Australian Licenced Aircraft Engineers Association v Cobham Aviation Services Engineering Pty Ltd T/A Cobham Aviation Services Australia Engineering - [2012] FWA 9444

[2012] FWA 9444

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.240 - Application to deal with a bargaining dispute

Australian Licenced Aircraft Engineers Association
v
Cobham Aviation Services Engineering Pty Ltd T/A Cobham Aviation Services Australia - Engineering
(B2012/1612)

COMMISSIONER HAMPTON

ADELAIDE, 21 NOVEMBER 2012

s.240 - Application to deal with a bargaining dispute - agreed arbitration on wages outcome within set parameters - basis of wage determination considered - circumstances and considerations advanced by the parties assessed - determination made.

BACKGROUND AND CASE OUTLINE

[1] This matter concerns an application by The Australian Licenced Aircraft Engineers Association (the ALAEA) pursuant to s.240 of the Fair Work Act 2009 (the Act). The application seeks the assistance of Fair Work Australia to resolve a bargaining dispute that has arisen in the context of negotiations for a proposed new enterprise agreement.

[2] The proposed agreement would apply to the aircraft maintenance engineers employed by Cobham Aviation Services Engineering Pty Ltd T/A Cobham Aviation Services Australia - Engineering (Cobham Engineering).

[3] The parties have been conducting negotiations for many months and have reached an understanding on all issues within the package, save for the wages outcome.

[4] During the course of an extended conference convened by Fair Work Australia on 5 October 2012 a proposed basis to advance a resolution of the outstanding matter was raised and subsequently endorsed by both parties.

[5] The parties have now agreed that the Tribunal will arbitrate the one remaining issue between them as contemplated by s.240(4) of the Act. Parameters for the arbitration have also been agreed and these are outlined below.

[6] As a result of a subsequent directions conference, the parties also agreed upon a timetable and process. That process included that the parties would rely upon written submissions and responses without seeking to call or cross-examine witnesses.

[7] I also reserved the opportunity for Fair Work Australia to raise issues with the parties following the lodgement of their primary submissions. Having done so, I raised two matters 1 and sought further submissions within the agreed timetable and process.

[8] As a result, I have now received and considered the comprehensive written primary and reply submissions provided by the ALAEA and Cobham Engineering.

THE STATUTORY PARAMETERS

[9] Section 240 is contained in Part 2-4 of the Act and its objects are set out in s.171 in the following terms:

“171 Objects of this Part

The objects of this Part are:

(a) to provide a simple, flexible and fair framework that enables collective bargaining in good faith, particularly at the enterprise level, for enterprise agreements that deliver productivity benefits; and

(b) to enable FWA to facilitate good faith bargaining and the making of enterprise agreements, including through:

(i) making bargaining orders; and

(ii) dealing with disputes where the bargaining representatives request assistance; and

(iii) ensuring that applications to FWA for approval of enterprise agreements are dealt with without delay.”

[10] Although I will not set them out in this decision, the broader statutory objects of s.3 are also relevant to this matter.

[11] Section 240 of the Act provides relevantly as follows:

“240 Application for FWA to deal with a bargaining dispute

Bargaining representative may apply for FWA to deal with a dispute

(1) A bargaining representative for a proposed enterprise agreement may apply to FWA for FWA to deal with a dispute about the agreement if the bargaining representatives for the agreement are unable to resolve the dispute.

(2) If the proposed enterprise agreement is:

(a) a single-enterprise agreement; or

(b) a multi-enterprise agreement in relation to which a low-paid authorisation is in operation;

the application may be made by one bargaining representative, whether or not the other bargaining representatives for the agreement have agreed to the making of the application.

(3) If subsection (2) does not apply, a bargaining representative may only make the application if all of the bargaining representatives for the agreement have agreed to the making of the application.

(4) If the bargaining representatives have agreed that FWA may arbitrate (however described) the dispute, FWA may do so.”

[12] The ALAEA is a bargaining representative and the proposed new agreement is a single-enterprise agreement.

[13] The provisions of s.255 of the Act are also potentially relevant in this matter.

“255 Part does not empower FWA to make certain orders

(1) This Part does not empower FWA to make an order that requires, or has the effect of requiring:

(a) particular content to be included or not included in a proposed enterprise agreement; or

(b) an employer to request under subsection 181(1) that employees approve a proposed enterprise agreement; or

(2) Despite paragraph (1)(a), FWA may make an order that particular content be included or not included in a proposed enterprise agreement if the order is made in the course of arbitration undertaken when dealing with a dispute under section 240.

Note: FWA may only arbitrate a dispute under section 240 if arbitration has been agreed to by the bargaining representatives for the agreement (see subsection 240(4)).”

THE AGREED PARAMETERS OF THE ARBITRATION

[14] It has been agreed by the parties that Fair Work Australia will arbitrate the dispute in this matter within the following parameters: 2

1. The Tribunal will determine the wages outcome that is to be applied as part of the proposed enterprise agreement otherwise agreed between the bargaining representatives. The arbitration will specifically determine a wages outcome involving the current competing proposals or something between those proposals.

The competing proposals for this purpose are as follows:

Adjustment	Cobham	ALAEA
1 July 2012	4.0%	5.0%
1 July 2013	3.5%	5.0%
1 July 2014	3.5%	5.0%

2. There will be no industrial action whilst the arbitration is being conducted or during the process of putting the resultant enterprise agreement to the employees for approval in accordance with the Act.

3. The arbitration will be conducted on the papers with each party filing submissions and material within timeframes to be subsequently set by the Tribunal. An opportunity will also be given for response submissions.

4. Fair Work Australia will then issue a written decision in relation to the arbitration and the parties agree that the decision will be applied and consolidated within the existing proposed enterprise agreement (subject only to editorial changes) and put to the employees for approval in accordance with the Act.

