Bloomberg News

Qantas Wins Accord With Engineers Union on Smaller Pay Raise

December 20, 2011

(Updates with closing share price in seventh paragraph.)

Dec. 19 (Bloomberg) -- Qantas Airways Ltd., Australia’s largest carrier, agreed on a new contract with its engineers, the first accord to be struck with any of the three unions at the center of an October grounding.

The deal sets a 3 percent annual pay increase for three years for 1,600 members of the Australian Licensed Aircraft Engineers Association, the airline said in an e-mailed statement. The engineers initially demanded a 15 percent raise.

Chief Executive Officer Alan Joyce has vowed to revamp the airline’s money-losing international business by cutting costs, raising concern among workers and labor leaders that the company will shift work to lower-wage countries. The pact with engineers may help the airline reach deals with two other unions and prevent further strikes that Joyce has said caused a plunge in bookings earlier this year.

“Qantas has the upper hand here,” said Nachiket Moghe, an analyst at Morningstar Inc. “It looks like the decisions will be in Qantas’s favor” on two other disputes under way.

Baggage handlers and engineers have been seeking higher pay and job-security measures, including a commitment to perform maintenance on new aircraft in Australia and restrictions on the use of contract workers. Long-haul pilots want the same employment conditions whether they fly for Qantas’s namesake carrier or its budget arm, Jetstar.

Global Competitiveness

The agreement reached with the engineers union “does not include any of the claims that would have restricted Qantas in making the changes needed to compete in the global aviation industry,” the carrier said in the statement.

Qantas shares fell 3 percent in Sydney to close at A$1.475, their lowest level since Nov. 25. They have declined 42 percent this year, compared with a 14 percent drop for Australia’s benchmark S&P/ASX 200 index.

The airline and the three labor unions entered into forced arbitration last month. Qantas grounded its main fleet for about 48 hours starting on Oct. 29 to force an end to six months of sporadic strikes by unions.

Prospects for slowing global economic growth have overtaken labor relations as the biggest concern for Qantas investors, Moghe said.

“It’s not so much of a union discount now, as the fact that the global economy is quite wobbly, that’s weighing on the stock,” he said.

The airline’s agreement with engineers didn’t include a commitment to build a A$95 million ($94 million) engineering hangar or give pay raises to staff based on length of service, Courtney Treak, a spokeswoman for the airline, said by telephone. These conditions were part of the union’s initial demands, according to Qantas’s website.

First Agreement

The agreement will be submitted to Fair Work Australia today, Steve Purvinas, federal secretary of the engineers union, said in a phone interview today.

Unions representing long-haul crew and baggage handlers said their disputes with Qantas haven’t been settled.

“We remain very confident about the case we’ll take to arbitration,” said Richard Woodward, vice-president of the Australian and International Pilots Association, which represents 2,500 air crew. “We are concerned about the future of our young pilots.”

New Asia-Based Units

The pilots association’s first hearing before Fair Work Australia is set for June 4, according to a listing notice from the regulator.

“It’s good to see progress on planes and job security,” said Dermot Ryan, a spokesman for the Transport Workers Union. “We’re hoping this is a sign that Qantas is learning.”

The Transport Workers Union and Qantas submitted rival draft agreements to Fair Work Australia Dec. 10, Ryan said, and the two sides haven’t met since.

Qantas plans to establish two minority-owned carriers in Asia next year, including a Jetstar budget unit in Japan and a full-service business based in Singapore or Malaysia, as part of Joyce’s strategy to turn around A$200 million of annual losses from international operations.

--With assistance from Robert Fenner in Melbourne. Editors: Dave McCombs, Terje Langeland

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Edward Johnson at ejohnson28@bloomberg.net


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