evidence of 2009 pay increase levels was well down from the (courtesy of European Industrial Relations Observatory) nominal average 6.6 per cent achieved in 2008 and the 7 per cent level in 2007 one may consider that pent up pressure for pay increases remains low across Europe. Other problems languish though and have shown themselves this past week in some interesting forms. For instance, Japan based car manufacturer Toyota was forced to announce temporary closure of plants in France and Britain as it counted the ever mounting costs of delayed implementation of recalls that has cost the company dearly in lost customer confidence and sales. Bringing up the rear we also heard that Italian carmaker Fiat would close not one but all six plants in Italy in reaction to domestic Italian sales apparently falling off a cliff since the government ended the car scrappage incentives.

My central theme today has been built around industrial relations, strikes and potential strikes plus those companies that are suffering either self inflicted wounds or that are maybe being squeezed by governments turning off the stimulus taps. I will not comment on Lufthansa here as the strike has been postponed and there is agreement to return to the so-called negotiating table other than to say that this is no time for management to back down. The same argument of management holding its ground until it succeeds also applies at British Airways. Indeed, it is arguable that the situation is so serious at BA that management should call the Unite Trade Union’s bluff and allow them to go out on strike and letting other now trained BA workers temporarily take over jobs of striking workers.