THE POWER OF THE UNIONS WEAKENS THE CARRIERS

The American manufacturer certainly didn’t need this. A major Boeing union, IAM, with its 30,000 members, has just launched a strike that could be short-lived if management accepts the demanded wage increases for a return to work. Jon Holden, the head of IAM Boeing, aims to take advantage of the manufacturer’s current weakness to quickly achieve their demands. The halt in deliveries of Boeing’s flagship models—the 737, 777, and 767 freighters—would be a severe blow to a company already struggling with inextricable difficulties.

The new CEO, Kelly Ortberg, inherits not only a severely damaged image and meticulous oversight by U.S. authorities but also a $60 billion debt, largely created by previous managements who sacrificed the company’s future to pay dividends to shareholders using financial resources the company didn’t have. All this, along with a share price that has dropped 40% since the start of 2024.

Boeing’s complicated situation mirrors the broader challenges facing key players in air transport, including manufacturers, airlines, and air traffic controllers. Under constant pressure from powerful unions, large groups have been forced to concede wage increases and benefits incompatible with the need to control costs in a fiercely competitive industry. Some sectors, such as air traffic control, are protected, and their unions wield considerable power over management. The last significant challenge to this power was during Ronald Reagan’s presidency, when U.S. air traffic controllers were tested, but only at the cost of severe airspace disruption for months. In Spain, a royal decree succeeded in forcing striking controllers back to work. These are the only two cases where the unions' tug-of-war didn’t end in victory for the strikers.

Airlines are perhaps the most vulnerable target. Flying a plane safely requires a complex organization, comprising a variety of roles from pilots to baggage handlers, any of whom can bring operations to a halt. Pilots, being the highest-paid employees, can hold out the longest during work stoppages, but airlines are not immune to demands from every employee category. To maintain a fragile economic balance while satisfying their workforce, airlines have subcontracted a significant portion of their operations. Service providers, with much lower wage costs, can perform the same tasks for far less than carriers. This benefits airlines by giving them substantial bargaining power over subcontractors, lightening their payroll and improving cash flow since outsourced services are often paid for much later—something not possible with direct employee salaries.

As a result, large portions of the air transport industry are now in the hands of external suppliers. This is particularly true for MROs (Maintenance, Repair, and Operations) companies, which are essential to airlines, providing not only maintenance but also painting and engine repairs. In another area, General Sales Agents (GSAs) have replaced the sales teams of airlines, handling bookings and sales at a fraction of the cost by pooling services and being paid based on results.

Gradually, airlines that, up until the late 1970s, handled all their operations in-house have been forced to offload many of them. In doing so, often without realizing it, they’ve entered a dangerous spiral, weakening themselves from the inside while allowing external operators to grow stronger. The shift has occurred, and it’s almost impossible to reverse. Bringing these operations back in-house would have disastrous consequences for costs at a time when airlines are battling to offer fares lower than their competitors'.

For now, the subcontractors are not yet economic giants—they remain fragmented and have little influence over their clients. However, if they were to merge, which seems increasingly likely, they could become a negotiating force comparable to that of the airlines, potentially shifting the balance of power.