27 NMB No. 7

October 19, 1999

Richard A. Siegel, Esq.

Associate General Counsel

National Labor Relations Board

Office of the General Counsel

Washington, DC 20570

Re: NMB File No. CJ-6669

(NLRB Case 6-CA-30478)

LSG Sky Chefs, Inc.

Dear Mr. Siegel:

This responds to your request dated August 3, 1999, for the opinion of the National Mediation Board (NMB) as to whether LSG Sky Chefs, Inc. (Sky Chefs), and its employees continue to be subject to the Railway Labor Act (RLA or Act), 45 U.S.C. §§ 151-181.

This opinion letter is based upon the letter provided by the NLRB, and upon the positions and evidence submitted by Sky Chefs, the International Association of Machinists and Aerospace Workers, AFL-CIO (IAM), and the Hotel Employees and Restaurant Employees International Union, AFL-CIO (HERE).

For the reasons set forth below, the NMB finds that Sky Chefs and its employees continue to be subject to the jurisdiction of the RLA. Given this conclusion, the NMB finds that an on-site investigation is unnecessary.

I. Issue Presented

The NMB previously found Sky Chefs to be subject to the Act. Are there changes in the nature and structure of Sky Chefs' business which would cause the NMB to change its decision on jurisdiction?

II. Contentions

Sky Chefs and HERE contend that Sky Chefs and its employees remain subject to the RLA.

The IAM contends that the NMB should re-examine its assertion of jurisdiction over Sky Chefs.⁽¹⁾ It contends that due to the growth in Sky Chefs' operations, the influence of American Airlines over its operations has decreased. Therefore, the IAM argues that the airlines do not exert any significant degree of control over Sky Chefs' operations. The IAM further contends that the jurisdictional determination affects the free choice of bargaining representative for the employees involved. The IAM requests that the NMB conduct an on-site investigation.

III. Findings of Fact

A.

As noted in Sky Chefs, supra, Sky Chefs was originally established in 1942 as a wholly-owned subsidiary of American Airlines. The Company's primary function was, and continues to be, the provision of in-flight food and beverage catering services to the airlines. In 1986, AMR Corporation (the parent corporation of American Airlines) sold Sky Chefs to Onex Capitol Corporation (Onex).⁽²⁾ In 1993, LSG, a wholly-owned subsidiary of Lufthansa German Airlines, purchased twenty-three percent of Sky Chefs, and entered into a worldwide marketing alliance identifying Sky Chefs as "LSG Sky Chefs." In 1999, LSG increased its ownership to approximately forty-eight percent with the option to purchase the remaining shares by the end of 2003. Sky Chefs currently employs almost 14,000 employees in the United States, and services approximately 109 airline customers⁽³⁾ at approximately eighty stations. These airline catering accounts are ninety-eight percent of Sky Chefs' domestic business, and the hourly employees performing this work comprise 97.7 percent of its U.S. workforce.

HERE and Sky Chefs have been parties to a collective bargaining agreement covering "employees . . . comprising the craft or class of flight kitchen, commissary, hotel/motel, restaurant and related employees" since 1969.

The NLRB previously certified the IAM to represent the employees at the Pittsburgh International Airport's catering operations. These employees provide catering services for US Airways. The most recent previous employer of these employees was Dobbs International Services. In 1999, Dobbs International lost the contract and US Airways awarded Sky Chefs the contract for the catering services at all of its locations. Sky Chefs refuses to recognize and bargain with the IAM concerning the Pittsburgh employees. It claims that its employees have been represented on a system-wide craft or class basis by HERE.

B.

While OFSI retains a majority interest in Sky Chefs, a wholly-owned subsidiary of Lufthansa German Airlines, LSG, has a 47.83 percent interest in Sky Chefs, with an agreement to reach 100 percent interest no later than the end of the year 2003. Since 1993, when LSG first acquired stock in Sky Chefs, the two corporations have marketed Sky Chefs as LSG Sky Chefs. LSG presently appoints four of the nine members of the Board of Directors of OFSI.

Approximately ninety-eight percent of Sky Chefs' domestic business is airline catering accounts. Likewise, approximately ninety-eight percent of its U.S.-based hourly employees work for the airline contracts. The airline accounts reviewed by the Investigator revealed substantially the same control by the carriers as that noted by the NMB in its decision in Sky Chefs, supra. However, given the decreased percentage of business from American Airlines, the Investigator reviewed certain provisions of the contracts between Sky Chefs and American Airlines, Northwest Airlines, United Airlines and US Airways. Sky Chefs states that it provides catering to all of these airlines at the Pittsburgh airport.

These four airline catering contracts represent 51.8 percent of Sky Chef's estimated 1999 U.S. catering revenues. The largest contract is with American Airlines which represents 33.1 percent of Sky Chef's estimated 1999 U.S. catering revenues. Like the provisions described in the NMB's 1988 decision, the provisions of the contract with American Airlines remain extensive.