[15] As a result, and noting that this matter does not involve a workplace determination 3 as contemplated by Part 2-5 of the Act, the parties are in effect seeking the determination of the wages content that is to form part of a proposed enterprise agreement that the employer (and the ALAEA) intend to subsequently put to employees through a request under s.181(1) of the Act.

[16] Given the agreed parameters, it is not intended that an order be made in this matter as would be permitted by s.255(2) of the Act.

THE GENERAL FACTUAL CONTEXT

[17] Based upon the common positions advanced by the parties, the following establishes the broad factual context for this arbitration.

[18] Cobham Engineering is part of a group of related companies (the Cobham group) and relevantly employs Licenced Aircraft Maintenance Engineers (LAMEs) to maintain a fleet of aircraft operated by related entities fulfilling aviation contracts around Australia.

[19] In Australia, the Cobham Group is a provider of contract aerial passenger and freight services to large civil and government organisations. In that context, Cobham Engineering is the engineering and maintenance provider to the Cobham Group.

[20] The business units operated by the Cobham group include Airline Services, operating aircraft on behalf of QantasLink and forming part of the Qantas domestic passenger network within Australia; Regional Service, supporting work in the mining/resource sector and also some freighter business within Australia; and Coastwatch -Surveillance Australia, Special Mission, carrying out border protection surveillance work for Australian Customs.

[21] As a contract aviation provider, the Cobham Group has diverse operations with aircraft based around Australia and in Papua New Guinea.

[22] In operational terms, the Cobham Group has major contracts to:

Operate and maintain a fleet of 13 Boeing 717 aircraft for QantasLink;

Conduct dedicated scheduled freight services using 4 specialist freighter aircraft linking Brisbane, Sydney, Melbourne and Adelaide;

Provide aerial surveillance using 13 aircraft on behalf of Australian Customs and Border Protection Service; and

Operate 14 passenger aircraft in support of major mining, oil and gas industries in Western Australia, South Australia and Papua New Guinea.

[23] Contracts serviced by the Cobham Group are for various terms, but are predominantly between two and 12 years with ‘rise and fall’ terms based on changes in cost of living/Consumer Price Index (CPI) variations.

[24] The LAMEs to be covered by the proposed enterprise agreement are employed at bases around Australia to support aircraft activities as follows:

Base	Employee Nos.
Adelaide	7
Perth	55
Broome	8
Darwin	22
Alice Springs	3
Cairns	25
Brisbane	9
Sydney	2
Melbourne	4
Total	135

[25] The parties are seeking to negotiate a replacement Enterprise Agreement covering LAMEs for the period to 30 June 2015. Negotiations commenced in March 2012 and all claims have been resolved except the issue of wage increases.

[26] The current instrument, the Cobham Engineering Line Maintenance Enterprise Agreement 2011 (the 2011 agreement), expired on 30 June 2012. Prior to expiry, a Notice of Employee Representative Rights was issued consistent with s.174 of the Act on 13 February 2012 and meetings of bargaining representatives have been held on four occasions to resolve claims and issues relating to a new agreement.

[27] The relevant members of the ALAEA to be covered by the proposed enterprise agreement had previously voted to take Protected Industrial Action however this has not been undertaken due in part to the agreed arbitration.

[28] Major items agreed in negotiations include:

Leading hand allowances increased to recognise the responsibility for aircraft allocated to each base. An allowance of $200 per aircraft is to be paid annually. As an example, a base with 8 aircraft will increase a leading hand allowance by $1,600;

Increased penalties on nominated public holidays;

Alice Springs location allowance increased by $1,000;

Increased redundancy payments of 4 weeks for those with service greater than 10 years;

Increase in footwear allowance from $60 to $80 pa;

Annual increase to remote base allowance in Alice Springs, Broome and Darwin; and

An increase to the mission equipment allowance in Broome.

[29] Some of the above changes apply only to LAMEs employed in certain locations and roles.

[30] I understand that with the exception of the wages outcome, the above agreed items and any changes necessary to meet the form and content requirements of the Act, the terms of the 2011 agreement are to be maintained in the proposed new enterprise agreement.

THE CONTENTIONS OF THE ALAEA

[31] The ALAEA seeks a 15% increase in three equal increases over the life of the proposed agreement. Alternatively, it contended that “at the very least, the Company should pay wage adjustments in the proposed EA that are superior to their current offer”. 4

[32] The ALAEA position is based upon a series of contentions that were outlined in a comprehensive written submission and response document. Without outlining all of those contentions, the ALAEA based its case upon a range of different considerations that were said to support the proposed wages outcome. These included the following matters.

Revenue contribution of Cobham Australia Engineering to the Cobham group

[33] The Cobham Annual Report and Accounts for 2011 and the Cobham interim results for 2012 indicate:

that total revenue was up due to organic growth which was primarily due to the Australian operations and a favourable Australian dollar translation rate;

extending contracts and expanding operations and a significant AU$500m order in Australia to extend and expand the B717 QantasLink contract with additional aircraft from 2012;

a continuing strong contribution from the Australian operations with 68% of the portioned aviation services revenue coming from Australia; and

the trading profit is noted as £19.1 million pounds - said to mean that the Australian contribution to the aviation services trading profit is in the order of an AUD $31.12 million.

[34] This, it was suggested, meant that there is sufficient capacity for the Company to adequately reward Cobham Engineering line maintenance engineers through the provision of a more attractive pay offer than is currently being offered by the Company.

[35] The ALAEA also contended that the stability and certainty of having a number of long term contracts locked in place for some of the business units and what was said to be strong order books for work all supported the higher outcome being sought.

Long term compression of Cobham Line Maintenance Engineers pay

[36] The ALAEA contend that wage levels for line maintenance engineers at Cobham Engineering (National Jet in earlier years) have been somewhat compressed over the last decade due to the Company adopting and pursuing a long standing policy of either CPI or 3% per annum wage adjustments in the applicable industrial instrument and these pay adjustments have generally been applied from 1 July each year.

