Finnair Blows a Cold Wind on Investors and Employees

Finnair Cabin Attendant.  Image Finnair.

While all the attention today in european aviation was drawn to the carefully choreographed strike by German airport employees (which resulted in the cancellation of 600 Lufthansa flights), Finnair has made some chilling announcements about its own employees; followed in short order by a call to investors for “open dialogue”.

Let’s address the employee announcement first.

Finnair has declared it is determined to “take alternative measures to reach cost savings,” which could result in a reduction of up to 680 employees, “if other solutions not found.”

The airline plans to cut employees in the support functions, but it adds that “wider use of outsourcing [is] an option if [it obtains] insufficient results in flight crew negotiations.”

Quoting CEO Pekka Vauramo: “We still hope to achieve results in negotiations, outsourcing and redundancies are always a secondary option.”

The support functions which will be rationalised are administrative and operative, commercial and common support functions.  Initially the airline plans to reduce 140 employees, but Finnair indicates that it may need a further reduction in these positions throughout the year.  In all, the airline has around 800 people assigned to these functions at present.

Vauramo states:

“We must carefully consider our focus in the support functions.  Can we be more efficient or are there tasks that can no longer be maintained? We believe that by focusing strictly on the essential and by improving our productivity we can achieve considerable savings.”

Though the announcement leads with administrative cuts, it immediately segues into troubles with flight crew negotiations.

As the announcement explains, new collective labour agreements reached at the end of last year, in line with the Finnish Employment and Growth Pact, hinged on cost reduction negotiations which could be concluded with cabin attendants by the end of April of this year.  Negotiations with pilots were to be completed by mid-June.  From the beginning of this process, the airline clearly stated that its willingness to negotiate depends on presumed cost reductions achieved through negotiations.

It would seem from today’s announcement that the process has derailed and cost-targets will not be met.

As a result, Vauramo states:

“Loss-making Finnair, whose financial situation has further weakened during the past years, can no longer wait.  The situation calls for quick action to restore our profitability.  We have attempted to negotiate on cost reductions in personnel-related costs ever since we initiated the cost reduction program in 2011.  We still hope to reach in the ongoing negotiations the kind of result that would allow us to continue flying with our current crew.  The outsourcing of our flight crew is clearly a secondary option for us.  We would like to continue to employ our current employees and create new jobs at Finnair.”

These are particularly interesting words coming from the CEO of a Nordic flagship carrier, compared to other Nordic carriers; say, for example, Norwegian Air Charter.

Norwegian is often chided and accused of trying to circumvent national labor laws by outsourcing its employees; moving its operations to Ireland to do so.

American Airlines is one of several US Domestic airlines making arguments to the US powers-that-be that Norwegian’s employee outsourcing strategies give the Low-Cost carrier an unfair competitive advantage on US routes.  Finnair is a member of the same oneworld as American Airlines.  Finnair also services US routes, and there is no sign that Finnair would lose its US routes or its status of a partner in the oneworld alliance should it choose to outsource its crew.

For anyone doubting where Finnair is headed with all this, Finnair state:

“Separate from the employee consultation process, Finnair is examining the possibility to set up a subsidiary that would produce cabin services and sell them to Finnair PLC.”

Such a move would allow whatever subsidiary arises to employ whomever it likes, at whatever rate works best.  With the subsidiary serving as the outsourcing supplier for the airline the airline itself is technically immune from accusations of violating the Finnish Employment and Growth Pact.  If negotiations between Finnair and crew break down entirely, Finnair has a plan in place to get the savings it needs regardless.  And Finnair is not shy about announcing those intentions up front.

Vauramo’s arguments in favour of these moves are strong.  He states: “The present-day wage level is not equivalent to the market level.”

This is the same argument Low-Cost Carriers have for seeking lower wages from their crews.

In the announcement, Finnair states that this is only an option which it is keeping open for now, but it has the plan worked out in detail:

Finnair would outsource the cabin service of more than 10 routes.

Due to the planned outsourcing the reduction of approximately 540 [of Finnair’s total of 1500] cabin attendants would be required.

Negotiations with pilots include significant changes to CLAs and the decisions are made later in spring.

In its conclusion, the announcement makes it clear that Finnair’s cost-reduction strategies focus on reducing employee costs, management included; though Finnair stipulates that those particular reductions are limited to “the variable part of the top management’s total renumeration as well as other benefits.”

A couple of hours later, Finnair reported on results of its Annual General Meeting, focused on how “the future of Finnish aviation and the hub status of Helsinki Airport could be secured..in the coming years.”

Klaus Heinemann, Chairman of the Finnair Board of Directors expressed “strong support for the transformation and cost savings plans” announced; saying:

“Our profitability must in future be so robust that it is not immediately shattered if our operating environment changes.  It must also be so good that it gives us a say in any potential partnership arrangements.”

Read More: Finnair’s partnership arrangements just announced with JAL.

Strong words were used.  Specifically:

“The Board does not want Finnair to become market driftwood.”

The statement also called for Finnair to find additional “sensible financing for its future investments.”  This financing would be used for investment “in a next-generation, energy-efficient fleet in a cost-effective way.”

And the zinger for the stockholders:

“To finance the necessary aircraft investments and to forge possible equity partnerships, we need to also openly consider flexibility from the equity point of view. “

Vauramo, for his part, stated his support for Heinemann’s proposals, indicating: “Finnair is at a watershed – crucial to return profitability, even if the change is painful.”

Vauramo emphasizes Finnair’s Asian strategy (to which JAL is key), saying, “It is thanks to our Asian strategy that we can offer Finns global air connections that are far better than the size of the country would merit, and maintain domestic air conditions.”

The bulk of the speeches by both executives quoted in the announcement support the cost-saving strategies and explain the tough market conditions which Finnair must confront to remain competitive.

To these matters, Vauramo adds:

“I want to believe that we can find a solution that is the best possible one for Finnair and our personnel.  At the same time I must say that if we do not find a solution in the negotiations, we must unfortunately take alternative actions to fix our cost structure.”

As mentioned, in the earlier statement on the employee negotiations, Finnair already has very specific plans on what to do should those alternative actions become necessary.

Because of higher costs of operations, and the disadvantage Finnair has because of its relative size to other carriers in the european market, Finnair must consider all possibilities to ensure its survival.  These moves, though painful, are rational.

This decision is merely inconsistent with harsh criticism by established carriers of Norwegian’s competitive strategies; as well as industry reaction to similar arrangements by other Low-Cost Carriers in the european market and around the world.

As the saying goes..It is an ill wind.

Norwegian may find that this particular gale from the east blows them some good.

Feature Image of Finnair A321 by Finnair.