Illusions About Employee Ownership Being Shattered at United Air Lines

The flying public is angry at United Airlines, the largest carrier in the world. Between May and October, the company canceled almost 9,000 flights--most of them while passengers were already at the airports or on their way.

When flights do leave, they arrive late. United now has the worst on-time record in the industry, with 57 percent of its flights late in May.

Management has three excuses: bad weather, air traffic control problems, and a pilot shortage. Since the first two affect all airlines, the finger pointing is directed at the pilots. Management has also criticized airplane mechanics for writing up too many mechanical problems.

What is really behind the crisis is management's willingness to alienate its customers in the short run to play hardball in contract negotiations with it pilots, mechanics, and other workers.

The 10,000 pilots are represented by the Air Line Pilots Association. Their contract ran out in December. The International Association of Machinists represents 49,000 mechanics and other workers; their contract expired in July. Flight attendants are unionized but are not currently in negotiations.

Covered by the Railway Labor Act, airline workers must go through prolonged negotiations before they can strike. United CEO James Goodwin recently noted that it is typical for contracts to "take years" to settle.

It is in management's interest to prolong the current negotiations. If the current economic boom ends, workers will be in a less favorable situation.

The pilots and machinists are so upset today because we were promised six years ago that when our contracts expired, there would be no such prolonged negotiations, but a "seamless" transition to a new contract. This was part of the Employee Stock Ownership Plan (ESOP).

The previous management team convinced the pilots and machinists to accept an ESOP in 1994 as the only way to save the airline.


Under the ESOP, the pilots and machinists agreed to "buy" stock in the company with big wage and work rule concessions. The pact gave members of ALPA and the IAM, along with non-union employees, a 55 percent stake in the company. (The fight attendants refused to sign up because of the huge concessions.)

At first, there was no guarantee of even getting back to where our wages were in 1994. The machinists won such a "snap back" during mid-term negotiations. But the workers also gave up on any wage increases over the life of the contract, a loss of 25 to 30 percent compared to other airline workers. In April non-union employees did receive wages increases above 25 percent.

The stock we got in return, however, was not ordinary stock. It cannot be bought or sold. It can only be redeemed at market value when an employee retires or quits. Also, it is not voting stock. Having 55 percent of the stock doesn't mean the workers can make company policy.

The ALPA and the IAM each have one representative on the board of directors. But United is run the way it always has been--under the control of the major institutional shareholders and top management.

But the ESOP's worst effect was on union consciousness. After the ESOP, many workers no longer saw the value of unionism. We were now "owners." Union solidarity was out the window. The ESOP marked a turning point in labor-management relations. Most employees, union and non-union, were led to believe that a "new type of company" was created by our becoming "owners." Management got labor peace and unprecedented cooperation on issues ranging from work rules to contracting out. They also got a massive tax write-off.

The "new culture" of employee ownership became wishful thinking. The notion that it would be possible to avoid the long contract negotiations of the past and settle quickly was proven to be an illusion.

The pilots, in particular, saw the ESOP as a step to taking over the company. They wanted it renewed. They began negotiations in December. Their failure to get a "seamless contract" and an ESOP II, was their first wakeup call about "employee ownership."


The machinists' grand illusions were soon shattered, too. The reality of management being willing to force long contract negotiations while we work under the old contract's terms is behind the anger of the pilots, mechanics, and other machinists. It is why most pilots are refusing overtime, which is voluntary under their contract, and why many mechanics are doing likewise. Write-ups of faulty equipment are on the rise.

In this situation the union leaders who pushed for the ESOP are under tremendous fire, and even they are beginning to pressure top management to make a deal.



Give $10 a month or more and get our "Fight the Boss, Build the Union" T-shirt.

Primarily because of the booming economy, United has experienced a 16-fold increase in net income since the ESOP, with revenue rising 30 percent. Even though the union leaders--especially at the IAM--are in bed with the company, the record profits have raised expectations of the new "owners." The rank and file assumed that we would get wage increases of 25 to 30 percent to catch up with other airline workers.

The IAM and ALPA leaders were aware of this sentiment. Their jobs were on the line. The pilots, in fact, threw out their old leadership and replaced them with the current more militant group.

It is not possible to do the same under the IAM's rules. The majority of mechanics don't identify with the negotiating committee and the top leadership. This is one reason there are now two IAM districts at United: one for mechanics and cleaners; another for ramp, stores, and customer service workers. It's also why a decertification effort to replace the IAM is making headway today among the mechanics. (At Northwest Airlines last year a similar process led to the ouster of the IAM after its leadership brought back an inferior contract.)

The main issue for the IAM negotiating committee is to bring back a good enough package to keep the mechanics from bolting.


Employees got another slap in the face when the board of directors voted to buy US Airways. This was done against the vote of the pilots' representative. But the IAM representative, John Peterpaul, voted for it. Thus the IAM representative gave up the one piece of leverage the unions had under the ESOP rules. If both union reps had voted no, the merger would have been vetoed.

The anger was among the rank and file was immediate. But Peterpaul, parroting United CEO Goodwin, said that if the Board didn't act American Airlines or another airline would buy US Airways.

The IAM leaders now say there will be no buyout unless they agree. But that's not completely honest. By Peterpaul's vote, the merger can go through even if new contracts are not signed.

United agreed to pay US Airways shareholders $11.6 billion for the acquisition, $4.3 billion in cash and $7.3 billion for US Air's debt. That amount would go a long way in meeting our demand for a wage increase.

At the same time, the Board refused to grant in writing the same two year job security guarantee to United employees that it gave to US Airways employees. On that issue alone, the pilots wouldn't sign on. Now the IAM leaders, after outrage on the shop floor, have taken the same position.


What happens next depends on three factors: what the leaders of the two unions do, public pressure, and the actions of the rank and file.

The ALPA leaders, who are under the control of their members, have been willing to say a mistake was made. Their board member is an active pilot and directly elected by the members.

The IAM board rep is not an active worker. He was appointed by the Grand Lodge. This is why he functions simply as another member of the Board.

IAM national leaders are not accountable, due to undemocratic rules. This has allowed secret negotiations, and has made it almost impossible for district leaders to be driven out of office except by decertification. We do have the right to vote on our contracts, the main way we can force the company to improve our situation.

Management does want the US Airways merger. It can get it without agreeing to a contract, but knows public pressure could cause a government rejection of the deal. Thus Goodwin and other executives continue to say they will grant "industry leading" contracts to their employees.

On August 10, United announced it would hire 1,300 new pilots by year's end. This is one of the pilot's demands. Management recognizes that the flying public is uneasy about having a tired pilot at the controls. They also don't like to think that management is forcing mechanics not to report problems with aircraft.

The Aircraft Mechanics Fraternal Association is pushing hard to replace the IAM among United's mechanics. Most people signing their cards are doing so as a vote of no confidence in the IAM.

What's decisive will be the actions of the rank and file, which can make clear to top management that we won't be taken for granted. It's not yet clear if this will be a brief crisis, or the beginning of a protracted contract struggle.

Malik Miah and Barry Sheppard are mechanics at United's San Francisco Maintenance Operations Center.