[37] The presence of a long term compression was also supported by reference to macro-economic indicators. The long term adherence by Cobham management to a 3% or CPI wages increase policy, has effectively meant that Cobham line maintenance engineers have not had their wages keep pace with broader wage movement measures such as the Wage Price Index (WPI). For example, the Reserve Bank recently noted that the wage price index (WPI) over the year to the March quarter for private sector wages grew by 3.7% which was around the average pace of the past decade.

Achieving a "real" pay increase for Cobham Line Maintenance engineers

[38] The ALAEA sought a “real" after inflation wage increase.

[39] The pay outcome should not simply be about providing wage maintenance but an increase that reflects a share for engineers in relation to improved productivity and adequate recognition for the contribution that Cobham line maintenance aircraft engineers in Australia have and are continuing to make to company revenues and profit. 5

[40] The consistent feedback to the ALAEA from Cobham Engineering members is that they believe they have made a significant collective contribution to the success of the Company's aviation services business over a number of years but have had to endure conservative wage outcomes offered in AWAs for many years. They are looking to this three year enterprise agreement to deliver a “fair share” via a competitive pay increase outcome over its duration.

[41] The ALAEA contended that the establishment of the first collective agreement in 2011 after many years of Australian Workplace Agreements provided only a 3% wage increase adjustment applying from 1 July 2011. However, Cobham engineers were prepared to settle for this outcome as the Agreement was seen as an interim and short term measure to allow them to transition away from AWAs and onto a collective enterprise agreement.

[42] The ALAEA indicated that there was a promise from Cobham Engineering management that during the year of the interim enterprise agreement covering the period from July 2011 to June 2012, a working party would be established to examine options for a restructuring of the current pay and classification system. The aim was to overhaul a somewhat outdated classification structure and attempt to provide greater incentives to acquire new licence related skills and offer better career path prospects. Whilst the working party did occur, unfortunately no changes were able to be agreed and there was no prospect of changes being included in the new enterprise agreement. Without any prospect of a restructured classification system, it has put the onus very much back on the importance of the headline pay increases to be achieved in the new enterprise agreement.

Recent enterprise agreement pay outcomes and the significance of the Perth market

[43] Approximately 40% of the aircraft engineers to be covered by the proposed enterprise agreement are located at the Cobham base in Perth.

[44] For a number of years recently, reflecting the strong economic conditions prevailing in Western Australia, wage movement and CPI indices have generally been higher there than for the rest of Australia.

[45] Whilst there was certainly feedback to the union seeking an improved pay offer from other Cobham bases, the strongest overall input was out of Perth. This is understandable given wage movements within other regional aviation sector employers more recently.

[46] The ALAEA made reference to two relatively recent enterprise agreements 6 applying to aircraft engineers in Perth. These agreements were said to involve wage adjustments significantly in excess of that proposed by Cobham Engineering. The ALAEA also contended that the adjustment and wage rates produced by these agreements indicated that the Cobham Engineering members in Perth were in particular vulnerable to falling behind other regional aviation employers. This has been a key factor in the engineers bargaining claim for 5% annual pay increases in the new Cobham Engineering agreement.

[47] The ALAEA provided a comparison document of the projected rates provided by these two agreements and the present wages offer made by Cobham Engineering.

[48] From a macro-level economic perspective, strong wages growth in Western Australia has been a key feature in recent wage movements, partly due to the resources boom that has occurred during recent years. For example, the WPI for the private sector in WA grew by 4.6% over the year to March 2012. The latest data for the private sector WPI in WA indicates movement of 4.9% for the year to June 2012. The Reserve Bank Statement on Monetary Policy from August 2012 also noted that year ended wage growth had picked up in WA.

Changes to the cost of living

[49] The ALAEA contend that in looking at the various wage movement indices, there should not be a narrow reliance on just the CPI. Whilst the CPI can be a useful indicator for macro-economic policy settings, it also has shortcomings in being used as a benchmark for setting wage growth outcomes.

[50] An alternative measure of price changes is the Analytical Living Cost Indexes (ALCI). The ALAEA suggested that the ACLI provides a conceptually preferable means of measuring the effect of price changes on the cost of living for workers.

[51] In recent years, if the period around the 2008 global financial crisis is discounted, the employee ACLI has tended to rise more rapidly than the CPI. From a long term perspective, the employee ACLI rose by 52.3% between June 1998 and March 2012 whereas the CPI rose by 48.4%. More recently the employee ACLI from June 2010 to March 2012 rose at an average rate of 3.9% in contrast to the CPI which rose by 3%.

[52] The ALAEA contended that this information was pertinent when one takes into account the long standing wages policy of Cobham/National Jet to cap pay increases at either CPI or 3%. More recently, Cobham Engineering have moved to an emphasis on the CPI as the key measure determining the Company’s wage adjustment policy. The ALAEA understands that this is due to the Company having its contractual arrangements with a number of companies linked to the CPI outcome.

[53] Whilst there is no perfect measure, it is arguable that reliance by the Company on CPI movements has tended to obscure the real level of change in the purchasing power of workers' wages.

[54] Further, the CPI measure has been relatively volatile in recent years. For example, by changing the timing of the period of analysis for the Perth CPI result, the result can be somewhat different. If the period of review is changed to the March quarter from 2008 through to 2012, then on three occasions during this period the Perth quarter March to March CPI result was higher than the figure for the weighted average of the eight capital cities. 7

Wage movement in Australia

[55] The ALAEA contend that in looking at the various wage movement indices, the WPI is a measure that should generally be accorded more weight than a reliance on CPI movements in relation to determining the outcome of this arbitration process for the Cobham enterprise agreement.

[56] The latest information on the WPI in relation to Western Australia has been referred to above. From a national perspective, the latest available information from the ABS indicates that the WPI increase for the private sector was 3.9% for the year through to the June quarter 2012.

