Flags of Convenience in Civil Aviation

Flags of convenience in civil aviation

“But this time, unlike 50 years ago, we have the knowledge and experience of just how dreadful the consequences can be of taking even a most modest step in the direction of moving towards flags of convenience in international aviation.” Allan Mendelsohn, Georgetown Law School, 2014

When the ITF’s civil aviation section first Interestingly, while ICAO, the EC and IATA warned about flags of convenience (FOCs) use the term ‘flags of convenience’, it is not in the aviation sector over a decade ago, used officially by the International Maritime it was dismissed as alarmist. That aviation Organization (IMO). might follow shipping in the use of FOCs if liberalisation and deregulation continued Does this mean that all stakeholders in the unchecked seemed ludicrous to some. industry are now aware of the danger and are tackling the problems it might cause – With the honourable exception of ITF- so there’s no need for civil aviation unions affiliated aviation unions, the majority of the to be alarmed? Unfortunately it doesn’t; industry chose to ignore these ‘unfounded’ that kind of view would be overly optimistic “Liberalisation concerns. After all, they argued, civil aviation and complacent. and deregulation was highly regulated in terms of safety – in fact it was too regulated and needed ICAO identifies two different types of FOC have allowed dramatic and swift liberalisation. operations in the global aviation industry: airlines to Unfortunately, time has proved the ITF • Those that were for fiscal reasons, where register both correct. Liberalisation and deregulation have arrangements were generally made themselves and allowed airlines to register both themselves between the state of registry and the state and their aircraft in countries where of the operator to ensure proper oversight their aircraft in standards of safety oversight are below countries where internationally-agreed standards. • Those arranged to ‘take advantage of a system with no or minimal economic standards of Nowadays, the industry’s global regulator, or technical oversight’. safety oversight the International Civil Aviation Organization (ICAO), acknowledges that flags of The second group, ICAO says, is creating are below convenience do exist in aviation. ‘serious safety concerns’ and requires internationally- counter-measures. ICAO says that it will The term is also used by the European consider flag of convenience operations agreed Commission (EC) as well as the airline as ‘appropriate terminology’ only for this standards. industry’s association, IATA. In 2006 Giovanni latter group. ” Bisignani, its then director general and CEO, stated: “Flags of convenience have no place According to ICAO, the measures that have in a safe industry.” already been put in place are enough to minimise the risks created by aviation FOCs. ICAO has put in place some measures to It accepts that there are still some problems reduce the threat to the industry’s safety needing to be resolved, including more record. precise definitions of terms such as

AVIATION FOCs! 1 Flags of convenience in civil aviation

‘principal base of business’ and the issue of In other words, are those measures good leased aircraft, where ownership rather than enough to protect the working conditions control rests elsewhere. Simplifying ‘lines of of aviation workers and to stop any further accountability’ among states in situations social dumping? where aircraft are based or operated in states different from those of registration and/or The case studies that you will find in this of the operator is also seen as an area where module equip us to respond critically to further work is needed. these crucial questions.

In 2006 the European Union began ICAO’s and others’ definitions of aviation blacklisting airlines in order ‘to root out the FOCs are too narrow and don’t take into practice of flags of convenience whereby consideration the social aspect of the some countries issue Air Operation problem. Certificates to dubious airlines’. Neither ICAO, nor the EU, FAA or IATA are The US Federal Aviation Authority (FAA) also genuinely worried about allowing airlines to audits other countries’ safety oversight and, effectively ‘shop around’ for the labour laws based on the finding of these audits, can and regulations that best suit their bottom refuse or revoke permission to operate to or line. As these case studies reveal, there are in the USA. airlines trying to use flags of convenience at the expense of decent labour standards. The million dollar question for aviation unions is, at a time when liberalisation By subjecting their workforces to substandard under ‘open skies’ policies continues to wages and conditions, these airlines also grow, can we retain globally harmonised threaten the standards of aviation workers safety oversight? in other parts of the world.

This module aims to create awareness among ITF civil aviation affiliates of the immediate and long-term dangers stemming from an expansion of FOC practices in the global civil aviation industry.