The agreement between American and Sky Chefs demonstrates several service evaluation techniques, both monthly and as needed. For example, "Flight Attendant Comment" is a comment made by a flight attendant relating to a problem on a flight which American determines is attributable to Sky Chefs. There are several other such comment sheets, all of which are utilized to evaluate Sky Chefs' performance. In addition, there are monthly kitchen inspections and other unannounced kitchen inspections by American's staff.⁽⁴⁾ The agreement grants American the right to terminate the agreement at any station as a result of a defined failure to meet the standards in the agreement.

Sky Chefs states that American now purchases pre-paid meal components and has them shipped to Sky Chefs. Sky Chefs' employees then pack them with other components for in-flight service. These meals are delivered to the ramp and loaded on the aircraft where the flight attendants reheat them and serve them during the flight. American has increased its use of computer information systems to relay specifications through a system of packet numbers and recipe codes (including the specifications for a particular meal). Sky Chefs states that two or three times per year, American will fly hourly Sky Chefs' employees to Dallas-Ft. Worth for training on catering subjects, and Sky Chefs' personnel train these employees under the watch of American's catering managers.

The contract with Northwest Airlines is based upon a "Caterer Performance Measurement Plan" which is based upon eight operational measures: delays, aircraft accidents, kitchen inspections,⁽⁵⁾ FDA kitchen inspections, credit taken by Northwest for caterer non-compliance, monthly inventory accuracy, monthly inventory timeliness, and weekly equipment inventory timeliness. The measurements are based upon a complicated point system assessed by Northwest. In addition, similar to American, there is a flight attendant comment measure. Costs are assessed against Sky Chefs if the goals of the measurement plan are not met. If Sky Chefs' performance is unfavorable or unacceptable for a number of months, Northwest has the right to place the contract out for bid.

Sky Chefs states that Northwest maintains its own menu design staff that prepares Northwest's own menus, menu cycles, menu changes and all specifications, and forwards them to Sky Chefs. A sample meal is prepared each day to demonstrate to Sky Chefs' employees how the meal should look. Northwest also employs an executive chef who prepares and tests Northwest's meals at a test kitchen provided by Sky Chefs.

At United Airlines, menu development is done solely by United. Sky Chefs must comply with all of United's specifications. United prescribes the vendors Sky Chefs must use for goods and services and how much Sky Chefs is to pay. Sky Chefs' employees are trained by United's chefs. Under "Performance Standards," the contract between United and Sky Chefs gives United the right to make all the requirements for airline catering services, and to have very specific standards of performance⁽⁶⁾ for which cash penalties are assessed for violations. United's agreement has unlimited inspection access. United conducts both formal and informal kitchen inspections.

Under its contract with US Airways, Sky Chefs built a test kitchen in Dallas for the development and tasting of menus under US Airways' supervision. A Sky Chefs' chef works with a US Airways' design and development team. Menu photos are delivered to all US Airways' kitchens. Significantly, Sky Chefs states that its personnel were trained by US Airways in Pittsburgh over a two-day period, along with US Airways' regional managers, flight attendants and other personnel. Sky Chefs also claims that US Airways employs its own drivers, who pick up the meals and equipment at Sky Chefs' kitchens and deliver them to the ramps in Pittsburgh and Philadelphia. These employees regularly interact with the Sky Chefs employees.

There is a new agreement in effect between US Airways and Sky Chefs with explicit provisions which demonstrate control by the Carrier. For example, US Airways may revise the billing codes at any time and set "Minute Man" standards for the time of performance of various tasks. Most significantly, the contract explicitly states,

At US Airways' request, Caterer will immediately remove from service under this Agreement any employee whose acts or omissions, in US Airways' opinion, where such opinion will not be such that its basis would be a violation of applicable law in the case of dismissal of an employee, constitute a breach of this Agreement.

Since Sky Chefs acquisition of the Caterair and Ogden catering operations, virtually all airline contracts with these companies have been renegotiated. The sole exception is Caterair's contract with America West Airlines. This contract equals two percent of Sky Chefs' projected U.S. domestic revenues. It is not relevant to the facts herein.

IV. Discussion

The NMB has already found Sky Chefs to be subject to the Railway Labor Act. Therefore, it must determine if the changes in its business cause a different opinion at this time. See Sky Chefs, supra; Sky Valet, 23 NMB 155 (1996).

If the company at issue is a separate corporate entity which is not a carrier, the NMB applies a two-part test to determine whether an employer and its employees are subject to the RLA. First, the NMB determines if the nature of the work performed is that traditionally performed by employees of rail or air carriers. Second, it determines whether the employer is directly or indirectly owned or controlled by, or under common control with, a carrier or carriers. Both parts of the test must be satisfied for the NMB to assert jurisdiction. Evergreen Aviation Ground Logistics Enterprises, Inc., 25 NMB 460 (1998).