[57] The ALAEA contend that the current Company pay offer of annual pay adjustments totalling 11% for the three year enterprise agreement will mean there is a reasonable prospect that this outcome will fall short of the WPI movement in the three year period from July 2012 through to June 2015.

[58] Other wage movement data that can also be referred to include Average Weekly Earnings (AWE) and also the more commonly used Average Weekly Ordinary Time Earning (AWOTE) which measures movement in average wages for ordinary time work by full-time adults. Whilst recent movements have been affected in the wake of the global financial crisis, the long run average yearly growth of AWOTE has been 4.5%. The latest available figures show that AWOTE rose by 3.4% for the year ended May 2012 and AWE rose by 3.7% for the year ended May 2012.

[59] Another relevant set of data that should be given significant attention in this arbitration is the information on average annualised wage increases (AAWI) for employees covered by collective agreements. The Department of Education, Employment and Workplace Relations (DEEWR) provide quarterly updates to this series. The most recent data for the June quarter 2012 for all current wage agreements indicates that AAWI private sector increase are running at 4.0%.

Recent inflation data

[60] The ALAEA contended that the most recent indication of CPI 8 was that the All Groups CPI measure rose by 1.4% in the September quarter compared to a previous rise of 0.5% for the June quarter 2012. This was said to be above market expectations and potentially an early indicator of a possible acceleration in inflation in Australia in the medium term that would cover the period of the proposed EA through to June 2015.

[61] The ALAEA members have been concerned about the very substantial recent increases to energy and utilities bills generally and it was said that this was eroding the purchasing power of member households. A further area of concern that has been raised has been the rate of increase in health costs and in particular private health insurance costs.

[62] The ALAEA also postulated that international developments could lead to an increase in inflation rates in developed economies, including Australia.

Other matters

[63] The ALAEA accepted that the approach adopted by Fair Work Australia in various Workplace Determination was generally relevant and cited in particular the decision of the Full Bench in Schweppes Australia Pty Ltd v United Voice - Victoria Branch[2012] FWAFB 8599 9 (Schweppes).

THE CONTENTIONS OF COBHAM ENGINEERING

[64] Cobham Engineering contended that its final wages offer, confirmed as part of the agreed negotiating parameters, was a fair and reasonable outcome. This involved a total of 11% over the life of the proposed Agreement.

[65] Cobham Engineering also provided a comprehensive written submission and response document and without canvassing all of that material the following major contentions were advanced.

The basic approach to setting the wage outcome

[66] In past agreements, whether they were Collective Agreements or AWAs, Cobham increases have related to CPI increases, or a fixed 3%. Throughout the Cobham Group, CPI has been the normal method of elevating wages.

[67] During the current round of negotiations within the Cobham Group, an initial 4% has been used to elevate wages as rates transition to the new Modern Award requirements, with subsequent CPI increases to reflect changes to the cost of living.

[68] As a contract aviation company, the ability to increase revenue is limited by contracts which are predominantly linked to CPI, hence it is prudent to align wage increases to revenue increases.

[69] Productivity increases are a justification to increase wages and throughout negotiations Cobham Engineering has been willing to trade wage increases for productivity improvements. It was contended that the Employee Bargaining Representatives had been unwilling and unable to agree productivity improvements in exchange for increased wages.

[70] Cobham Engineering is the only Cobham Group work unit that has a 35 hour working week. During negotiations, discussions explored opportunities to increase working hours in return for higher wages, however no agreement has been reached to increase working hours or increase productivity.

[71] Cobham competitors do not enjoy a 35 hour working week and it was asserted that comparisons must to take into account the “very favourable” working hours as an expensive condition with the costs being absorbed by the employer.

[72] In considering the appropriate wage increase to be applied in an agreement, Cobham Engineering contend that the following need to be considered:

Cost of living expectations

Productivity

Ability to pass on increases to customers

Community increases/expectations/general level of increases

[73] Cobham Engineering advanced submissions in relation to each consideration.

Cost of living expectations

[74] In Australia the most widely used measure of the cost of living is the Australian Bureau of Statistics CPI. The CPI is a measure of:

changes in the purchasing power of money incomes;

changes in living standards; and

price inflation experienced by households.

[75] Cobham Engineering contended that underlying inflation was the true measure of the cost of living, but even if you use headline estimates, the wage increases proposed by it were greater and provide adequate compensation for increases in the cost of living.

[76] In terms of the one-off carbon price impact, Cobham Engineering relied upon the view taken by the Tribunal in its Annual Wage Review 2011-12 Decision; namely:

“that we should not provide any additional assistance to compensate for the anticipated price effects associated with the introduction of a price on carbon. Compensation has already been provided through tax cuts and transfer payments and further compensation by minimum wage adjustments would amount to “double dipping.” 10

[77] In terms of the reliance by the ALAEA upon costs in Perth, Cobham Engineering contended that only on one occasion in the last five financial years had the Perth CPI been higher than the average for Australia. Further, it argued that the proposed wage increases by Cobham Engineering are higher than the cost of living estimates of the Federal Government in the 2012/13 Budget Statements which had recently been confirmed in the latest Reserve Bank Statement on Monetary Policy issued in August 2012.

Productivity

[78] Productivity is a justification for wage increases. Cobham Engineering contended that throughout the negotiations for a new agreement there has been unwillingness or an inability to discuss and propose productivity improvements.

[79] An increase to the current normal working week of 35 hours has been explored but there is a reluctance to adjust working hours in return for higher increases in wage rates.

Ability to Pass On Wage Increases to Customers

[80] The Cobham Group in Australia is a contract aviation company that has major contracts to provide aircraft and crews to Qantas, Australian Air Express, and Australian Customs. It also provides Fly-In-Fly-Out services for major mining, oil and gas companies. Contrary to popular belief the contract aviation sector is very competitive. The contracts are long term and are for periods of between two to 12 years. Cost escalation provisions in the contracts generally are referenced to changes to the CPI.

