It's not all sweetness and light, but Air New Zealand's new industrial relations strategy is replacing decades of distrust, reports Grant Bradley.

First things first: Air New Zealand and union bosses aren't sitting around singing Kumbayah together.

Decades of distrust had led to what chief executive Christopher Luxon called the "Punch and Judy Show" soon after he took over the airline's top job at the start of 2013.

For years, industrial relations followed a set path. The company would come up with a plan, dump it on the union, workers wouldn't like it, talks were held, they broke down, industrial action was threatened and then there was costly litigation.

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The result: happy, highly paid lawyers; an unhappy airline or workers, depending on the result. At least one party left court with a bruised ego, diminished bank balance and thoughts about the next stoush.

The 75-year-old airline has often been a hardball workplace. Individual staff from the shop floor to senior managers have had intensely personal issues aired in court, while unions and the airline have fought lengthy battles over fundamental issues around collective bargaining.

During the past 15 years the Employment Court has heard hundreds of cases involving the airline, its staff and unions - 19 of which resulted in full judgments - and many have gone on to higher courts in increasingly expensive litigation.

When Luxon became chief executive he hired Lorraine Murphy as chief people officer. Like him, she had fresh experience of working at the top end of corporate America.

In Air New Zealand they saw a company worn down by industrial friction.

Lorraine Murphy, chief people officer Air New Zealand.
Lorraine Murphy, chief people officer Air New Zealand.

"We sat down with our union partners and asked how can we do this differently, we're all exhausted. As Christopher said, 'It's like the Punch and Judy Show. I hit you, you hit me, we throw a tantrum, you throw a tantrum,'," says the Australian-born Murphy, who came to the airline from the Campbell Soup Company.

While there are varying views among unions and the company on the new industrial landscape, they are unanimous about the past.

Murphy tells of "anger and mistrust" in the relationship, pilots talk of bad blood and a complete breakdown in relations at some points and engineers speak about being "damaged and wounded" in dealings with the airline.

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It had to change. Luxon, the pragmatic airline outsider who is comfortable with unions, has made peace with the travel trade and simplified the business, saw an opportunity to do something about it. "We sat down with our union partners and asked how can we do this differently," says Murphy.

What became known as High Performance Engagement (HPE) had to start with the unions which represent more than 70 per cent of the airline's workforce - far greater than the national average of 16 per cent of workers. "They very much trusted the unions - they didn't much trust Air New Zealand to be on their side," says Murphy.

The airline had to convince unions it had no ulterior motives and "then we together went to employees with our hands open and saying there's no agenda here. We just want to work better for the benefit of all of us." First, they had to get an outsider to set up the system.

"We knew we had to use an external partner because there was a long history of bad behaviour on both sides, us as much as anyone else."

You can't buy engagement - it comes from treating people with respect and dignity and listening.

Interest-based problem solving

Murphy and Luxon had seen first-hand the United States approach to more collaborative employee-company relationships, and turned to consultants Restructuring Associates Inc (RAI), based in Washington DC.

"We needed someone to help facilitate the trust and put the issues of the past behind us," says Murphy.

RAI had done work for the Public Service Association - a big fan of HPE techniques, which has been trying to interest its workers' employers (government departments, hospitals and the Auckland Council) in the HPE approach.

At its most basic, say the airline and the unions, it's just plain common sense - discussing plans and issues before they become a problem.

It is based on the concept that "people closest to the problem find the solution" and means union members and delegates are actively involved in looking at solutions.

Rather than taking set positions, unions and the company now take an interest-based approach.

The Engineering, Printing and Manufacturing Union (EPMU) organising director for aviation, Strachan Crang, says HPE can be applied to the big issues and the smaller ones.

"It can be from the colour of the carpet to big meaty issues about whether we are structured properly for the customer," he says.

Air New Zealand chief executive Christopher Luxon. Photo / Dean Purcell
Air New Zealand chief executive Christopher Luxon. Photo / Dean Purcell

The EPMU and other unions took some convincing, but they did sign up to HPE. Pilots are trialling it for two years.

"Our members were sceptical - my feeling was that we couldn't get worse in terms of relationships with the company," says Jacqui Roberts, from the Aviation and Marine Engineers Association.

First Air New Zealand got the RAI consultants in, then set up systems to implement the new way of dealing with staff.

At the top is a committee of four of the company's top executives and two union members. Below that there is a network of 10 steering committees involving engineering staff, cabin crew and airport workers.

Murphy says HPE has meant a big commitment, as staff are taken off the line to participate in the process. The most important thing was for the company to "walk the talk".

