1. AIR NEW ZEALAND JET NEGOTIATIONS DELIVER ‘WIN-WIN’ OUTCOME

NZALPA INDUSTRIAL DIRECTOR AND 787 CAPTAIN ANDREW RIDLING REPORTS ON THE SUCCESSFUL AIR NEW ZEALAND JET NEGOTIATIONS AND THE USE OF THE HIGH PERFORMANCE ENGAGEMENT MODEL TO DEVELOP A PSYCHOLOGICAL CONTRACT.

NZALPA Industrial Director and 787 Captain Andrew Ridling reports on the successful Air New Zealand Jet negotiations and the use of the High Performance Engagement model to develop a Psychological Contract.

Employment relationships in the airline industry throughout most of the industrialised world are changing as a consequence of fundamental shifts in work place locations and the nature of the work being undertaken. Economic changes, technological innovation and industrial restructuring have proved to be crucial factors influencing pilot employment, organisations, the nature of our jobs and the way we are required to undertake them.

Increased global competition is another critical trend and is particularly evident in the New Zealand aviation industry, namely for pilots and air traffic controllers, and more so than what we have seen over the last 15 years.

As rapid change has occurred in the aviation sector, Air New Zealand as a company has embraced the HPE (High Performance Engagement) concepts, complimented by IBPS (Interest based Problem Solving), as a way of dealing with issues that arise through these changing dynamics. The company's HPE strategy is built on people working together collaboratively to deliver better results for business, better results for unions and better results for employees.

In reality, HPE is a form of partnership between the management teams and the company͛s employee groups or, in the recent Air New Zealand and NZALPA collective agreement negotiations, a strategic alliance between NZALPA pilots and Air New Zealand.

Interest-based problem solving, I would suggest, is the vehicle that is used to achieve an HPE outcome. It is a collaborative, systemic-thinking approach to solving problems. The concept is based on techniques developed by Richard Fisher and William Ury in their 1981 book ͞Getting to Yes”. These are concepts that are fundamentally part of a pilot's role while operating an aircraft on a daily basis so are talents already in the pilot's tool box.

Missing, however, has been the link between the tools and the pilot's work environment.

Traditionally, the relationship between NZALPA and Air New Zealand has been described as strained at best. While a healthy tension is necessary between pilots and airline management as safety demands are pushed up against commercial pressures, over a number of years the relationship had developed into one of mistrust and suspicion. This was mainly due to adversarial employment court undertakings and the active undermining of the pilots and NZALPA.

Competition is a natural part of human interaction. Political foes, business rivals and arch enemies disagree and fight one another bitterly because of mutually exclusive interests. This has been the rapport between NZALPA pilots and Air New Zealand. It was accepted that a win-win situation is sometimes just not possible. With this understanding, the strategy was to develop a win strategy but in a zero-sum game. It became obvious that what was important to the pilots was fundamentally not for the company. Instead, an approach was developed to look at the issues from a different paradigm.

Traditional employment negotiations involve trading employee compensation with working conditions. If you isolate the contractual terms and conditions from the employment compensation into separate silos then the focus on building a relationship becomes vital.

What is clear is that the relationship failure was directly related to the collapse of the psychological contract. This refers to the unwritten set of expectations of the employment relationship as distinct from the formal written employment contract. Taken together, the psychological contract and the employment contract describe the employer-employee relationship.

This is what defined the strategy heading into the Air New Zealand 2018 negotiations and formed the basis of a strategic partnership proposal given to Air New Zealand management twelve months before formal negotiations began. This envisaged an extended contract term of 9 to 12 years and the mechanisms of ensuring salary increases that safeguarded real wage growth over the period. At the same time, it protected the challenging lifestyle that pilots assume as part of their employment in the airline industry.

NZALPA, along with Air New Zealand, employed an independent economist from NZEI to help the parties establish a durable formula of wage rises and, importantly, set pilot wages with the help of an independent third party. Wide-ranging discussions eventually advocated that a formula based on the Consumer Price Index (CPI) was the best measure to use. An agreement on salary increases over the proposed interval allowed the parties to concentrate on what worked and what didn͛t, rather than getting into the traditional cost and productivity arguments.

The original strategic partnership proposal over the twelve months of debate developed into a memorandum of understanding (MOU1) that was presented to the pilots. The MOU was to sit outside the employment contract but define the relationship, or psychological contract, which highlights the unwritten set of expectations on both parties held in the overarching relationship.

Legally, Collective Employment Agreements can only extend up to a three year period. The MOU is designed to bridge those successive periods and, since pay rise mechanisms have been agreed, conditions can be discussed at the interleading periods. This removed the focus of future negotiations away from the traditional 'horse trade, positional based bargaining' to one of an ongoing relationship and psychological contract structure.

The negotiation was concluded prior to the expiry of the existing contract. Importantly, this allowed pilots to enjoy a seamless pay transition and no slippage between contract rounds.

