United's undoing: A war within ----
The pilots wanted to be owners, and the executives wanted to be empire builders. As the two sides fought for power, the customers suffered, and the company sank.
CHICAGO TRIBUNE - First of four parts July 13, 2003
Jake Brace suspected the worst as soon as the flight attendant handed him the message. The lanky United Airlines executive sipped a Diet Pepsi as he sat crammed in coach, his own discomfort a reflection of the precarious financial position that forced even the carrier's bosses to fly on the cheap. The brief note last fall, beamed directly to the same cockpit computer that alerted pilots to the Sept. 11 hijackings, spoke volumes to Brace, United's chief financial officer. "Please ask UAL CFO to call Dan Montgomery ASAP." Montgomery ran the federal panel weighing United's plea for a nearly $2 billion loan guarantee. And, as Brace feared, Montgomery had bad news when Brace reached him by air phone. The Air Transportation Stabilization Board was denying the carrier's request. Known throughout United for his cold dispassion, Brace could summon only one thought--be very pragmatic. Lost in his starchy stoicism was a jolting reality: United, the grande dame of American aviation, was heading for a rough, humiliating landing in bankruptcy court. Its very fate was now in question. In the balance were the livelihoods of tens of thousands of United employees, who less than a decade before had given up $5 billion in pay to gain control of the airline. Just as much in doubt were the futures of hundreds of businesses that feed off United; Chicago's plans to expand the carrier's home at O'Hare International Airport; and even the image of the region, whose enduring reputation as a transportation hub depends on a hometown airline of stature. United would have the nation believe that the sputtering economy and Osama bin Laden's network of terrorists pushed the airline to the brink of oblivion. But a Tribune examination of United's recent history suggests otherwise.
The airline's problems are so deeply rooted in its culture that even if the company emerges from bankruptcy, as expected, those troubles will likely hamper its ability to compete. The depth of United's challenge is spelled out in thousands of pages of company documents and hundreds of interviews with United employees, from baggage handlers to the executives who led the airline over the past quarter century. The basic problem facing United--too many seats chasing too few passengers--bedevils the entire airline industry. Yet a close look at United reveals a unique series of brutal conflicts and fateful decisions, taking the airline from record profits to bankruptcy court. United's downfall is a chronicle of self-interest, self-delusion and self-inflicted wounds. It is the story of poisonous relations with pilots that repeatedly undermined the company's ability to remain profitable, and a strike that not only became one of the era's greatest labor showdowns but left a legacy that warps United's workplace to this day. It is the story of a historic attempt to ease United's labor problems through an employee stock ownership plan that instead fed the airline's worst instincts, undermining the work ethic of the rank and file, promoting weak management and destroying the value of its stock. And it is the story of a rotating stable of chief executives who whipsawed the airline between incompatible visions of what United should be. Left to wither along the way was its most fundamental job: getting passengers to destinations on time for a reasonable price.
"I think United really abused its customers for awhile there," said David Sipiora, a patent lawyer who flies the carrier out of its Denver hub. "People remember that--how they were treated." The terrorist attacks of Sept. 11 laid bare the tenuous grip on profitability that United and other mainline carriers always have had. Alone among its peers in fighting for deregulation of the industry 25 years ago, United now finds itself turning with them to Uncle Sam for survival. As the carrier continues to lose millions of dollars a day, the list of those bruised by United's fall extends far beyond the creditors lined up in bankruptcy court.
International Style high-rises promote Chicago travel in a United poster. As commercial aviation thrived, the airline celebrated pop culture and cultivated a jet-set mystique.
Investors, including tens of thousands of current and former United employees, have watched the value of a stock that peaked at nearly $230 a share in 1996 plummet to pennies in recent months. When it emerges from bankruptcy, the company has said, those shares will be voided, making them worthless. Since 9/11, United's worldwide employment has plunged to 67,000 from 102,000--eliminating more than 5,500 jobs in the Chicago area. Its fleet has dropped to 518 aircraft from 638. In the face of such decline, ironically, the greatest beneficiaries of the airline's troubles have been its customers. The fear of liquidation has given United a jolt of humility that has brought about internal peace and efficiency. United was No. 1 in on-time performance last year, a first for the carrier. A source of great anxiety among its best customers also has been mollified: frequent-flier miles are safe, assuming United doesn't liquidate. Perhaps most striking of all, throughout years of labor strife and economic upheaval, the carrier has maintained a sterling safety record. "We're making miracles happen there," said Rich "Max" Maximov, a lead baggage handler at O'Hare. "I've worked here for 16 years. I don't want the ship to go down. ... But I don't know what more the employees can do for United Airlines."
Today's crisis atmosphere is a universe away from the orderly way airlines operated for the first 50 years of commercial aviation. For much of its history, United and other carriers thrived in the well-protected cocoon of government regulation supervised by the Civil Aeronautics Board, a federal agency set up to prescribe where an airline could fly and how much it could charge. In many respects, airlines functioned like regulated electric companies, seeking government approval for what they would charge customers. Unlike a public utility, though, the aeronautics board wasn't out to make air travel affordable for all, just safe and reliable. And the system was expensive. A round-trip flight between Chicago and Los Angeles that can go for less than $250 cost the equivalent of more than $750 in 1975, the height of the regulated era. Political meddling, not market forces, dictated fares and routes, and influence in Washington determined winners and losers. In one famous episode, then-House Majority Leader Jim Wright tried to protect American Airlines by frustrating upstart discounter Southwest Airlines' hopes of flying outside Texas. Only the intervention of Oregon Sen. Bob Packwood, a law school pal of Southwest's founder, forced Wright to relax the planned restrictions.
