Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 20, 1994 TAG: 9402210309
SECTION: BUSINESS PAGE: B-2 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Long
They may be promising too much.
Under the proposal the employees at UAL, the parent of United Airlines, would invest about $5 billion in the company over roughly six years by making concessions on wages and by raising their productivity. In return, the airline would give workers 53 percent of the company.
The proposal was approved by the company's board in late December and awaits a vote by shareholders this summer.
It would lower United's operating costs, enable it to create a division to fly quick-turnaround, no-frill flights and head off an almost inevitable management-labor showdown. United has said it will sell assets and lay off workers to cut costs if the buyout plan fails.
Many analysts say the plan makes financial sense for United, the nation's largest carrier with revenues of $14.5 billion in 1993. But labor experts and airline analysts say anyone who expects the deal to "provide years of stable labor relations," as the pilots and machinists say it will, may be disappointed.
For one thing, the plan is devised by leaders of the pilots' and machinists' unions; the 45,000 flight attendants and nonunion workers - more than half of the airline's 80,000 employees - had no say in what was proposed. For another, many of the employees might find themselves disappointed by the amount of control they in fact have over the company and about future concessions they might be forced to make.
As for investors, protections built into the contract to satisfy the employees might make it harder for United to compete in coming years, particularly against carriers - like Southwest and Continental - that can respond more flexibly to harder times in the industry.
The task of uniting the airline's work force is expected to fall to Gerald Greenwald, the former vice chairman of the Chrysler Corp., whom the unions have picked to succeed Stephen M. Wolf as chief executive.
Labor-management experts said Greenwald will be tested severely as he tries to win workers' support for common goals and to distract them from more narrow concerns.
"This is the biggest challenge of participatory management that I have seen in my 16 years in the field," said Christopher Mackin, president of Ownership Associates, an employee ownership consulting firm in Cambridge, Mass.
For a proposal that is supposed to represent the voice of the company's workers, this one has caused a lot of grumbling at United. To some degree, that is because possibly all the employees will see their paychecks shrink if the deal is approved. Many employees also contend that they had little say in shaping the buyout deal.
The Association of Flight Attendants, whose 17,376 United members have helped give the carrier an above-average reputation for service, was not included in designing the proposal because the union's leaders bowed out of preliminary negotiations last year.
And the 27,942 nonunion employees, including managers and the reservation agents, say they could not decide whether to take part in the deal because United's management made the decision for them.
"How can there be harmony with so many angry people?" stated one of several letters sent anonymously to The New York Times in recent weeks. "The largest employee group at United does not even get a vote."
Yet under the proposal, each group of employees would have to make concessions. The nonunion workers would have to come up with at least $453 million in savings over six years, for which they would receive a 7.7 percent stake in the company.
Those figures are based on participation in the deal of flight attendants, who would trade $416 million for a 6.69 percent stake if they decide to join. Pilots would then get 21.41 percent and machinists 17.2 percent for their concessions, the exact size of which has not been worked out and will not be disclosed until proxy materials are published this spring.
The nonunion employees' choices for reaching their target are not final, but one popular suggestion is to pay newly hired workers less and give them fewer benefits. That idea disturbed officials of United's unions last week. Airline unions have spent years trying to erase two-tier wage scales adopted in early 1980s because they consider them unfair.
The dissenting voices at United may only grow louder if employees develop unreasonable expectations about their control over the company, wage increases and the sanctity of the contract.
If the deal is approved, a 12-member board will be named. It would include three board members picked by employees - one by the pilots, one by the machinists and one by the nonunion workers. The pilots and machinists have not decided whether the flight attendants will gain a seat on the board if they decide to join the buyout, but the flight attendants' union has said it will not participate if it is not guaranteed a seat.
Although union officials have stressed that they will not manage the company - a statement intended to ease the fears of wary investors who would still own 47 percent of the company - a memo sent by the pilots' union to its members suggests that employees will have a measure of control.
"The way we look at it, the employees have either the right to select or to significantly influence the selection of nine of the 12 directors," it read.
On the other hand, the board's decisions are sure to be scrutinized by public shareholders to ensure that those directors are fulfilling their legal responsibilities. So some employees might end up disappointed by their board's decisions.
Wages might prove to be another sticky matter.
For example, the contract calls for a wage review beginning in the second year after the deal is complete. That review could produce a raise after the fourth year of the deal.
If necessary, an arbitrator will handle the negotiations and will decide the size of the increase, if any, based on the financial performance of the company and on industry trends and salaries of pilots and machinists at competing carriers. If pilots and machinists at competing carriers get a pay cut in the ensuing few years, the comparison will then be made with their wages before Jan. 1, 1994, according to one section of the contract that appears beneficial to United workers.
It is not clear whether the nonunion workers will get pay increases equal to those of their unionized counterparts at United. One section of an internal pilots' union memo suggests that the union thinks not every United employee is entitled to the same increase.
"Will all four labor groups be vying for increases from the same bucket?" reads the memo. "Yes. All employee groups compete with each other in negotiations or arbitration." This hints at an environment in which each union will pursue its narrow interests.
Changes to the contract might be proposed, industry analysts said, because its terms could make it harder for the airline to compete if the industry continues its record of shifting dramatically every few years.
Initially, the airline will gain the freedom, not available under previous labor contracts, to create a low-cost service it calls U2, modeled after Southwest Airlines, to replace traditional United service on short routes. But the contract sets limits on the percentage of cities served by United where U2 can replace traditional United service.
In contrast, Continental Airlines displayed its flexibility by announcing that next month it will nearly triple the number of daily flights that it operates with the same quick-turnaround, cheap-fare strategy that is behind U2.
"The thing you want to do if you want to restructure is to build in flexibility," said Vivian Lee, an airline analyst at Smith Barney Shearson. "The UAL deal does not do that by any stretch of the imagination."
Some union officials admit that changes to the contract may be necessary, and they will explain that to their members if the need arises. But for now, they said, it is important to build some protections for employees who are skeptical of management, even though they would be able to choose or influence the choice of top executives.
"There has been a long period of severe labor unrest where pilots do not trust management," said Roger Hall, chairman of United's pilots' union. "Even recognizing the fact that there is going to be new management, pilots are saying, `I don't know that new management, and I would like to have myself protected.'"
Although the United deal raises as many issues as it resolves, that the proposal has gone this far is noteworthy. As an alternative to a management-labor showdown, the unions are trying to create the nation's largest employee-owned company.
If they succeed, it will be the first time airline unions have used concessions to gain control of a healthy carrier, rather than simply trading concessions for equity to help an airline in distress.
\ UNITED IN ROANOKE\ \ United Express, a commuter airline service, is operated in Roanoke by Atlantic Coast Airlines Inc., a Sterling, Va.-based carrier.
\ The company's employees, including eight based in Roanoke, are not affected by the proposal between United Airlines and labor unions.
\ Atlantic Coast operates five daily flights from Roanoke Regional Airport, all to Washington Dulles International Airport in Northern Virginia.\ \ Source: Atlantic Coast Airlines
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