AVIATION FOCs! 2 Flags of convenience in civil aviation

In May 2013, the ITF civil aviation On 9 April 2011, Solinair put its newly section held an informal meeting with a acquired ex-MNG Boeing 737-4K5 S5-ABV representative of pilots working for UPS. The (msn 24128) into cargo service in the colours ITF was asked to research MNG, a Turkish of Spanish-owned Layonair Airways. Layonair non-union air cargo airline, and its Slovenian is of Mauritanian origin, but was established affiliate, Solinair. in the Canary Islands in April 2010. Services linking Las Palmas with Madrid Barajas were The results of this research reveal a launched on 6 April 2011, operating on fascinating pattern of aviation FOCs. behalf of Iberia Cargo.

Solinair (SOP) is an airline based in Slovenia. In December 2012, the South African “The results Its hubs are Ljubljana Jože Pučnik Airport division of DHL Aviation awarded Solinair and Portorož Airport. It has secondary hubs a wet-lease contract for cargo operations of this in Cologne, Bonn and Johannesburg. Its fleet using B737-4K5F (msn 24128/S5-ABV). research consists of three aircraft. Since then Airstream Cargo, a Nigerian airline, has been operating the above reveal a Its parent company is Turkish-owned MNG mentioned aircraft out of Lagos. It is leased fascinating Airlines. MNG bought Solinair in 2008. It is from Solinair using Axiom Air’s call sign. likely that it did so in order to have an airline pattern of based in an EU country – allowing it to take Turkey, Slovenia, Nigeria, Spain, United advantage of the EU open skies policy. Like Arab Emirates and Mauritius. These are the aviation all Turkish airlines, MNG also enjoys the countries in one way or another involved in FOCs. benefits of the protections which are in place the operations of a few aircraft owned by a ” in the Turkish aviation market. relatively small airline.

Solinair operates mainly charter cargo In a nutshell, there is a dizzying array of services, including for logistics companies complex business relations, reflecting a such as UPS and TNT. It also owns a flight similar FOC system to that in the maritime school, which provides different licences, industry. As these airlines are non-unionised, including for private pilots (PPL) and this information is mainly based on commercial pilots (CPL). secondary sources, and may not reflect the full picture in all its complexity.

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by excessive back-to-back long-haul flights, Case study: Jetstar inadequate rest time and meal facilities, and What is the background? inequality between the rights of Australian staff to reject such rosters and non-Australian Foreign cabin crew working on Australian staff, who do not have the same options. domestic flights require a class 457 visa. An employer has to establish that they The practices of the airline have also been cannot secure an Australian employee for exposed publicly. The Australian Broadcasting the position, and that the foreign worker is Corporation’s Lateline programme ran a not underpaid. Jetstar was able to underpay story on allegations that Jetstar Airways Thailand-based cabin crew by using a employees were suffering from unregulated loophole in the Special Purpose Visas (SPV) working hours, low pay, and potentially “Australian scheme, which allows Australian airlines excessive financial penalties associated to pay different rates to foreign crew on with their dismissal or resignation. Jetstar’s wages and domestic flights. They do this by running Thai cabin crew were not paid sick leave conditions are domestic tag flights on international flight and received only half the annual leave that numbers. For example, a flight is given an Jetstar’s Australian employees did. Also, the undermined, international flight number although it may report stated, ‘if Thai-based crew quit their begin in Adelaide and stop in Melbourne, jobs early or are sacked, they can be forced and excessively Sydney and Brisbane, with some passengers to pay back up to four and half months of only travelling domestically before it their base wage’.

long shifts lead continues overseas. Jetstar’s foreign cabin In 2012, litigation by the Fair Work crew work on such flights. Australian to fatigue and Ombudsman (FWO), a government body wages and conditions are undermined, and that enforces compliance with Australian excessively long shifts lead to fatigue and related safety workplace laws, commenced against Jetstar related safety concerns. concerns. and Valuair. The FWO claims that Jetstar and Valuair are underpaying cabin crew recruited ” What is the company strategy? in Thailand by up to half the cost of their Jetstar is owned by the national carrier, minimum entitlements, and are seeking to Qantas. It employs Thai-based cabin crew have the practice banned while ensuring through a Qantas subsidiary, Tour East that foreign cabin crew are paid according Thailand. The strategy of the company is to Australia’s Aircraft Cabin Crew Award to avoid the stricter regulations which are 2010. The case is ongoing: hearings have enforced in Australia with regards to rest completed but no judgement has been made time, pay and other workplace laws. as of 16 May 2014 in the Federal Court, Sydney. ITF affiliate the TWU (Transport In 2011, Jetstar received a complaint from Workers’ Union of Australia) is monitoring a staff member identifying fatigue caused this case with some interest.