The MOU¹  agreed the following key points:

• NZALPA and Air New Zealand wish to provide for stability in their relationship for a nine year period from 16 May 2018 to 15 May 2027 and, through a sustainable growth and a stable co-operative relationship, provide benefits for Air New Zealand, NZALPA and its pilot members.
• As part of this, NZALPA and Air New Zealand agree to a strategic partnership framework which applies across the nine year period.
• NZALPA and Air New Zealand also intend to enter into separate but sequential collective agreements during the nine year period, which will be effective for the terms 16 May 2018 to 15 May 2021, 16 May 2021 to 15 May 2024 and from 16 May 2024 to 15 May 2027 (subject to ratification by these dates). These collective agreements will be on terms agreed between the parties in each of the relevant negotiations in accordance with the Employment Relations Act 2000 (ERA), but doing so within an agreed set of parameters applied over the whole of the nine year period, as set out in the MOU.
• The parties agree that, other than for reasons of health and safety as defined in the ERA, they will not initiate any strike or lockout for so long as the MOU is in force.
• The parties may agree to amend and/or vary any existing collective agreement or the terms set out in the MOU at any time.
• If the parties have a dispute about the interpretation, application or alleged contravention of the MOU, they will first attend mediation to try and resolve that dispute. If mediation is unsuccessful, the parties may agree to refer the dispute to an agreed arbitrator for a finaland binding determination. Any such arbitrator is to be agreed between the parties with, if necessary, assistance from a mediator from the Ministry of Business, Innovation and Employment, with the power to make a binding decision as to who shall be that arbitrator.

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1_{The MOU is a nonbinding agreement between two or more parties outlining the terms and details of an understanding, including each parties' requirements and responsibilities.}

As part of the MOU, it was agreed with the company to establish a Company Performance Payment, or bonus. The parties agreed that pilots covered by the Air New Zealand and NZALPA Jet Pilots CEA (NZALPA Jet Pilots) would share in the financial success of the Company's performance in the following way:

1. During the term of the MOU, NZALPA Jet Pilots will be eligible to receive a Company Performance payment if the Company achieves the specified Return on Equity (ROE) threshold, subject to the terms and conditions set out below.
2. A Company Performance payment is to be paid to pilots in periods where the Group delivers a superior commercial result. This is currently defined as exceeding a 12.5% after tax ROE threshold, therefore the threshold for financial year 2019 (1 July 2018 – 30 June 2019) is 12.5%.

The Employment Agreement:

A summary of the terms of settlement is listed below:

• An annual pay increase of CPI + 1.0%, but for the first year the pay increase will be 2.2% for Captains and First Officers and 2.0% for Second Officers. This pay rise reflects real wage growth of 1% per year above CPI.
• During the term of the nine years, salary increases for NZALPA CEA pilots will be determined in accordance with the following principles and methodology:
• Subject to ratification of the applicable collective agreement by 16 May, salaries will be reviewed and adjusted with effect from 16 May each year during the term.
• Each year all Captain and First Officer salaries will be increased by a percentage calculated on a formula of All Groups Consumers Price Index as published by Statistics New Zealand (CPI) plus 0.8% + 0.2% (total CPI + 1.0%)
  • The salary increase is broken down as follows:
    1. 1.0.8% salary increase
    2. 2.0.2% disparity equivalence payment – above the other non-NZALPA pilot group.
• NZALPA Second Officer salaries. Until such time as their salaries are the same as the equivalent salaries of the other non-NZALPA pilot group, the additional 0.2% increase will not apply i.e. NZALPA Second Officers will receive an annual salary increase of CPI + 0.8%.
• In recognition of the signing of the MOU and the strategic partnership: once equivalency with other pilot groups is reached - but no later than the NZALPA CEA pilot salary increase due May 2019 - an additional annual increase of 0.2% will be applied to NZALPA Second Officers͛ salaries i.e. CPI + 0.8% + 0.2% (total CPI + 1.0%).
• The total annual salary increase for any NZALPA CEA pilot in any year will be subject to a ͚floor͛ and ͚ceiling͛, i.e. the total salary increase will not be less than 1% or not greater than 4.25%. For example, if CPI is at -0.5% the applicable salary increase will be 1%, or if CPI is at 3.5% the applicable salary increase will be 4.25%.
• Notwithstanding anything contained in the paragraphs above, salaries will increase on 16 May 2018 by the following percentages:
  • 2.2% for NZALPA Captains and First Officers (this includes the 0.2% disparity equivalency payment)
  • 2.0% for NZALPA Second Officers
• The year-on-year March quarter CPI figure will be used to determine the applicable CPI figure used i.e. in determining CPI for the salary increase to take effect on 16 May 2019 the year-on-year March 2019 CPI figure will be used. This CPI figure is based on year-on-year CPI movements rather than the rolling average.
• it is the intention that the methodology for determining salary increases will apply for the nine year term of the MOU. However, in either of the following circumstances, either party may initiate a review of the methodology on expiry of the applicable collective agreement:
  • ​The ceiling or floor is breached in any year during the applicable collective agreement; or
  • Air New Zealand is facing significant financial hardship as evidenced by the company not paying the company performance component under its ShortTerm Incentive (STI) scheme; and/or there is a significant structural change in the economy such as a global financial crisis.

In addition to increases to salaries, significant other areas of importance were addressed.

In summary, the strategic partnership agreed with the company has been established. The MOU is there to allow a platform to step forward and address any failings in the psychological contract and institute an employment relationship based on trust and confidence in each other, rather than the rapport that has been a product of our past.

The MOU creates an important framework for the parties, and the psychological contract relates to the balancing of the employee and employer needs and expectations. This accommodation and understanding of the different perspectives creates a more responsive and adaptive work setting where all parties prosper.

It is the consequence of programs like HPE and rational-problem solving techniques such as IBPS and the results of employee engagement programs that allow for the building of pilot engagement back into the airline.

The importance of employee engagement can͛t be overstated – employee engagement strategies have been proven to improve productivity and efficiency, retain customers at a higher rate, and make more profits. Most importantly, engaged employees are happier, both at work and in their lives. The NZALPA strategy for negotiations 2018 was designed to merge the skill set the pilots currently use in their operation into a plan Air New Zealand has recognised as best practice. Except we will now be party to the development and outcomes of future corporate direction.