Norwegian’s corporate model: does it have safety implications?

Norwegian Air Shuttle is preparing to set up a transatlantic operation with its registration and its corporate HQ in Ireland. It won’t operate out of Ireland, but it has applied to the Irish Aviation Authority for an Irish air operator’s certificate and to the US Department of Transportation for a foreign air carrier permit to operate between the USA and EU.

So what’s the issue? Here’s what the European Cockpit Association thinks about this new NAS subsidiary, called Norwegian Air International.

“At stake: the particular business model which Norwegian long-haul – currently registered in Norway – uses to sidestep stricter regulations and labour laws. This ‘model’ currently includes 2 wide-body aircraft leased and registered in Ireland, trans-Atlantic operations and crew based in Thailand with contracts governed by Singaporean law. Such a business model which navigates between Oslo, Dublin, Bangkok, Singapore & Washington is a book example for a ‘flag of convenience’.”

The ECA continues: “Ireland’s low taxes and flexible regulatory environment have been attractive for many companies within and beyond aviation. For NAI – although not flying out of Ireland – the Irish AOC means a favourable tax regime, traffic rights to the USA, as well as avoidance of Norway’s stricter employment conditions and higher labour costs.”

Well, that’s business nowadays, isn’t it?

ECA president Nico Voorbach is not happy with the arrangement: “This is an opaque setup which corrupts the European idea of an open market, embedded in Europe’s social model, and spirit of fair competition. The proposed setup of NAI is designed to tilt the playing field in its favour with respect to other transatlantic carriers. The one thing we do agree upon with NAI is that their model is indeed “innovative” – in the sense that it offers creative ways to circumvent European and national regulations and disregard fundamental labour rights.”

I must admit the corporate tortuousness feels all wrong, but it’s definitely legal, and there’s nothing the ECA or – on the other side of the Pond –  ALPA, can do to stop it. There is a small possibility that the US DOT may contrive to stymie it, but I doubt that because the NIA proposes to base some of its transatlantic service pilots in the USA under US employment law, and its entire existing fleet is Boeings, including the 787, with more on order.

A very recent quote from NAS founder and CEO Bjørn Kjos in a UK newspaper looks as if it confirms Voorbach’s worst fears. The Guardian report says: He [Kjos] claims politicians have yet to wake up to the opportunities that cheap air travel can bring: he thinks the numbers of incoming tourists add up to millions of jobs to be created in Europe. That far outweighs any race to the bottom in a few thousand airline employees’ jobs, he said.”

And here is the quote: “If I was a politician, I wouldn’t give a shit about the airline side.”

Of course this may just be bravado in the grand O’Leary (Ryanair) tradition. He says if he was a politician he wouldn’t give a shit, not that he himself didn’t give a shit. But if it really is the way Kjos thinks about his skilled, safety-critical employees, he has me worried.

On 10 February 2011 a commuter airliner crashed fatally at Cork, Ireland, and the Irish Air Accident Investigation Unit’s report about the event has just been published.

The AAIU was highly critical about the carrier’s governance. The ‘airline’ was called Manx 2, and I blogged about the accident, headlining it “Virtual airline, actual risk“.

In its initial factual report the AAIU described the organisation fronted by Manx2 like this: “The operation of the flight involved three separate undertakings; a Spanish holder of an Air Operators Certificate (AOC) that operated the flight, a Ticket Seller based in the Isle of Man, and a second Spanish company that supplied the aircraft and flight crew under an agreement with the Ticket Seller. The Ticket Seller held a Tour Operator’s Licence issued by the Irish Commission for Aviation Regulation.”

Extending the diversity further, the aircraft owner was a Spanish bank, and maintenance was carried out by a Spanish third party engineering company. Manx 2 – the company that sold the tickets to the passengers – was headquartered and registered in the Isle of Man, a UK offshore tax haven.

The final report shows that the Swearingen Metro twin turboprop was badly maintained, the captain and copilot were both new on type and yet were rostered to fly together, and they were fatigued. They lost control during an attempted go-around well below decision height in bad visibility. The aircraft flipped onto its back, killing both pilots and four of the passengers.

One of the accident causes was judged to be “inadequate oversight of the remote operation by the operator and the state of the operator”.

The AAIU also observed that “the ticket seller’s [Manx 2's] marketing and operational activity was such that it was portraying itself as an airline.” The implication is that this was a deception.

Would if be a deception if an airline marketed and liveried as Norwegian Air International was registered and administered from Ireland and did not employ Norwegian staff?

Perhaps, but it’s legal.

Would the passengers care?

Probably not if the fare was low enough.

Is it socially responsible to cherry-pick the globe for low taxes, low labour costs, and tax avoidance purposes? No, but it’s legal, and what has it to do anyway with the running of a modern multinational business?

Well, in the BBC’s Richard Dimbleby lecture a few days ago the speaker was Christine Lagarde, head of the International Monetary Fund.  Addressing the rapidly changing world of the 21st century she pleaded for a “new multilateralism” among the world’s decisionmakers, for “an ethos to serve rather than to rule”, and warned nations that “a race to the bottom” among countries competing to attract multinationals to base there tactically would lead to an increase in income inequality that will destroy the stability of global society. It is already doing that, she said.

Will that warning keep Bjørn Kjos awake at night?  No.

It’s not his job to change the world. Capitalism has always needed to be regulated to stop it going rampant, which becomes a lose-lose. Like it was for the banks. And us.

It’s governments that need to take a multilateral stand to keep global capitalism on its rails. If they don’t, they simply cede control to the corporations. They have already ceded too much, and in doing that they are creating a world in which democracy is non-existent and corporate power becomes global totalitarianism.

When I started writing this I didn’t know quite where it would take me. But here we are.

Airlines depend, for safety, on highly skilled, valued people who are well-led. Company culture matters.

Remote leadership is not the best kind, so NAI’s devolved structure has a built-in risk level that Bjørn Kjos has to be prepared to live with.

I am sure he is prepared to live with it.

 

 

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