A survey of the Soviet economy's civil aviation sector provides an example of the dilemma facing foreign enterprises that wish to conduct business in the Soviet Union. In opening up the Soviet economy, Gorbachev has provided real opportunities for joint-business operations. However, because of the uncertainty resulting from current political conditions, higher political risks due to dispersed decision-making authority have offset potential economic benefits.

Several foreign firms have established contracts with Soviet enterprises under the authority of the Ministry of Civil Aviation to provide air traffic products and services. These contracts range from establishing air routes for Western airline corporations to developing and providing infrastructure support for airport facilities. Recent activities in the Soviet civil aviation field have heightened risks, both political and economic, for foreign firms interested in entering the Soviet air transportation market. In particular, the threat of a labor walkout by members of the Federation of Air Traffic Controllers' Trade Union - with a strike date set for May 21, 1991 - provided yet another clue that the government no longer has the ability to ensure that terms negotiated in a contract can be fulfilled. A real concern is whether central authorities can no longer compel enterprises to accept the terms of negotiated agreements made in other related sectors.

For several years. Union officials have requested improved working conditions for controllers. For the most part the government ignored these requests. After the success of the second wave of strikes by Soviet coal miners in the spring of this year, the Controllers' Union stepped up activity to pressure central authorities. In April, the Union announced that if its demands for improved conditions were not met, it would authorize its members to strike, a move that would effectively cripple the Soviet Union's civil aviation industry, spreading dire repercussions throughout the entire economy.

Since April, negotiations have taken place between the government and Union officials. On the eve of the strike, an agreement was reached postponing the strike until August 10. To the Union, a strike seemed the only way for the authorities to address seriously wage. benefit, and safety conditions for its members. To the government, however, the strike represented a defiance of authority, and a potential loss of revenue from state coffers. Furthermore, a successful strike would further damage an already frail economy, require the government to possibly renegotiate contracts with foreign firms regarding payment terms, and - more important - demonstrate to other strategically situated unions that strikes successfully induce change.

The Union claimed that the controllers were underpaid and overworked. Although an agreement has been reached, several issues remain unsettled. There is a high probability that a strike could still occur. Basing its demands on the fact that its members arc underpaid and dangerously overworked, the union proposed the following: a threefold salary increase over current wages, plus additional wage indexing tied to increases in the standard of living; a 36-hour work week; 48 days of annual leave; retirement on pension at age 50; and compensation in hard currency for directing international air traffic.

In addition, the Federation requested all information from the appropriate archives involving criminal cases against air traffic controllers sentenced to long-term imprisonment for a " negligent attitude to work, resulting in air disasters." The Union considers these charges as stemming from the " guilt of those who have for a long time been refusing to introduce justified medical norms for the work of the air traffic controllers."

Several other trade organizations support the Union, including the Soviet Flight Personnel Union and the Independent Russian Trade Union, whose president, Igor Klochkov, pledged financial and other support to the controllers in the event of a strike. Over 90 percent of the air traffic controllers support the strike, and have indicated that they would break ranks only in the case of medical emergencies, search and rescue missions, or during emergencies due to natural disasters.

While the government negotiated with Union officials, military air traffic controllers were being prepared to take over in the event of a strike - in a manner similar to how the Reagan administration was preparing for the threatened strike of U.S. air traffic controllers in 1981. Also, the Ministries of Justice and Aviation set about to ensure that fun-lie strikes would be illegal. On May 16, the USSR Prosecutor General lodged a protest with the Ministry of Justice against its registration of the Controllers' Union. The Federation's charter does contain a strike clause, which, according to the Prosecutor General, is forbidden under the Soviet statute .entitled " On the Procedure for Solving Collective Labor Disputes (Conflicts)" .

An agreement was reached just one hour before the scheduled strike. The government accepted most of the Union's major demands by way of a Cabinet-level resolution authorizing the Ministry of Civil Aviation to increase fees charged to foreign airlines for use of Soviet air space by 40 percent between June and December. In doing so, the government was able to offer the controllers a 50-percent wage increase. Furthermore, the government offered the Union a reduced work week, retirement at 50 with pension, and 48 days of annual leave. The wage increase will be across the board, but only those controllers working the busiest routes will receive the other concessions. Because the wage increase was less than what the Union initially demanded, it decided to postpone, but not cancel, the strike.