1Valuair is a Singapore based low-cost carrier that merged with Jetstar Asia in 2005, although it continues to operate services between Singapore and Indonesia under its own airline code. For legal reasons requiring

AVIATION FOCs! 1 Flags of convenience in civil aviation

What is the union response? should be paid under Australian wages and conditions. The TWU has been gathering information and providing commentary on the actions As the case with the FWO has not yet been of Jetstar and Valuair. It is difficult to gain concluded, the TWU has not taken further access to Thai cabin crew while they are actions directly related to the case. The next in Australia but through TWU’s contacts it steps for the TWU are to: has been able to verify the experience of Thai-based cabin crew. In May 2012 the • Continue collecting evidence from TWU and the Australian and International Thai-based cabin crew while waiting Pilots’ Association (AIPA) publicly declared for the judgement, their support for the FWO investigation through media releases and interviews with • Determine the feasibility of organising a news reporters. Since this time the TWU campaign around Jetstar and Valuair’s has maintained commentary as part of its actions, and broader aviation campaign on a variety of issues related to Qantas and Jetstar’s • Determine the level of external assistance treatment of employees. The TWU’s position required and which organisations are able is ‘Aussie work, Aussie rights’ – that is, if to provide support. workers perform work in Australia, workers

What are the dangers of the Jetstar model for unions?

• FOC practices can undermine the wages and conditions of aviation workers in the home country. • Directly, and indirectly they can create similar pressures on the wages and conditions of airline employees in many other countries. • FOCs in aviation can gradually become a normal practice within the industry. • With the spread of FOCs, aviation unions can lose members and strength. • Institutionalisation of FOCs in aviation can undermine flight safety.

Are airlines in your country using flags of convenience? • Are there foreign workers employed in your airline? • Do airlines in your country register their planes in other countries? • Do foreign airlines register their planes in your country? • Are there airline workers who are hired through employment agencies, either as temporary or permanent workers?

Singapore-based airlines to be majority Singapore-owned, Valuair’s ownership is split between Singapore investment company Westbrook Holdings (51%) and Qantas Group subsidiary Jetstar Asia Holdings (49%).

AVIATION FOCs! 2 Flags of convenience in civil aviation

Case study: agency based in Singapore. Pilots are licensed in Europe, as the aircraft are Norwegian Air Shuttle under EASA (European Aviation Safety Agency) regulations. NAS names Bangkok What is the background? as its ‘secondary’ base. Thailand’s regulations do not allow European pilots In 2012, the low-cost carrier Norwegian working at a home base in Thailand, when Air Shuttle (NAS) placed the biggest aircraft they are not employed by a local company. order Europe has yet seen. It will buy 222 Boeings and Airbuses for around USD10 • It registers aircraft in Ireland, as billion in order to compete with the EI-LNA/LNB. “Norwegian largest low-cost carriers in Europe, Ryanair and EasyJet. • It runs a crew base at JFK International Air Shuttle, Airport, USA, and has been recruiting employs flag of This fast-growing airline Norwegian Air and training cabin crew for its base in Shuttle, employs flag of convenience (FOC) Fort Lauderdale. convenience practices to avoid strict Nordic regulations, (FOC) practices labour costs and taxes. What form do these So there are many countries involved in practices take? the airline’s attempt to avoid stricter to avoid strict regulations, including Spain, Portugal, Nordic • It bases planes in Spain and at London’s Latvia, Ukraine, Ireland, Thailand, USA Gatwick airport. and Singapore. regulations, • It hires staff in Spanish resorts and London. labour costs How does the company benefit? and taxes. • It wet-leases aircraft from Hi Fly, a The company benefits by paying lower labour ” European airline with its head office in costs. Spain is a country in serious economic Lisbon, Portugal. crisis, and NAS employs unemployed Spanish flight attendants with lower conditions to • It locates the airline’s administrative operate Norwegian domestic flights. Their office in Latvia. contracts do not have specified duties, and this allows the company to pay lower wages • It locates the airline’s IT department compared to average cabin crew wages in Ukraine. in Spain. In fact, many of these cabin crew members fly all of their duty period • It runs its Asian flights out of Bangkok, in Norway and between Scandinavia using local staff with local cabin and other countries. crew conditions. According to a recent study, gross wage • It hires pilots operating Asian flights levels (indexed to New York) in the major through Air Crew Asia Ltd, an employment cities of these countries are as follows:

