Dixon's Dilemma


Any CEO worth their salt would like to go out with their reputation and credibility intact, leaving behind a strong, growing and profitable company. Often this can merely be a matter of getting the timing right.

That is the dilemma currently facing Qantas CEO Geoff Dixon: when to go?

The recent industrial dispute over Dixon’s stand on maintaining the artificial barrier of a 3 per cent wage increase has Dixon boxed in to a corner.

The battle lines have been drawn, and if Dixon were to step down now employees, unions, shareholders and perhaps even the Qantas Board, may see him as the first casualty.

Dixon has to stay until the issue is dealt with one way or another. On present indications that may be a long time, and the collateral damage to the Qantas brand may undo all the good work he is perceived by the investors and financial institutions to have done.

It appears to be a risk Dixon is prepared to take.

So what could be the damage to the Qantas brand if this dispute drags on?

Actions such as the ALAEA‘s stop-work meetings are having immediate impacts on the airline. On the day of the first stoppage Qantas on-time departures fell dramatically, 10 flights were cancelled and there were significant international delays.

It won’t take long for corporate travellers and the public to realise that if they want some certainty in leaving on time, or at all, other airlines may be a better option.

The vast majority of passengers choose Qantas due to its impressive safety record and reputation. However the dispute is also affecting this element of the Qantas brand.

In 2004, Qantas undertook a review of its maintenance operations with a view to cutting costs. The consultants’ primary recommendation was to shut all of Qantas heavy maintenance operations and send the work overseas.

The responsibility to decide whether to send heavy maintenance overseas or to instead restructure and send the Sydney work to Victoria was delegated by the Qantas board to David Cox, the Executive General Manager for Engineering.

Cox had to take into account the damage the shift overseas may cause to the brand as well as the view of the Government and the requirements of the Federal Qantas Sale Act (1992). So it wasn’t a purely cost-cutting decision.

In 2006, Cox announced it would close its Sydney heavy maintenance base, which resulted in approximately 380 job losses. The employees affected were shattered and saw the closure as a massive betrayal of their loyalty, diligence, and trust.

This was the start of the rot but it didn’t stop there.

Qantas management gave assurances to the unions that the Sydney work would not be outsourced overseas but would be reallocated to Avalon, Victoria. Since then the Avalon workforce numbers have declined and Qantas has increased its outsourcing overseas to the extent that the equivalent amount of work previously done in Sydney is now being done overseas.

The closure of Sydney Heavy Maintenance and loss of skilled labour started a ticking bomb: the growing maintenance demand on Qantas aircraft.

So we have an aging fleet plus an increase in fleet size and a need to maintain international capacity. In the meantime, Qantas’ licensed maintenance workforce has decreased by 20 per cent despite the company doubling in size over the past six years.

The increase in outsourcing has little to do with capital equipment, hangar space or money; it’s all about a shortage of skilled labour effectively caused by Cox’s decision in 2006. And until Qantas’ fleet can be totally renewed the Qantas maintenance workload will continue to increase.

The ALAEA’s current overtime bans are only going to add to the already full maintenance programme. With the defect load rising it won’t be long before the Civil Aviation Safety Authority will have some serious concerns over the operational airworthiness of some aircraft. Qantas faces the prospect of the "maintenance bomb" going off if Dixon cannot get his workforce back onside. Are Dixon and the Qantas Board prepared to take that risk with the Qantas brand?

Meanwhile, Qantas employees are distinctly aware of the Board’s excesses on executive remuneration which has seen the CEO’s salary move from $250,000 to Dixon’s reported package of over $6 million per year in 2007. Added to that is the bad odour left after the Qantas Board backed the failed private equity bid, which was seen by the engineers as another betrayal by Dixon of his own employees and another threat to their job security.

Dixon’s dilemma is not going to improve quickly as other Qantas employees’ agreements – baggage handlers, tug drivers, technical officers and long haul pilots – come up for renegotiation and take on the battle against the 3 per cent legacy with the backing of the ACTU.

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.