"If you say you're going to do it and don't, you've got even worse problems. You've got to build the infrastructure."

Of the 11,000-strong workforce, about 1000 have been designated leaders and undergo regular training and assessment.

The airline's chief operations officer, Bruce Parton, has been at the sharp end of some tough negotiating in the past and says the new strategy is a big cultural shift, which has been "confronting" for unions and managers.

He laments the energy wasted in negotiations and court cases, which became snagged on minor points.

Although it's early days yet, there is a consensus that HPE has already yielded results.

Murphy says that in its airports division, there was a "burning platform" situation.

The work its 1600 cleaners, baggage handlers, ramp operators and check-in staff was doing for Air New Zealand and other airlines was under threat of being contracted out.

"We started with that burning platform and decided we were going to use this interest-based problem solving as a new approach - we wanted to be cost competitive and our employees wanted to keep well paying jobs with Air New Zealand."

Frontline workers were drafted into a joint committee that had to find savings of $15 million a year.

"They found $7 million without anyone losing their job around changes in shift patterns and the way work is done."

Wages weren't cut either.

Personal grievances more than halved

Murphy says the number of personal grievances across the company has more than halved since 2012 and although she won't give dollar figures, legal fees paid to cover industrial matters are down by more than 40 per cent.

There have been other examples of the process working, notably among pilots.

Air Line Pilots' Association president Mark Rammell, a 28-year Air New Zealand veteran who has witnessed the worst of relations in the past, is cautious but hopeful.

Air Line Pilots' Association president Mark Rammell.
Air Line Pilots' Association president Mark Rammell.

HPE techniques - early and inclusive consultation - have been used to deal with three potentially volatile issues: the future of about 100 Eagle Air pilots with the pending closure of the regional airline; changes to covering sickness among other regional pilots and a superannuation issue among Mt Cook Airlines staff which was headed to court.

"To me, the biggest potential in this process is when they want to make change they sit down with those involved, their representatives, and effectively there is an agreement that until both sides are happy it's not resolved," says Rammell.

For many pilots, Air New Zealand is their only employer throughout their careers. "There are wonderful opportunities overseas, but your average Kiwi who is a pilot wants to work for Air New Zealand.

"The collective agreement is very important - respecting it and working under it is hugely important to us and I think the biggest perception among members is that there has been a lack of respect for the terms and conditions."

The airline, and the EPMU's Crang, also point to the establishment of an engineering centre of excellence in Nelson as an example of HPE in action.

Disputes were once a festering sore, such as this 2009 cabin crew strike. Picture / File
Disputes were once a festering sore, such as this 2009 cabin crew strike. Picture / File

'It's going to take time'

Luxon gets the thumbs up from Crang, who describes him as a collaborator. "He wants a win-win in any situation."

Past chief executives were fighters who ended up in scraps with airport companies, the unions and airline competitors. "If [Luxon] can win and they can win, then they can both live in that space."

The pilots' union also praises Luxon for turning up at their annual conference in June, but the engineers' Roberts says that unlike previous chief executives, her members seldom see him.

"We call Christopher the virtual CEO. From my perspective, when we had Rob Fyfe there every three months we would have an employment relations summit."

For Roberts, whose union covers 1700 members at Air New Zealand, the jury is out on HPE.

"In some areas I reserve judgment based on previous relationships but in other areas there's definitely a mutual respect occurring with managers and employees."

One area where the unions and the airline do agree is on the impact of the company's strong financial performance, especially compared with other carriers.

Growing businesses are usually happier places than shrinking ones. In HR terms it's what Murphy describes as "the free kick", but bonuses (which the airline did pay to staff last year after a good full-year result) and pay rises are not enough in themselves. "There's no doubt about it - when the money's coming in everybody is happy; it's necessary but not sufficient," she says.

"It's times like this when you put credits in the bank about how you'd like to treat each other. You could still be making a lot of money but have poorly engaged people who say 'just give me the money, I don't care about Air New Zealand'."

Air New Zealand engineers. Photo / Richard Robinson
Air New Zealand engineers. Photo / Richard Robinson

When Fyfe started in the top job in 2005, Air NZ was still recovering from its near-collapse and one of his first acts was to announce hundreds of job losses. The airline also had a long-running dispute over the pay and conditions of its Zeal cabin crew, intially hired for its budget carrier Freedom Air.

Despite that, the airline has a history of attracting the true believers, the strongly committed "Air New Zealanders," a term Fyfe popularised within the company. Privately, some staff roll their eyes at that label, but the airline remains a popular place to work. It attracts about 50,000 applications a year for about 1000 jobs.