The NMB has repeatedly found that in-flight food catering is work traditionally performed by employees in the airline industry. Nikko Inflight Catering Co., Ltd., 19 NMB 434 (1992); Chelsea Catering Corporation, 19 NMB 301 (1992); Sky Chefs, supra.

In this case, the direct ownership interest by LSG raises a significant issue. LSG already holds nearly a fifty percent interest in Sky Chefs and the company markets itself as "LSG Sky Chefs." The NMB has previously found LSG a carrier under the Act. LSG Lufthansa Services, Inc., 25 NMB 96 (1997). LSG intends to acquire 100 percent ownership by the end of the year 2003.

The NMB reviewed a similar situation in Commercial Aviation Services of New York City, Inc., 22 NMB 223 (1995). There, Sky Valet owned fifty percent of Commercial Aviation Services and the NMB had previously found Sky Valet subject to the RLA. Citing its decision in AMR Combs-Memphis, Inc.,18 NMB 380 (1991), the NMB stated that "where an entity directly owned by a carrier is performing airline work, that entity is a carrier subject to the Railway Labor Act." Therefore, the NMB noted that Commercial Aviation Services' "relationship with Sky Valet" (the fifty percent ownership) made it subject to the RLA.

In this case, the NMB does not have to determine whether LSG's ownership interest is sufficient to find jurisdiction, because other factors are present. Thus, the NMB also considers whether the airline customers of Sky Chefs exercise direct or indirect control over the company. In examining control by the airlines, the NMB focuses on, inter alia, the carrier's role in the entity's daily operations, and the entity's employees' performance of services for the carriers. Sky Valet, Commercial Aviation Services of Boston, Inc. and C and H Air Corporation, 22 NMB 230 (1995). The NMB also examines, inter alia, the carrier's role in employing and terminating employees, the degree to which the carriers supervise the entity's employees, the degree to which the employees are held out to the public as carrier employees, and the degree of carrier control over employee training. See SAPADO I a/k/a Dobbs International Services, Inc., 18 NMB 525, 530 (1991).

In Sky Chefs, the NMB found that American Airlines effectively recommended discipline and termination and exercised control over certain employee work assignments. No evidence has been presented here which conflicts with those findings. The evidence as to other carriers shows direct training of Sky Chefs' employees and a contractual ability to remove employees from carrier work in the US Airways contract.

A comparison of the present evidence to the 1988 Sky Chefs decision demonstrates that while the control exercised by the carriers varies, it remains extensive. In each carrier contract, the carrier dictates the food preparation and often the precise menus. Carriers keep in contact with Sky Chefs via a computer system. All carriers have regular and unannounced kitchen and other inspections conducted by carrier representatives. While American Airlines appears to exercise control equivalent or greater than that found in 1988, the other airlines also exercise sufficient control for the NMB to continue to exercise jurisdiction.

Focusing particularly on US Airways in Pittsburgh,⁽⁷⁾ the contract itself (which has been renegotiated) and the practice demonstrates extensive control. In Pittsburgh, US Airways provides training, menu specifications, and regular inspections. Like other carriers, US Airways has an extensive grading system of Sky Chefs' service. Language in the US Airways' contract, moreover, compels Sky Chefs to remove employees from its account, if requested by the carrier. Finally, the US Airways' drivers interact with Sky Chefs' employees in Pittsburgh.

V. Conclusion

Based upon the facts presented, the NMB concludes that LSG Sky Chefs remains a carrier subject to the Railway Labor Act, as amended, 45 U.S.C. §§ 151-188. This opinion may be cited as LSG Sky Chefs, 27 NMB 49 (1999).

By direction of the NATIONAL MEDIATION BOARD.

Stephen E. Crable

Chief of Staff

Copy to:

Mr. Joseph T. Primavera

Eric Rosenfeld, Esq.

Gary Kaplan, Esq.

Jonas Katz, Esq.

Mr. Kenneth Paulsen

Mr. Robert Roach, Jr.

Mary McHugh, Esq.

Mr. Randy Canale

1. The NMB previously exercised jurisdiction over Sky Chefs. Sky Chefs,Inc., 15 NMB 397 (1988).

2. Today, Sky Chefs is a Delaware holding company wholly-owned by S.C. International Services, Inc., a Delaware holding company that, in turn, is wholly-owned by Onex Food Services, Inc. (OFSI), a Delaware holding company.

3. There were eleven airline customers when the NMB last considered Sky Chefs' jurisdiction in 1988.

4. A kitchen must score at least ninety percent to pass the kitchen inspections.

5. Sky Chefs states that Northwest has regional managers who inspect the Sky Chefs kitchens. The inspections are at least once a year and can last one to two days.

6. Under the contract, "United representatives . . . have the right at any time during operating hours without notice to enter Caterer's premises . . . to verify that the standards and instructions established by United are complied with and that Caterer is complying with all United, regulatory and governmental requirements regarding hygiene, ingredients, food preparation and any other aspect of the goods and services provided hereunder."

7. Sky Chefs serves other airlines in Pittsburgh including American, Northwest and United.