Labor Dispute Threatens United Stalemate Could Jeopardize Employee Ownership
The skies have gotten a little less friendly at United Airlines. The carrier’s main unions have rejected new wage offers, ending a brief era of labor peace and possibly jeopardizing an innovative employee ownership plan.
“What this really means is a (new) period of smoldering bad relations between these groups,” said Joseph Blasi, a professor of labor management at Rutgers University in New Jersey who has closely followed the 1994 employee buyout of the airline.
It took employees five tries before succeeding with the $4.9 billion employee buyout in 1994. The move was intended to ensure calm while the airline underwent a wrenching reorganization to better compete with low-fare carriers.
The buyout gave about 54,000 U.S. employees a stake in the company and created one of the nation’s largest employee-owned companies. Labor Secretary Robert Reich hailed it as “a major milestone in the history of American business” and promised if the experiment paid off, “we may see many more large companies owned and run by their employees.”
In exchange for 55 percent ownership of UAL Corp., United’s parent company, United pilots and mechanics surrendered up to 25 percent of their earnings in wages and benefits and got representation on the board.
The airline has flourished under a period of labor cooperation and economic growth. For 1995, UAL reported a profit of $349 million, compared with $51 million in 1994. Earnings for 1996 aren’t in yet, but are expected to increase.
The unions say their hard work is responsible for much of that success and that they should be rewarded with generous wage increases after years of belt-tightening. Management says boosting salaries too much would jeopardize the airline’s financial health.
It’s a sad twist for the airline that changed its slogan from “Fly the Friendly Skies of United” to “Fly our Friendly Skies” to reflect its inclusive ownership.
The honeymoon began to stall a year ago when 600 top managers and officers got hefty bonuses. The bonuses, based on profits, were part of their 1994 contract.
The pilots and mechanics unions had midterm contract provisions allowing for wage adjustments and now want a slice of the pie. (Flight attendants did not join the employee ownership plan.) The pilots, who make an average $110,000 annually, said Thursday they had voted down a contract amendment that would have given them a 10 percent salary increase over the next four years. Union leadership had tentatively accepted the offer in November.
Under terms of the employee-buyout agreement, an arbitrator will now make recommendations for salary and benefits adjustments that must be accepted by both sides. The unions aren’t allowed to strike until their contract expires in 2000.
Labor and management expert Frank Cassell suggested Friday that United’s employee owners are caught between a rock and a hard place as Gerald Greenwald, the chief executive brought in by the employee-owners, tries to balance union happiness against Wall Street demands.
“The unions have to wake up and realize they’re bargaining with Wall Street in addition to company management,” said Cassell, professor emeritus at Northwestern University.
“If large institutional investors who buy and sell stock think unions are getting a contract that will hurt the airline’s bottom line, the stock is going to go into the toilet,” he said. “And unions don’t want that because they’re 55 percent owners of that stock.”
United’s stock has risen 170 percent since the airline’s employees bought the company. But the pilots cannot cash out until retirement.
The battle is not unique to United. Management is also wrestling with pilots at American Airlines and USAir Group Inc.