How United Airlines became "worker owned"

Louis Proyect lnp3 at SPAMpanix.com
Sat Mar 17 11:18:06 MST 2001


Thomas Petzinger, "Hard Landing":

On a brilliant late-winter morning in February 1993 a few hundred off-duty
pilots and flight attendants gathered at a Marriott Hotel on the edge of
Dulles International Airport to hear their distant and rather mysterious
chairman speak. The parking lot was overflowing with Miatas and Mercedes
Benzes. Inside the hotel waited a standing-room-only crowd of flight
attendants in stretch pants and baggy sweaters and pilots in tweed and
Ultrasuede.

For Wolf the presentation was an incursion behind enemy lines. The flight
attendants were gravely upset by another of Wolf’s moves: establishing crew
bases overseas in order to recruit flight attendants who were in some cases
less expensive but who in all cases were bilingual. Wolf was obsessed with
the perfection of spoken language, to the point of rejecting a request by
the flight attendants’ union to open a crew base in Miami for United’s new
South American service instead of in Buenos Aires; even if there were
plenty of qualified bilinguals in Miami, he pointed out, a different
dialect was spoken in Argentina.

All heads in the audience turned when Wolf finally appeared at the back of
the ballroom clad in a mile-long winter coat and scarf, holding a steaming
cup of coffee to his lips. Wolf strode to the front, jerked his scarf from
his neck with a snap, rested his cup on the lectern, and slowly peeled off
his overcoat.

‘‘The industry continues today in nothing short of domestic chaos,’’ Wolf
told the group solemnly. The consumer now demanded ultralow fares. Three
carriers, Continental, TWA, and American West, were in bankruptcy
proceedings, each seeking to find a way to survive on low fares. And then
there was the enigma of Southwest. ‘‘They are a competitor,’’ he said,
‘‘that we don’t know how to compete with."

Wolf reminded his people that in 1991 United had reported the biggest loss
in its history; in 1992 the loss was three times greater. Now in 1993 the
loss looked like it could be "staggeringly large."

Wolf paused. There was not a sound in the chamber. He sipped audibly from
his Styrofoam coffee cup.

‘‘In the history of America there’s never been anything like what’s
happened in the aviation industry in the last three years.’’

Wolf concluded the presentation without making any firm requests and
without offering solutions. He wished only to soften the ground, stirring
enough empathy and anxiety that these rank-and-file employees might prevail
on their leaders to consider some concessions. But this crowd would not
give Wolf such truck. As soon as he asked for questions from the audience,
the flight attendants, dozens of them, stood up in unison and stalked from
the room in an organized protest. Wolf’s appeal had failed.

United was slipping fast, and Wolf himself was perilously close to looking
bad. It was the pilots who showed him a way out of his dilemma.

In June 1993 pilot officials at United resurrected their idea of an
employee takeover, noting that the concessions Wolf wanted would be
tolerable if employees were compensated for them in stock. The pilots,
further, had a candidate whom they intended to elect as their new chief
executive if they attained control: Gerald Greenwald, who had played an
instrumental role with Lee Iacocca in the rescue and rehabilitation of
Chrysler.

Wolf set to work designing a new, employee-owned United Airlines to compete
with Southwest, knowing that if he were successful in selling the idea to
the unions, he would be out of a job. At least he would be out cleanly,
with $50 million or better in his pocket, leaving behind a company with a
better chance.

Part of Wolf’s solution involved a sleight of hand. United had suffered
mightily from its lack of meaningful b-scales. So Wolf convinced the unions
to establish a separate corporation U 2, it was called in the planning
stages— which would look and act like Southwest, with quick turnarounds,
reduced cabin service, and, most important, employees brought in at
cut-rate wages. Regardless of the packaging, Wolf and his aides had talked
the unions of United into b-scales. Ultimately, U2 operated in California
under the name Shuttle by United.

Wolf seemed intent on bringing his own job to an end, as he ultimately had
both at Republic and Tiger International. He even helped the pilots
negotiate the employment contract for Greenwald, the man intended to take
his job. "It’s sort of a canned act," Kevin Lum, the president of the
flight attendants union at United, eventually decided regarding Wolf. "He
paints the planes and then he sells them.’’

Some people thought the employees had no idea what the union leaders and
Wolf were getting them into. Even two members of the United board Andrew
Brimmer, the former Federal Reserve official, and Frank Olson, who remained
on the board even after returning to Hertz ultimately voted against the buy
out. Nevertheless, by the summer of 1994, the deal appeared at hand. The
terms had been established. There would be severe pay cuts for existing
employees (except the flight attendants, who declined to come in as owners)
and b-scales for new hires. On his final day at United, Wolf put his pen in
his pocket, went to the shareholders’ meeting, awaited the official
announcement of their approval, and went home, never to return to United
Airlines. And when the deal closed, Wolf, age 53, walked away with his $50
million.

A short time later, when asked how he expected to spend his free time, he
said perfectly seriously that he intended to bone up on personal finance.
Would he also be reading more? Yes, he said, he had read six newspapers
already that day. Wolf also accepted a major consulting engagement to
assist in a turnaround attempt at troubled Air France. Wolf and his wife
leased an apartment in Paris for a year.

‘‘I’m not happy about leaving United,’’ he commented. ‘‘But I accept it.
left it the best positioned airline in the world. If managed properly, it
will work for everybody."

Louis Proyect
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