[81] The nature of the Cobham business, the competitive nature of the industry and the length of the contracts restrict the ability of Cobham Engineering to recover labour costs over and above CPI increases.

[82] The industry sector and the contract nature of the business has been the reason why historically employee agreements have been negotiated with wage increases relating to CPI or the long term CPI average of 3%. The increases have been consistent with the company’s ability to recover from the clients.

[83] In terms of the profits relied upon by the ALAEA, Cobham activities in Australia account for 68% of Cobham Aviation Services. However the same Cobham Interim Results highlight a reduction in Trading Profit from 13.4% to 11.6%. Cobham Engineering contended that growth in sales revenue did not indicate increased profitability and did not justify a higher wage outcome than it had proposed.

Community Increase/Expectations/General Increases

[84] Generally the community is influenced by the Minimum Wage Review and the movements in Award rates of pay, consumer price indices and increases negotiated in similar industries.

[85] In terms of the relevance of the Perth “market”, Cobham Engineering accepted that 40% of the aircraft engineers to be covered by the proposed enterprise agreement are located in Perth. However, it contended that it would be inappropriate to allow the agreement to be driven by those circumstances. In any event, it also contended that the CPI for Perth has varied greatly in some quarterly comparisons, but on a financial year basis, June compared with the previous June, Perth has only exceeded the average annual CPI increase on one occasion in the last five years.

[86] Further, AWOTE data for the year ending May 2012 indicates growth of 3.6% for Australia, but only 1.5% for Western Australia. In addition, Cobham Engineering suggested that although the trends in wages growth have been strong in WA, the economy is currently weakening and wage growth is trending downwards against the average.

[87] It was contended that wage increases being reflected in agreements negotiated by competitors are in the same range or below the Cobham Engineering offer. Unlike Cobham Engineering, competitors work a 38 hour week whereas Cobham Engineering employees enjoy the benefits of a 35 hour working week.

[88] The relatively recent Workplace Determination by Fair Work Australia relating to the ALAEA v Qantas Airways 11 dispute provided increases of 3% per annum for a three year agreement expiring on 31 December 2014. The relevant modern Award was increased by 2.9% on 1 July 2012.

[89] Cobham Engineering provided an alternative table of comparative rates addressing the range of aviation agreements relied upon by the ALAEA. 12

CONSIDERATION

[90] This is an arbitration being conducted with the express agreement of the parties. That agreement has established relatively narrow parameters for the single outstanding matter to be determined. They include the number and timing of wage adjustments, the scope of the competing wage proposals, the nominal life of the enterprise agreement extending until 30 June 2015, and the fact that the remainder of the proposed enterprise agreement is already established. Further, the fact that a single proposed enterprise agreement is to apply to the LAMEs employed by Cobham Engineering across Australia has also been established by the parties.

[91] As this is not a Workplace Determination provided under Part 2-5 of the Act, there are no explicit statutory considerations to be applied here. Given the nature of the agreement between the parties and the Tribunal’s present statutory charter, I consider the following approach is appropriate.

[92] The determination of the wages outcome is to be undertaken having regard to the substantive merit of the proposals and all of the circumstances of the case including the following considerations:

The statutory objects including the encouragement of collective bargaining in good faith, the delivery of productivity improvements and fairness including at an enterprise level;

The relevant approval requirements for an enterprise agreement as established by Division 4 of Part 2-4 of the Act including the better off overall test prescribed by s.193 (the BOOT);

The proposed enterprise agreement package including its scope, intended life and the range of other benefits and conditions that form the context for the wage adjustments;

The needs of employees in terms of the real value of wages and the capacity to share in the benefits flowing from their contribution to the enterprise;

The needs of the business given cost pressures and structures, competition and profitability;

Wage movements, and more importantly, relative wage and benefit levels in the community including in the aviation industry sector relevant to this enterprise; and

The matters raised by the parties provided they are objectively relevant to the determination.

[93] In applying these considerations, the approach taken by Fair Work Australia in various Workplace Determinations is of assistance, provided that the different statutory context and the particular circumstances of those matters are taken into account.

[94] In particular, the general approach of the Full Bench in setting wage outcomes as part of a determination in Schweppes is apposite. To that end, determining the level of wage increases in this context does not lend itself to the adoption of a single consideration or a mathematical formula. Fundamentally, the Tribunal is seeking to arrive at an outcome which is fair in all the circumstances and that appropriately balances the interests of the parties. 13

[95] I do not intend to deal at length with each of the considerations or the extensive material provided by the parties. I have however considered the same in reaching my decision and the following matters require particular comment.

Improved Productivity

[96] This is an important consideration given the relevant statutory objects.

[97] The Full Bench in Transport Workers’ Union of Australia v Qantas Airways Limited; Q Catering Limited[2012] FWAFB 6612 14 (TWU v Qantas) discussed the statutory consideration of how productivity might be improved and adopted the following approach of the Australian Industrial Relations Commission in CFMEU v Curragh Queensland Mining Ltd15:

“(d) How productivity might be improved in the business or part of the business concerned

We do not intend to approach the issue of productivity in a technical way. There was a great deal of material before us directed at measuring the cost of production at the mine, at other Queensland and Australian mines and at mines in the United States of America. To the extent that this evidence invites us to draw conclusions about labour productivity at Curragh compared with elsewhere, we think it is an invitation to error. Productivity measurement involves a multi-factor approach which assesses all relevant inputs on a comparable basis. We are not satisfied that we have sufficient evidence to draw valid comparisons even on labour productivity at the mine, much less on productivity overall. Whilst the material might contain useful broad indications of labour productivity, we do not think it conduces to any certain conclusions. We are required to consider how productivity might be improved. One way in which the Commission can contribute to productivity improvement is to give attention to unreasonable restraints on productivity and to eliminate them wherever that can be done consistently with the maintenance of fair standards of treatment for employees. We think it is preferable to focus directly on the elimination of unreasonable restraints on productivity rather than on the measurement of productivity in absolute terms or on inter-mine comparisons of productivity levels.”