On the morning after the strike deadline, the Ministry of Justice annulled the Controllers' Union. Therefore, any future strike by the controllers will be considered illegal under Soviet law and such an action would allow the government to fire and/or prosecute controllers if they do walk out. Union leaders are concerned that the government will try to split the Union in the interim. In the opinion of Union official Vladimir Gvardionov, it is likely that the Civil Aviation Ministry will try to split the currently cohesive Union by alternately offering concessions to and threatening sanctions against its various regional branches. Union leaders also worry about the quite real possibility that the government might attempt to stall on its agreed upon schedule to raise controllers' wages. After all, government officials did set a precedent by not following through on many of their promises in the settlement of the coal miners' first wave of strikes during the summer of 1989.

Comparatively speaking, coal miners and air traffic controllers won their initial concessions from the government because both groups share common, and quite valuable attributes: unity, strong external support, and responsibility over vital sectors of the Soviet economy. And while the coal miners strayed into the volatile area of demanding political reforms, the controllers have limited their subsequent demands to traffic controllers and summarily fire the strikers in a move similar to the Reagan administration's response against the 1981 PATCO strike. Afterwards, the government could hire and train new employees, possibly even foreign controllers on a temporary basis, until Soviet citizens could be hired and trained for full-time duty. The lag between the strike and the readiness of the controllers' replacements will severely strain the rapidly declining economy.

A third possibility is that a threat of a strike will suffice in compelling the government to meet all of the Unions' demands. If that is the case, then authority will be transferred from the government to the Union. For Western firms, this adds another obstacle to negotiating business contracts and will hinder their willingness to enter into agreements which might not be enforceable. Several U.S. carriers are currently operating or planning to operate in Soviet air space. PanAm, Northwest, and Alaska Airlines are but three airlines that have established contracts with additional wage increases as well as a share of hard currency from foreign flights over Soviet air space. Currently, hard currency transfers have been negotiated through joint-ventures directly linking the Ministry of Aviation to foreign firms. If the Union is unable to win hard currency concessions or if the government balks on its agreements with the Union, it is likely that a showdown will occur at summer's end.

Three possible outcomes are likely. First, the government might make additional concessions which will delay the strike even more. Second, the government could organize and train additional military air Soviet authorities. Likewise, several Soviet enterprises have entered into joint-ventures with Western firms to improve Soviet airport infrastructure or to use Soviet aviation systems for international routes. Aeroflot has established some 20 joint-ventures with foreign firms including US Mariott (on-board food service), British Airways (in the creation of Air Russia), and Ireland's Air Riama (flight services).

Barry Nasberg, general director of PanAm's Soviet office, stated that if the Union strikes, it will have an " enormous impact both in financial and business terms." This sentiment is widespread among Western firms interested in exploring the Soviet civil aviation market A consortium of U.S. companies is currently attempting to negotiate with the Ministry of Civil Aviation as a result of the strike; and it will no doubt increase the burden on the consortium to find a profitable solution to justify entering the Soviet market.

The Soviet controllers' strike demonstrates that although the business opportunities for Western air transport firms have increased, the risks are still high. Western firms dealing in aviation products and services must now consider both economic and political factors before making the decision to expand into the Soviet market. Moreover, it is becoming increasing difficult for these firms to ascertain who indeed has the authority to make agreements and to enforce contracts; and there is no way of knowing if that authority will be valid in the near future. Because the Soviet government and the Controllers' Union cannot reach a satisfactory agreement, the investment outlook for Western firms appears murky and fraught with hazardous ambiguities. Undoubtedly, this will have a negative effect, at least in the short term, on trade between Soviet civil aviation enterprises and foreign firms, this issue is still a concern for Western investors and will have a negative effect, in the short-term, on trade between Soviet civil aviation enterprises and foreign firms.

Ronald N. Davison is a policy analyst with the Triton Systems Corporation Fairfax, Virginia.