How did the Gate Gourmet affair escalate from an obscure industrial relations dispute to a situation that inflicted so much financial and reputational damage on British Airways? Peter Lawson reports.

Although the Gate Gourmet (GG) dispute appeared to come out of nowhere, it had in fact been cooking on a slow gas for several years. Its origins can be traced back to the 1997 sale of British Airways in-flight catering arm to Swissair. In 1997, as part of a £1 billion cost cutting and outsourcing exercise, BA sold GG – its in-flight catering operation, the second largest in the world – to Swissair. The operation had 30,000 employees in 29 countries. Then, in 2002, Texas Pacific bought GG from Swiss Air.

The Heathrow operation of GG is one of its most important, accounting for about 15% of total revenue; it is also the most problematic with old style working practices, which have proved impossible to change. Furthermore GG had a 10-year deal to supply BA, which was proving to be a millstone around its neck as BA had taken the opportunity to renegotiate on the change of control of GG in 2002. The outcome was a double digit decrease in the value of the contract.

More recently, GG was optimistic that its attempts to improve productivity through negotiation with its workforce were bearing fruit. However, the agreement, which had the official backing of the Transport and General Workers Union (TGWU) and the 500 staff who had volunteered for redundancy was overwhelmingly rejected by the whole workforce.

Furthermore the company’s attempt to renegotiate terms of its contract with BA also appeared to be moving in the right direction. BA had agreed to improve the terms but wanted GG to accept unlimited liability for damages and disruption to BA’s operations should the caterer go broke. It was a risk too far for GG and was therefore unacceptable.

Then in early August work at GG’s Heathrow operation was brought to an abrupt standstill whilst the employees held a canteen meeting; there had been a similar meeting six weeks before and, on that occasion, managers had persuaded workers to return to work. On this occasion, however, GG took a stronger line. After two hours of warnings by megaphone and in print in several languages, which were ignored, all 650 staff on the shift were sacked.

Damaging results

In response to GG’s actions 1000 BA staff walked out shutting down the airline for more than 24 hours, disrupting the lives of 100,000 BA customers at a cost of at least £30 million to the airline. And the impact on BA’s brand was even more damaging because this was the third successive summer that BA had inconvenienced its customers. The inefficient working practices that plague GG are redolent of an earlier industrial age and they include:

• manning issues;
• working hours;
• drivers working on a job and finish basis;
• production targets which have been overtaken by changes in food technology;
• labour flexibility and excessive overtime working.

A GG manager indicated that power resided not with officials of the TGWU but with the leaders of a largely Asian workforce. This same manager was convinced that re-employing the sacked workforce was akin to handing over the keys of the company. Thus their resolve to stand firm.

The management rationale for outsourcing is about organisations concentrating on their core competencies and outsourcing the rest to those for whom the activity is their core competency. Whether in-flight catering was a core competency of BA is a moot question; however it is undeniable that it is at the core of BA’s product offering and also of its profit model. In this sense their in-flight catering offer is unique to BA.

Model weakness

Given the strategic position that in-flight catering occupies for BA, their familiarity with the weaknesses of GG’s organisational model should have raised serious questions about the efficacy of it being outsourced.

As BA discovered, the apparent advantages of outsourcing’s economic model do not tell the whole story. The model does not capture the cost, impact and damage of the loss of situational control when things go wrong. Also basic operational knowledge is lost. When Swissair, GG’s new owner collapsed, the caterer was sold to TP, a private equity group whose agenda was to sell it on as soon as possible. GG was already under pressure to drive down its costs, mainly labour, from its sole customer BA, and now its new owner was increasing that pressure for their own reasons.

If BA had still owned its own in-flight catering it would have known the risks its supply chain was facing. It would also have known that the baggage handlers and support staff were not only members of the same trade union as the catering workers, but were in many cases members of the same families.

At a certain level the reality is that BA and GG need each other. Neither could easily go elsewhere. There is only one other global airline caterer who could possibly have supplied BA’s daily requirement of 87,500 airline meals and GG was not going to find alternative customers quickly or easily. BA’s behaviour in driving down costs seems to have ignored the reality of GG’s position and it is not as if BA did not know about the intractability of GG’s problems from its previous ownership of the caterer.

It was in BA’s interest to be more concerned about the risks and the resilience of its supply chain. Rather than single-mindedly pursuing cost reductions, it would have surely been in its own interest to have sought a shared commitment with GG to mitigate and manage the issues that the caterer faced, which in the end proved costly and destructive for BA.

Whilst some commentators have sought to explain the GG affair as simply as a failure of outsourcing, the reality is more complex. One thing that appears more certain is that, whilst BA may have known that there is no such thing as a free lunch, it has now learned that even a cheap lunch can, in the end, be very expensive.

What went wrong?

ER Consultants believe that Gate Gourmet’s organisational model should have raised serious questions about the wisdom of outsourcing its in-flight catering operation. After all, BA would have been aware of its vulnerabilities, which were as follows:

• People – it appears that GG’s culture was defensive – characterised by mistrust, poor leadership and under-developed management skills;
• Processes – which were inefficient and probably out of date;
• Structure – the coherence of the ‘official’ organisation structure was undermined by the ‘informal’ employee power structures which in effect rendered GG’s management powerless and paralysed;
• Information – the informal networks based on the local Asian community exercised an influence which exceeded the management influence;
• Work - Processes and practices were costly, inefficient and outdated; and were furthermore, very difficult to change given the other characteristics of GG’s organisational model. 

For more information, please contact:
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