AVIATION FOCs! 1 Flags of convenience in civil aviation

airline aims to use cabin crew members City Gross Wage Level from three different countries. Oslo 119.1 Barcelona 59.6 What is the union response? Riga 24.2 The ITF-affiliated aviation union Parat Bangkok 14.6 has campaigned strongly against FOCs in Kiev 10.5 aviation, and in particular has put pressure The ITF- on the Norwegian government to reject “ Employing staff in distant, cheap labour the company’s demand to change affiliated bases is not the only tactic that NAS uses. It immigration laws. aviation union also demands labour-law ‘reforms’ in Norway and threatens to shift more aircraft out of Vegard Einan, Parat vice-president, is Parat has the country. unequivocal. He stated: “We are extremely campaigned concerned that the airline has announced What is the company’s strategy? that it will push ahead with its plans to strongly employ workers on Asian conditions against FOCs As fuel prices soared in the mid-2000s, and elsewhere in Europe, possibly Sweden. competition from other low-cost carriers like We fear that this could have a severely in aviation, Ryanair and EasyJet intensified, Bjorn Kjosm detrimental effect on working conditions and in (CEO of NAS) argued that the only route to and airline safety in both the US and the survival was to buy lots of new, fuel-efficient EU if airlines are allowed to use all the particular planes to achieve economies of scale, and to benefits of an open skies agreement without has put base some of them in cheaper countries. many of the obligations. And it will certainly create unfair transatlantic competition for pressure on In April 2013, NAS announced that it was other airlines.” the Norwegian considering registering a long-haul aircraft in Ireland to circumvent Norwegian laws Parat alerted its sister unions in Scandinavia government which prevent it from hiring cheaper Asian and the USA, to where NAS flights have to reject the cabin crew. started to travel. These unions are pressuring their governments to stop these plans. company’s NAS management also lobbied the demand Norwegian government to change its In February 2014, the Irish authorities immigration laws. The airline wanted to issued an air operator’s certificate and to change operate its new Dreamliner flights with operating licence to Norwegian’s subsidiary, no EU-based employees so that it could Norwegian Air International Limited (NAI), immigration introduce local Asian wages and working which is based in Dublin. With this permit, laws. conditions. This would mean less oversight the administration of Norwegian’s long-haul ” of working conditions or rest requirements operation will be transferred to NAI. The by any European Union government. With company has built its managerial and all its immigration law ‘reform’ proposals, the mandatory regulatory functions in Dublin.

AVIATION FOCs 2 Flags of convenience in civil aviation

Ireland has specific rules and regulations hearing in the USA. They have advised which allow the use of American or Asian the DOT to decline the permission, as the crew. At the time of writing, the airline was company is undermining workers’ rights waiting for a ‘foreign air permit’ from the US and taking advantage of the open skies Department of Transport (DOT). This would agreement beyond its intention. allow it to take advantage of the EU-US open skies agreement, and to operate When one takes all these developments into routes between all EU countries and the consideration it doesn’t come as a surprise US. The American union ALPA (Air Line that Bjorn Kjos repeatedly mentioned that he Pilots Association), the AFL-CIO, and Parat was “prepared to be unpopular”. have jointly represented labour in a public

What are the dangers of the NAS model for unions?

• FOC practices can put further pressures on the wages and conditions of existing NAS employees.

• Directly and indirectly they can create similar pressures on the wages and conditions of airline employees in many other countries.

• FOCs in aviation can gradually become a normal practice within the industry.

• With the spread of FOCs, aviation unions can lose members and strength.

• Institutionalisation of FOCs in aviation can undermine flight safety.

Are airlines in your country using flags of convenience?

This case study reflects a growing trend in aviation. What is happening in your country?

• Are there foreign workers employed in your airline?

• Do airlines in your country register their planes in other countries?

• Do foreign airlines register their planes in your country?

• Are there airline workers who are hired through employment agencies, either as temporary or permanent workers?

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