[98] That general approach appears to be relevant here. I have not been provided with any assessment of actual or relative productivity of the enterprise concerned. I note that Cobham Engineering sought certain changes to working hours as part of the negotiations however there is little detail provided and it did not raise other proposals in that regard.

[99] I also consider that in this context care should be exercised in attempting to consider changes in employment conditions in isolation as some sort of proxy for productivity. Such alterations may well make a contribution to productivity in some circumstances, however there is no automatic link. The emphasis in the present context should be upon measures undertaken to eliminate any unreasonable restraints on productivity.

[100] It is sufficient to note that there are no explicit additional initiatives as part of the agreed package that would specifically address improved productivity or eliminate relevant restraints within this enterprise.

The package of conditions otherwise agreed

[101] There are increases in certain allowances and conditions and no reductions are proposed in that regard. The package as applied under either proposal would in my view clearly meet the BOOT.

[102] The proposed life of the enterprise agreement extends until May 2015.

[103] The fact that there will be, in effect, significant retrospectivity of the first wage adjustment is also a factor in this case.

The impact of inflation and the needs of the employees

[104] In Schweppes the Full Bench indicated as follows:

“[117] The rate of inflation is, amongst other matters, a relevant consideration in determining the wage increases to be included in the workplace determination. The most commonly used measure of inflation is the Consumer Price Index (CPI), as measured by the Australian Bureau of Statistics (ABS) survey. Some items captured by the CPI exhibit short-term price volatility, leading the ABS to produce two underlying inflation measures, the trimmed mean and weighted median, which eliminate volatile items. The most recent available data, over the year to the quarter ended June 2012 records inflation of 1.2% (CPI), 2.0% (trimmed mean) and 1.9% (weighted mean). Given considerable volatility in the measures of inflation over recent years, the ABS measures of inflation which eliminate volatile items, both of which have increased by around 2% over the past year provide better guidance to the recent underlying rate of inflation. The Reserve Bank of Australia estimates that underlying inflation will be in the 2-3% range in the next one to two years, a forecast consistent with 2012/13 Budget forecasts, abstracting from carbon price affects.

[118] We do not accept Schweppes’ proposition that the rate of inflation should be the sole or predominant consideration in determining wage increases in a workplace determination. In a context in which actual wages and wage increases, through bargaining, have regard to wage movements generally and/or in relevant industry sectors and regard is had to wage movements in assessing relative living standards in fixing minimum award wages, there is no basis for adopting a narrow focus on inflation in determining wage increases in a Workplace Determination. The level of inflation is, however, one relevant consideration.”

[105] The approach outlined above is apposite to this matter. I also note that since that decision, the latest (September 2012) CPI figures released by the ABS have indicated an increase in the annual rate of inflation to 2.0%. 16 This includes some impact of the Carbon Pricing scheme, estimated to be 0.7% over time and which has been compensated by other means17, and remains within the target range for the Reserve Bank.

[106] The flowing chart and table 18 also establish the broad context concerning inflation and cost of living changes within the community for present purposes:

Chart 4.1: Measures of inflation—Consumer Price Index, underlying inflation and Analytical Living Cost Index for employee households, growth rates

Source: ABS, Consumer Price Index, Australia, Sep 2012, Catalogue No. 6401.0; ABS, Selected Living Cost Indexes, Australia, Sep 2012, Catalogue No. 6467.0.

Note: Consumer Price Index (CPI): measures quarterly changes in the price of a ‘basket’ of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households). The Analytical Living Cost Index for employee households measures the change in the price of a ‘basket’ of goods and services which is based on the expenditure of employee households whose principal source of income comes from wages and/or salaries. CPI and ALCI data are in original terms.
Underlying inflation is calculated as the average of the trimmed mean and weighted median. These measures are calculated by the Australian Bureau of Statistics (ABS) following the methodology adopted by the Reserve Bank of Australia (RBA). The Trimmed mean is calculated by ordering the CPI expenditure class components by their price change in the quarter and taking the expenditure weighted average of the middle 70 per cent of these price changes. The 'Weighted median' is the price change of the component in the middle of this ordering.

Table 4.1: Consumer Price Index, underlying inflation and Analytical Living Cost Index for employee households, index and growth over the year

Year ended	Consumer Price Index	Consumer Price Index	Underlying inflation	Underlying inflation	Employee ALCI	Employee ALCI
(Quarter)	(Index)	(% change)	(Index)	(% change)	(Index)	(% change)
Sep-02	100.0	100.0	100.0
Sep-03	102.6	2.6	102.7	2.7	102.6	2.6
Sep-04	104.9	2.3	105.3	2.7	105.8	3.1
Sep-05	108.2	3.1	108.2	2.8	109.5	3.6
Sep-06	112.5	4.0	111.5	3.2	114.5	4.5
Sep-07	114.5	1.8	114.7	2.9	117.7	2.8
Sep-08	120.2	5.0	120.5	5.0	125.0	6.2
Sep-09	121.7	1.2	124.7	3.5	123.7	-1.1
Sep-10	125.2	2.9	127.9	2.7	129.4	4.7
Sep-11	129.4	3.4	131.0	2.6	134.5	3.9
Sep-12	132.0	2.0	134.4	2.5	135.9	1.0

Source: ABS, Consumer Price Index, Australia, Sep 2012, Catalogue No. 6401.0; ABS, Selected Living Cost Indexes, Australia, Sep 2012, Catalogue No. 6467.0.

Note: CPI and the ALCI data are expressed in original terms. The percentage change is calculated in relation to the corresponding quarter in the previous year.

[107] I have used some historical date here as it provides a broader context for the consideration of the current circumstances. Further, in recent years, wages for the relevant employees at Cobham have generally been adjusted in line with changes in the CPI or 3% over time.

