Employee Stock Ownership Plan (esop).

zonecontroller

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Sep 3, 2002
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What about a Employee Stock Ownership Plan (ESOP).
One that we "as Employees" have a say so, as to who is running the Company and how.
If we wait to long all of the assets will be sold!
It worked for awhile at UAL
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It worked at UAL?! The biggest airline bankrupcty in history yet it worked?! The ESOP is pretty much recognized by everyone involved to be a huge mistake.
 
Full Story

Unfriendly skies

You might recall the acrimony at UAL when the CEO, Stephen Wolf, threatened to break up the airline and to outsource maintenance projects. Instead, Wolf was given $30 million to walk away as the unions embarked on their plan to save thousands of jobs.


UAL essentially became an employee-owned company, 55 percent of the shares, in 1994. Employees gave up some $700 million in wages and conceded some work rules. In exchange, the workers bought out the boss and stockholders.


The TV ads were glitzy and impressive as UAL’s stock ultimately soared above $100 a share five years ago. Then it happened: The concept was failing and UAL’s TV ads touting the airline as an employee-owned company disappeared from the airwaves. The sky-high stock price began to descend.


Now, published reports indicate that union members need to conduct a reality check about their misdirected anger: They blame the Air Transportation Stabilization Board for refusing to make the $1.8 billion loan to UAL. Some reproach ESOPs as a concept and would prefer cash to stock.


There are good reasons why UAL’s ESOP failed to blossom and the bud fell off the rose. It wasn’t because of Sept. 11, or because the airline was refused the government bailout. Simply put, harmony and participatory management are needed for ESOP success. UAL’s ESOP was an anomaly.


What UAL is teaching us


Of the 14 major airlines before 1978, only six remain. Like the 120 carriers that have failed in the past couple of decades, UAL failed because of an unproductive business model:


1. Infrastructure. As the second-largest carrier behind American Airlines, UAL has unsuccessfully operated hubs in Washington D.C., Chicago, Denver, San Francisco, and Los Angeles. A modified hub system with more direct flights would have been less costly to operate. Bigger isn’t always better.


2. Uniformity. It only seems logical and cost-effective to maintain a single aircraft brand for the majority of operations instead of a hodgepodge of planes. There are usually rewards for being loyal to vendors, including cost savings in purchases of jets and parts, as well as maintenance and operation simplification with one aircraft line instead of multiple aircraft makes.



3. Market conditions. Profitable airlines have consistently utilized economic principles, such as a no-frills approach, while UAL failed to adapt, losing $8 million a day. UAL lost $2.1 billion in 2001 and $1.74 billion for the first nine months of this year.


4. Arms length with employees. With adversarial union leaders represented at the board level, it was impossible to keep labor costs at a realistic level. Many UAL pilots have been earning almost three times more than their contemporaries at competing carriers.


5. Corporate welfare. Behind the scenes, the ATSB allowed accountants from competing carriers to examine UAL’s proposed financials. They pointed out numerous flaws; consequently, the board gave the carrier several opportunities to revise its deficient business plan. UAL failed to do so. Yes, other companies, from Chrysler to airlines, have received help, but only after providing satisfactory business plans. To expect American taxpayers to bail out a troubled business destined to fail doesn’t seem realistic.


6. Leadership. With due respect, UAL CEO Glenn Tilton was hired to save the company without sufficient airline experience. Plus, it takes a strong administrator to cope with such challenges and his team wasn’t strong enough to offset his weak points.