Although government oversight kept the cost of flying artificially high for passengers, it made for peaceful relations with labor, including pilots, the princes of the air. Derided as underworked and overpaid, pilots function in some ways like anesthesiologists: Much of their work involves the routine monitoring of sophisticated equipment, but the rare crisis demands split-second judgments that determine life or death. For this, they are paid handsomely. And though statistics on their flying hours don't reflect the time they spend training or traveling to assignments, the workload of most commercial pilots is strikingly light, about 40 hours a month at United and some of its competitors. Over the long tenure of president W.A. "Pat" Patterson, a one-time banker who ran the company from 1933 until 1966, United tended to hire pilots with military backgrounds, college degrees and a managerial mindset. The officer's stripes on their jackets were thinner than those of their peers, suggesting a business suit rather than a uniform. Not coincidentally, the carrier didn't have a single pilot strike between 1951 and 1985.
In 1978, though, something happened that would forever change United--deregulation. It sounded like a good idea. Instead of being protected by the federal government, airlines would be subjected to free-market forces. Under President Jimmy Carter, deregulation advocates stripped the aeronautics board of its powers. The resulting fare wars and economic free-for-all shook the once gentlemanly ranks of the industry. At United, it created unprecedented labor strife with pilots, who were evolving into that rare class of American worker: rich, fervent unionists. Richard Ferris, a hotel executive who came to United when it acquired the Westin chain, became the airline's chairman in 1978 and initially ingratiated himself with pilots, even learning how to fly.
Driven to build a travel power- house, Richard Ferris was at the center of a 29-day pilots strike in 1985 over his demand to pay rookie pilots drastically lower wages. In no time, though, both he and United's unions were feeling the heat of competition and began sparring over wages and work rules. United was falling behind its chief rival, American Airlines, which had introduced a lower wage for new pilots, allowing it to buy more planes. Ferris wanted the same advantage. In 1985, he sparked a bitter test of wills that still haunts United. 'I will not cave' That spring, United's 4,700 pilots received a bulky package in the mail. Inside was a videotaped warning from a grim-faced Ferris, insisting a cheaper scale for rookie pilots was inevitable. If United pilots chose to fight, Ferris wanted them to know that replacements were flooding the carrier's phone lines, ready to fill any empty cockpits should there be a strike. "I will operate this airline if no one crosses the line. ... Gentlemen, if it takes me six months, if it takes me a year, I will rebuild this airline," he said. "And I will not cave." The terms behind his message were equally confrontational: accept steep cuts in wages for new hires or risk losing your jobs. The hard-driving Ferris was intent on cutting costs and using airline profits to build a travel conglomerate that eventually would include the Hertz car rental firm and the Hilton hotel chain. To underscore the diversification, Ferris renamed UAL Inc., United's parent company, Allegis. Pilots worried his grand plans would slow the growth of the airline and the pace of pay raises and promotions. United officials breezily predicted that 40 percent of their flyboys would cross picket lines.
No one listened to Ferris' broadside-by-VCR more intently than a Cleveland-based captain named Rick Dubinsky. The son of a union meat cutter in St. Louis, Dubinsky was the canny chairman of the pilots' strike committee. He became involved in the union when United sought to fire him for refusing to cut his auburn hair. It was over his collar, flouting the strict appearance code of the carrier. Part of a politically active United employee group called the Cleveland Crazies, he was a competitive skydiver and did a stint as a test jumper on experimental parachute equipment. Dubinsky resisted what he called "irrational authority," and he earned the nickname "Mad Dog" because he loved mixing it up with management. His rhetoric matched his combative negotiating style. "The forces marshalling against you are deadly and determined," he once wrote his fellow pilots. "They are cold, calculating, powerful, well-schooled, professional, patient, and they do have endurance." But the pilots were just as single-minded, especially when it came to protecting their pay and seniority. That's because their salary and working conditions are determined by how long they've been at an airline. Leaving a carrier means starting at the bottom at another airline, no matter the pilot's level of experience. "They'll ride that seniority number right into bankruptcy," said Wright George, 60, a recently retired pilot who went from making $72,000 as a first officer at Eastern to $24,000 as a second officer when Eastern's demise forced him to switch to United in 1991. Driven by such motivations, the pilots shaped labor relations at United more than any other union. On May 16, 1985, they walked out of talks with Ferris, setting the stage for a showdown. The pilots rented the Odeum Sports & Expo Center in Villa Park, a few miles southwest of O'Hare, for a series of morale-boosting rallies. Despite Ferris' claim that replacement pilots were lining up to fly, Dubinsky believed that if his ranks held, United would be unable to replace enough of his members to keep the airline running. He directed his energies into ensuring solidarity at all costs. To counter Ferris, he distributed tapes of his own. They included a pilot who had flown as a replacement in the 1983 Continental Airlines strike--and now regretted it. When the strike began, no more than 6 percent of union members crossed picket lines.
The story continues: 'Family' feud Copyright (c) 2004, Chicago Tribune