This year an internal staff survey attracted responses from 9000 staff and put the airline in the upper quartile of peer companies in Australasia, Murphy says.

Engaged workers are essential for the airline, in an industry that must pay meticulous attention to safety but which is also a giant service business, operating 4000 flights a week in Air NZ's case.

"You can't buy engagement - it comes from treating people with respect and dignity and listening. When they're engaged and when change comes they'll flex, they'll be ready for it, they won't be grumbling."

But not everyone is with the programme. An Employment Court hearing this month into the sacking of a flight attendant triggered anonymous emails to the Herald reflecting deep-seated anger at the behaviour of the airline and its senior staff.

And Alpa's Rammell says there is no quick fix, despite the goodwill surrounding HPE.

"You've got pilots who have been employed so long by them there's bad blood that doesn't go away. It's going to take time."

Working by the book - all 61 pages

To describe Air New Zealand's code of conduct as detailed would be an understatement: it runs to 61 pages.

Since Christopher Luxon took over as chief executive, it has been reworked and covers a broad range of areas from drugs and alcohol use (there's a zero blood alcohol level at work) to social media (don't take or share selfies of celebrities on flights) to avoiding commercial conflicts of interest and breaching competition law around the world.

Click here to read the Air NZ code of conduct.

People manager Lorraine Murphy says the code is detailed to avoid confusion.

"We put a lot of thought into who do we want to be as a company ... what are the rules, what are the principles within a family working together," she says.

While one union leader says the size of the document means it's hard to keep up, the airline wants to make a blanket set of rules.

"In a workforce this size you could think you need to treat the pilots different from the cleaners and to the people in the [head office] hub, but the principles are the same no matter where you go," says Murphy.

Social media presents particular risks. "When you go on social media you represent Air New Zealand. If you have a Facebook page saying you're Air New Zealand cabin crew and there's photos of you drinking, it represents cabin crew and your colleagues. Sometimes people weren't aware of what it could mean."

Union takes the long term view

Union organiser Strachan Crang says it's important for Air NZ to remain a premium carrier. Photo / Jason Oxenham
Union organiser Strachan Crang says it's important for Air NZ to remain a premium carrier. Photo / Jason Oxenham

Strachan Crang heads the biggest single group of workers within Air New Zealand and has a clear view on the workplace bottom line.

"People want to be treated fairly when they are at work; they don't leave their dignity at the door. They want to be respected by their management."

The 34-year-old father of three is the Engineering, Printing and Manufacturing Union's director of organising for aviation, and also leads flight crew, whose union, Farsa, is now in a trial marriage with the larger EPMU.

The enlarged union represents more than 5500 workers in aviation, most of them working for Air New Zealand, which makes Crang a powerful voice. He's a protege of Labour leader Andrew Little, a former EPMU boss.

Little says he picked Crang early on as someone with "a lot of talent" who shows good judgment, knowing when to force an issue and when to back off.

"There are times when you've got to be constructive and times when you've got to take on the argument."

Crang was a boarder at Sacred Heart College in Auckland, where his reports often said he "could apply himself better", and left after year 12 to go to sea. He crewed on car ferries around the Hauraki Gulf, then aboard the Cook Strait ferries, where he started a deck officer cadetship.

He didn't like big ship hierarchies and as the Aviation Security Service was bolstering its operations following the September 11 terror attacks, Crang got a job at Wellington Airport, where he was involved in negotiating what he describes as "a great collective agreement".

"I had an opinion and I had a view. Being a young delegate, I got introduced into union philosophies and principles and ways to organise."

Watching people lose well-paid jobs and go out and look for service jobs because there was nothing else, said to me the most important thing for a worker or a union is maintaining the job.

He joined the EPMU in 2004 and two years later his convictions were galvanised by the closure of South Pacific Tyres in Upper Hutt, resulting in hundreds of people losing their jobs.

"Watching people lose well-paid jobs and go out and look for service jobs because there was nothing else, said to me the most important thing for a worker or a union is maintaining the job," he says.

"Sometimes you have to compromise to keep your organisational power intact to have the chance to rebuild and fight another day. It's a long-term game."

It's this philosophy he's taking to Air New Zealand, whose boss Christopher Luxon also has a pragmatic streak.

"What used to happen was that at Air New Zealand change was imposed on us and we would fight it - you'd be blueing about it and at the end nobody got what they really wanted and lots of people would come out pretty damaged."

Crang says it is important that the airline remains a premium carrier.

"We want to share in the profits; to have superior terms and conditions you have to deliver a superior product."

He's keen for the entire workforce to stay ahead of the technology curve.

"The candlestick makers are gone - but did they become lightbulb company workers?"