[108] The following economy forecast of the Reserve Bank of Australia covering at least some of the proposed period of the enterprise agreement is also relevant:

Table 12.4: RBA economy forecasts, growth rates 19

Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14

CPI inflation 3.1 1 ¼ 2 ½ 2 ½–3 ½ 2–3 2–3

Underlying inflation 2 ½ 2 2 ¼ 2–3 2–3 2–3

CPI inflation

(excl carbon price) 3.1 1 ¼ 1 ¾ 2–3 2–3 2–3

Underlying inflation

(excl carbon price) 2 ½ 2 2 2–3 2–3 2–3

Source: RBA, Statement on Monetary Policy, May 2012, Table 6.1.

Note: Underlying inflation is calculated by taking the average of the RBA’s Weighted median and Trimmed mean measures of inflation. Percentage change for the year-ended shown. Technical assumptions include A$ at US$1.03, Trade Weighted Index at 76, Tapis crude oil price at US$125 per barrel.

Community wage movements and relative wage and benefit levels in the aviation industry

[109] The following chart 20 provides some context for an assessment of community wage movements over time:

Chart 5.1: Measures of nominal wages growth, quarterly and cumulative percentage change

Source: ABS, Average Weekly Earnings, Australia, May 2012, Catalogue No. 6302.0; ABS, Labour Price Index, Australia, Jun 2012, Catalogue No. 6345.0; DEEWR, Trends in Federal Enterprise Bargaining, June quarter 2012, Metal, Engineering and Associated Industries Award 1998; Manufacturing and Associated Industries and Occupations Award 2010 (from 1 January 2010).

Note: The Wage Price Index (WPI) is an index for total hourly rates of pay excluding bonuses in both private and public sectors. It is unaffected by changes in the quality or quantity of work performed. Average weekly ordinary time earnings (AWOTE) is calculated by dividing estimates of weekly ordinary time earnings by estimates of the number of employees. Ordinary time earnings refers to earnings attributable to award, standard or agreed hours of work. It is calculated before taxation and other deductions such as superannuation. It also excludes payments which are not related to the reference period such as overtime, leave loading and redundancy payments. Average annualised wage increase (AAWI) measures the average percentage increase in the base rates of pay across registered agreements for the year. It does not take into account payments such as allowances, bonuses and increases linked to productivity. The C14 is the lowest minimum award rate set under the Manufacturing and Associated Industries and Occupations Award 2010 and the former Metal, Engineering and Associated Industries Award 1998.

[110] Based upon the most recent publication by DEEWR, Trends in Federal Enterprise Bargaining June Quarter 2012, as cited in the above chart, the following emerges:

TABLE 1: AVERAGE ANNUALISED WAGE INCREASES (AAWIs) PER EMPLOYEE	March Quarter 2012	June Quarter 2012	Change in AAWI % Points
%	%	%
*Collective agreements* approved in the quarter.
All sectors	4.4	3.7	-0.7
Private sector	4.5	4.3	-0.2
Public sector	4.0	3.1	-0.9
*All Current Wage* *Agreements.*
All sectors	4.0	4.0	0.0
Private sector	3.9	4.0	0.1
Public sector	4.2	4.0	-0.2

[111] In terms of those States and Territories where Cobham operates engineering bases, the following is reported as the (all sectors) AAWI for the June Quarter 2012: 21

New South Wales 3.3

Northern Territory 4.0

Queensland 4.3

South Australia 4.2

Victoria 3.4

Western Australia 4.8

[112] A four quarterly rolling average (national) AAWI, which apparently smooths out this quarterly volatility and helps give a better sense of the wage growth trend, has the June quarter 2012 AAWI at 3.9% across all sectors, down slightly on the previous quarter.

[113] Further, the All Industries AAWI for the agreements current as at 30 June 2012 remained steady at 4.0 per cent. That figure is based on the much larger pool of 23,500 agreements and is described by the authors as being more stable than the rolling four quarter AAWIs average.

[114] In terms of outcomes in airline operations bargaining, this is a relevant consideration however care needs to be taken to avoid some form of superficial comparative increase justice. The wage outcomes are negotiated by the parties and occur in a particular context. In my view, it is not appropriate for present purposes to merely select outcomes without a broader consideration of the context including the actual package of wages and conditions, 22 the length and scope of the agreement, any changes proposed including in particular measures to improve productivity, and the economic climate relevant to the enterprise. Where these are not known, care should be taken in benchmarking other adjustments and they should be used only as part of the broader considerations.

[115] In this matter, some of the circumstances of other operators in the industry have been provided by the parties or are evident from the relevant approved Enterprise Agreements. Subject to the caveats above, I have in particular had regard to the following aviation industry enterprise agreements as relied upon by one or both parties:

Skywest Airlines Aircraft Engineers Enterprise Agreement 2012; 23

Alliance Airlines Pty Ltd Aircraft Engineers (Perth) Enterprise Agreement 2010; 24

Alliance Airlines Pty Ltd Aircraft Engineers (South Australia) Enterprise Agreement 2011; 25

Eastern Australia Airlines - Line Maintenance Aircraft Engineers Agreement 2012-2015; 26 and

Regional Express Aircraft Engineers Agreement 2011-2014. 27

[116] Having considered that material, and noting that some of the agreements are on different bargaining cycles, it is evident that the proposals made by both parties puts the proposed Cobham Engineering enterprise agreement within a range of wage and benefit packages applicable in this sector of the aviation industry. Having regard to the operation of the 35 hour week at Cobham Engineering, which is not found elsewhere, either of the two proposed wage adjustments would place Cobham Engineering somewhere comfortably above the average remuneration package but not at the top.

[117] I also note that there is no indication of major employee attraction and retention issues at this enterprise.

The needs of the employer and the capacity to pay increased wages

[118] I accept that much of Cobham Engineering’s work and income is subject to the external contracts and the price of these contracts is generally reviewed on the basis of CPI adjustments. This is a relevant consideration as it impacts upon the margins that may be obtained from undertaking such work; however it cannot of itself dictate the determination of the wages outcome.

