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High ideals, down-to-earth problems

Labor disputes, fallen earnings dog Gate Gourmet

By CNN's Graham Jones

Gate Gourmet became No. 2 in the industry after snapping up the U.S.'s Dobbs International in 1999.




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LONDON, England (CNN) -- "Gate Gourmet is powered by people working closely together, with customers and colleagues, by people inspiring other people to find new and better ways of serving customers and by people who actually make the difference," the company at the center of the Heathrow flights chaos says on its Web site.

Events at London's busiest airport this week seem to cast doubt on these lofty ideals.

The privately-owned Zurich-based U.S. company says it has not made a profit since 2000 and revenues are down 35 percent. It cannot survive without a restructuring of the business, it says.

Gate Gourmet UK lost £22 million ($40m) in 2004 and said this week that it could lose £25 million ($45.5m) this year without changes, including amendments to working practices.

It suffered a major loss in March when its contract with a key customer, Virgin Atlantic, ended.

Gate Gourmet is the world's No. 2 in in-flight catering after LSG SkyChefs (Gate is No. 1 in the UK) with 2004 revenues of $2.01 billion.

It operates 115 flight kitchens in 30 countries on 5 continents. It serves some 200 airlines, including American Airlines, British Airways, Continental, United, Northwest, Emirates, SAS and Qantas.

The company says it provides 534,000 meals a day -- 195 million meals a year -- and employs 22,000 people.

"Customers prefer us because passion shines through everything we do," says the company in its mission statement.

"We measure our success by the success our customers enjoy," adds its Web site.

The company began in Zurich in 1992 with the merger of two European companies and was originally owned by Swissair.

Then through a serious of aggressive mergers and acquisitions -- and entry into the American market -- it became No. 2 world player.

In 1993 it had gained a foothold at London Heathrow with a joint venture operation with Abel. The following year it doubled in size with the acquisition of SSP SAS Service Partner and European Air Catering Services.

Making a virtue of global scale using local workforces, the company quickly expanded as far afield as Australia, Mexico, Hong Kong and China.

In July 1999 Gate Gourmet bought the U.S.'s Dobbs International Services, Inc. -- then the world's No. 3 -- and was now at the peak of its global reach, operating 142 flight kitchens in 27 countries with 26,000 staff.

Following Swissair's collapse in 2001, the following year Gate Gourmet was taken over by the Texas Pacific Group (TPG), a U.S.-based private investment partnership with capital of more than $8 billion which has gained a reputation as a specialist in rescuing ailing companies.

The group was a key investor in the airline industry and played a leading role in the turnaround of Continental Airlines and America West.

But although American Airlines switched from SkyChefs (which it founded in 1942 and later sold to Lufthansa) in late 2003 to hire Gate Gourmet at its leading Chicago O'Hare International Airport hub, problems of operating in the airline industry on a global scale were beginning to show.

Problems surface

In 2004 Gate Gourmet and Delta ended their relationship due to a contract dispute.

In April this year Gate Gourmet was told to take major steps to clean its Honolulu unit or risk the unit's closure after U.S. health inspectors found live cockroaches, dirty utensils and an oozing, pink slime.

The U.S. Food and Drug Administration wrote accusing the company of keeping "dirty uncovered" trash cans near food, letting workers handle ice cubes with bare hands and failing to keep cooked pork and turkey at proper temperatures.

The company said it had fixed all the problems, cleaned and painted the facility and hired more janitors. Gate Gourmet fired the facility's general manager and sent a hygienist and other staff to the site.

In May 2005 a Hawaii state epidemologist reported that contaminated carrots included in Gate Gourmet meals the previous August had likely caused 45 people to suffer food poisoning in Florida, 21 other states, Japan, Australia and American Samoa. The outbreak sparked a lawsuit.

Labor problems also began to surface. Only this week, America's biggest union, the Teamsters, claimed a major victory against Gate Gourmet saying it had won back health care coverage for Gate Gourmet employees and their families after it was "unilaterally changed, drastically raising the workers' costs on July 1, 2005."

"These changes forced the majority of workers on the health care plan to drop coverage," the Teamsters says on its Web site.

The U.S. union added that the company had agreed to place all outstanding collective bargaining issues before a special three-member arbitration panel that will issue its ruling by December 1, 2005.

For the company, settling the labor issues is vital to keeping the company a going concern.

Said Gate Gourmet UK managing director Eric Born: "If we don't change, the company will not survive and there will be no future -- we now have to take control of this situation swiftly which may lead to restructuring to avoid the total collapse of the company."

The UK arm of Gate Gourmet business said it had made non-labor related cost reductions and renegotiated contracts, but needed a £14 million ($25m) reduction in direct labor costs for the company to break even in the next 18 months and "safeguard its future."

In a statement, Born said staff had been offered the best deal in the company's history that included protecting the "above market wages we already pay" and the option of a "generous" voluntary redundancy package.


Gate Gourmet UK, which has seven units in the UK, said it wanted to remove "outdated and inefficient" practices, which it said included staff being often paid a full day's pay for half a day's work the refusal of staff to help colleagues on other work lines during times of peak production.

"Management are then forced to employ extra staff at over-time rates to complete orders," the company says.

"Outdated overtime rules allow staff to work their normal 8-hour shift but be paid for 12.5, paid for hours they do not do. Such working practices have no standing in today's highly competitive industry."

"The recent loss of the major Virgin Atlantic contract was due to workforce inflexibility and therefore an inability to deliver a cost-competitive product."

Leaders of the union representing the London Gate Gourmet staff were unsympathetic.

Tony Woodley, general secretary of the Transport and General Workers' Union, said the U.S.-owned firm had behaved in a "disgraceful" fashion in the way it sacked so many workers.

The company had unilaterally decided to cut wages and conditions and had refused to negotiate with the union, he told the UK's Press Association.

"It is classic American union busting," he added.

Since June 2004 the company's president and CEO has been David N. Siegel, 42. Prior to that he had been president and chief executive officer of U.S. Airways Group.

He was previously chairman and chief executive officer of Avis Rent A Car and a former Continental Airlines executive.

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