Two years have gone by since United Airlines launched its employee stock ownership plan, which gave the carrier's pilots, machinists and non-contract workers a 55 per cent ownership stake in exchange for $4.9 billion in concessions. Since then the airline has seen unit costs drop by close to 7 per cent. It has turned in several quarters of record earnings. Employee productivity is markedly up. The share price of parent UAL Corp has doubled and there has been a stock split. Even the symbol of the restructuring - Shuttle by United - has begun to show profitability, according to United officials.
So, why isn't every other airline racing towards employee ownership?
American's new contract with its pilots does not give that labour group a board representative like Michael Glawe, who flexes the Air Line Pilot Association's muscle in United's boardroom. It's the same with Delta's pilots, who agreed to concessions so the airline could establish a low-cost alternative to Southwest Airlines and ValuJet.
At Northwest Airlines, management and labour are in the midst of negotiating snapbacks for employees whose $886 million in concessions saved the carrier from bankruptcy in 1993. Though the three labour groups are assured of board seats for the next 10 years, making those positions truly substantive will be difficult without them having a majority ownership share in the company.
USAir, whose chairman Stephen Wolf initiated the United Esop, may be the only carrier willing to launch a similar scheme. Even if the carrier's unions take this bait, however, the new company would be more like TWA or Northwest than United, since the new structure would be designed to save the airline.
Even with United's profits and with its chairman Gerald Greenwald firmly behind the notion of employee empowerment, most airline industry leaders - and investors - are still ideologically suspicious.
Critics cite United's 20,000-plus flight attendants, who still are not owners and challenge the notion that the carrier is truly employee owned.
Two outside issues mitigate against employee ownership. In the recent battle over the US government budget, tax incentives encouraging employee ownership plans were abolished. And the company upon which United based much of its new structure, rental car giant Avis, has seen its Esop fall apart in a rather unglorious fashion (Avis chairman Joseph Vittoria represents an increasingly angry non-contract employee base on United's board).
But the biggest reason for other airlines not piling on to the Esop bandwagon is that no one is clear as to why United is performing so much better. Undoubtedly, the Esop can be credited for bringing a more innovative approach to decision making at United: the airline has management-worker committees on dozens of subjects. Corey Rosen, president of the National Centre for Employee Ownership, says that when United turned down USAir after it came looking for a buyer last year, it was 'the first time in American labour history that the decision about an acquisition was done jointly with employees.'
But has the Esop actually boosted profits? Some suggest not. They point out that the workers with most access to the travelling public - the flight attendants - are not part of the ownership base. One flight attendant representative, who believes that United's recent success has come from a healthier economy and strong travel markets, asks: 'Is United doing well because the Esop is working and this is a lean machine doing the right things, or is it doing well because they took the concessions from people two years ago?'
Flight attendants are not alone in thinking that the most important part of the Esop's success is the 15 per cent cut in wages. A prominent labour economist who previously was a strong proponent of Esops, and particularly the United Esop, has reconsidered. Not ready yet to go public, the academic ponders United's recent success: 'It's mainly the industry improvement and the concessions. There is no clear proof that a large part of the improved performance can come from the Esop. Any examples of the problem solving and participation do not add up to a huge amount of money. You have to be clinical and sceptical about the question of greater efforts coming from workers as owners; it's not that much.'
Certainly, Gerald Greenwald and thousands of United employees would contest such notions. But the primary problem is that United's Esop does not breed confidence because it is designed to self-destruct. While it does not contain 'snapback' provisions on wages like the Northwest model, United's Esop will nonetheless go away as workers cash out their pensions upon retirement. Without a reinvestment trigger - through, say, a stock option plan - the original 55 per cent stake will be diluted. When the original investor base is cut in half, employees will lose board representation privileges.
This could be easily rectified, but the chances are that it won't. Sources now paint Greenwald as nobly standing more and more alone as the public and private voice for employee involvement. At United's top level, there is a quiet debate being waged about the future of the Esop, with one source saying that it will survive 'only in spirit.'
Including the flight attendants would help to defuse doubts about the United Esop's future. Again, however, this is looking less and less likely. Flight attendant officials believe moves towards inclusion will not happen at least for another two years. By then, United's share price may be far beyond the reach of most cabin crew.
Mead Jennings
Source: Airline Business