[119] Cobham Engineering conducts a viable and growing business. Profit is both variable and the product of multiple factors within this enterprise. There is scope for some reasonable wage adjustments in this matter, provided they are justified and fair in all of the circumstances.

[120] I do note however, that given the significance of the CPI linked contracts evident in this enterprise, unless there are productivity improvements, cost reductions and/or changes in the basis of the contracts, wage adjustments significantly above the CPI would not be sustainable in the medium and longer terms.

[121] I am aware that bargaining for at least some other employees within the Cobham group is underway. I have not been provided with any details and in other circumstances the outcomes of that bargaining would have been a relevant consideration here. In any event, I should make it clear that I have considered the specific circumstances of Cobham Engineering and the LAMEs concerned in determining this matter.

The circumstances applying in the Perth base

[122] I have considered the circumstances applying in the Perth base where a significant number of the LAME’s are engaged. To some degree, there are cost of living pressures and community wage expectations that operate differently for those employees.

[123] However, this is a national agreement and except for some site specific allowances, a single classification structure and set of wage rates are to be applied for each class of engineer. There are also particular and varying cost and community income factors present in some of the other bases where a significant number of Cobham Engineering LAMEs are engaged.

[124] The determination I have made weighs all of these factors and is designed to ensure a fair and appropriate outcome for all of the employees, including those based in Perth and other particular regional locations.

CONCLUSIONS AND DETERMINATION

[125] Having considered the substantive merit of the proposals and all of the circumstances of the case including the considerations outlined above, I have determined that the wages outcome to be included within the proposed enterprise agreement is as follows:

Date	Adjustment
1 July 2012	4.0%
1 July 2013	3.75%
1 July 2014	4.0%

[126] The overall adjustment of 11.75% over the life of the proposed enterprise agreement is reasonable and fair given all of the circumstances. The adjustments in July 2013 and July 2014 represent a moderate additional increase on the Cobham proposal, but recognise the particular considerations and competing contentions touching upon this matter. The “additional” increases have also been spread in particular across the backend of the proposed enterprise agreement to soften the cost impact whilst elevating the rates established at the conclusion of the nominal life.

[127] In line with the agreement between the parties, I will not issue an order as contemplated by s.255(2) of the Act. The parties will now, as agreed, cooperate to apply this decision and consolidate it within the existing proposed enterprise agreement (subject only to editorial changes) and put the agreement to the employees for approval in accordance with the Act.

COMMISSIONER

Appearances:

N Spears with employee delegates N Brolan, H Raemaekers, D Uruhart, G Porter, A Ralph and R Glasson for The Australian Licensed Aircraft Engineers Association.

C Bottrill, J Crawford and P Brown for Cobham Aviation Services Engineering Pty Ltd T/A Cobham Aviation Services Australia - Engineering.

Conference details:

2012

Adelaide

October 5 and 16.

Written submissions:

2012

November 2 and 12.

1 The matters raised with the parties included whether the parties were seeking a formal order to reflect the determination of the Tribunal as contemplated by s.255(2) of the Act or alternatively, wish to rely solely upon the agreed parameters; and the relevance to this matter and implications (if any) of decisions made by FWA in relation to the setting of wage outcomes in Workplace Determinations under Part 2-5 of the Act.

2 The agreed parameters are drawn from a Statement issued by Fair Work Australia on 5 October 2012 and its terms were subsequently confirmed by both the ALAEA and Cobham Engineering.

3 A workplace determination must be undertaken by a Full Bench of the Tribunal and is only contemplated by the Act in specific circumstances which do not apply here.

4 ALAEA written submission 2 November 2012.

5 ALAEA also made reference to various national trends in profit and income share that were said to support this proposition.

6 Skywest Airlines Aircraft Engineers Enterprise Agreement 2012 approved by Booth DP on 26 October 2012 and the Alliance Airlines Pty Ltd Aircraft Engineers (Perth) Enterprise Agreement 2010 approved by Fair Work Australia on 4 October 2010.

7 ABS CPI 6401.0, March 2008 - March 2012

8 CPI released by the ABS on 24 October 2012 for the September quarter 2012.

9 [2012] FWAFB 8599, 8 October 2012, per Ross J, Watson SDP and Roe C.

10 Annual Wage Review 2011-12 [2012] FWAFB 5000.

11 Australian Licenced Aircraft Engineers Association, The v Qantas Airways Limited, AG891046 /PR519230.

12 Cobham Engineering reply submissions, 12 November 2012.

13 Schweppes at par [130] and [151].

14 [2012] FWAFB 6612, 8 August 2012, per Watson VP, Harrison SDP and Harrison C.

15 Print Q4464.

16 Weighted average of 8 Capital Cities ABS 6404.0 released 24 October 2012.

17 Annual Wage Review 2011-12 [2012] FWAFB 5000 at paragraph [18].

18 These are charts and tables taken from the Statistical Report - Annual Wage Review 2012-13 as produced by Fair Work Australia and updated to reflect recently released reports and publications.

19 This is a modified version of a chart taken from Statistical Report - Annual Wage Review 2012-13 as produced by Fair Work Australia.

20 DEEWR report: Trends in Federal Enterprise Bargaining June Quarter 2012.

21 Table 7 to DEEWR report: Trends in Federal Enterprise Bargaining June Quarter 2012.

22 As an example, the wages outcome in at least one agreement cited by the parties has a relatively significant profit and share bonus scheme that is not reflected in the headline rates.

23 AG2012/11548, AE897818, PR530704, approved 26 October 2012.

24 AG2010/14215, AE881313, PR502417, approved 4 October 2010.

25 AG2011/5249, AE884020, PR506559, approved 7 February 2011.

26 AG2012/8334, AE897608, PR530353, approved 17 October 2012.

27 AG2012/10823, AE896805, PR529022, approved 11 September 2012.

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