Running an Airline with Union Advice


Sep 9, 2002
Running an Airline with Union Advice
New York Times
Even as employee ownership at United Airlines is being assigned substantial blame for the carrier''s descent into bankruptcy, US Airways is proposing to give its workers four board seats and nearly a third of the company''s stock whenever it emerges from its own Chapter 11 filing.
Yet rather than indicating a failure by US Airways to learn from the ill-conceived experiments of the past, experts say, the role for labor put forward by the airline may represent a pragmatic approach in a struggling industry — and a model for United, as well.
At United, an employee stock ownership plan gave workers a 55 percent stake in the parent UAL Corporation and the control that came with it. The pilots'' and machinists'' unions received not only seats on the board, but the right to veto major business decisions and had final say over the selection of the company''s chief executive.
At US Airways, by contrast, labor leaders will have a voice in the boardroom if the airline successfully emerges from bankruptcy protection, but no more power than any other board members. In the tension of a struggle to survive, many experts say, that arrangement may make more sense.
At United, there were complaints about the union influence; they were the majority influence and had a dominant voice, said Peter Cappelli, who runs the Center for Human Resources at the Wharton School of the University of Pennsylvania. But there''s some evidence that union representatives on the board help the companies run. They are like management, in that they have a lot of detailed understanding of what''s going on in the organization.
Mr. Cappelli said that at both United and US Airways, union board members ideally would function like labor representatives on the supervisory boards of large German companies. There, he said, union officials often watch out for more than just the interests of workers.
Just what voice, if any, labor will have in a reorganized United remains unclear. The company is expected to make a filing in bankruptcy court today, requesting the power to void its labor contracts if the unions do not agree to deep cost cuts.
Down the road, the United unions could lose their board seats if creditors call for an overhaul of UAL''s corporate governance, or if employee ownership of the airline drops below 20 percent.
The picture is somewhat clearer at US Airways. In September, a month after filing for bankruptcy protection, management offered one board seat each to the unions representing pilots, machinists and flight attendants in exchange for $840 million a year in cost concessions.
Now, after squeezing out $200 million more in annual concessions, executives have agreed to give a fourth board seat to labor, this one to the union representing reservations and ticket-counter agents.
Ultimate power, once the airline emerges from Chapter 11, would be held by the airline''s lead lender, the Retirement Systems of Alabama fund; it would receive a 36.6 percent stake, eight board seats and 72 percent voting control.
The chief executive of the Alabama pension fund, David G. Bronner, has at times expressed hostility toward labor. Early this month, he threatened to withdraw the fund''s backing and force US Airways to liquidate if the unions did not agree to management''s demands for a second round of concessions.
US Airways management hopes that it has achieved the right formula for labor consultation. They will have representation and a voice in corporate governance, but certainly not control, a US Airways spokesman, Chris Chiames, said. We looked at other examples that didn''t work so well and built a structure that would allow senior management to manage the company, allow labor to provide input and play a role in governance of the company, and not control the company''s decisions.
During negotiations over cost concessions, the unions repeatedly asked for representation on the board, Mr. Chiames said, adding that management''s agreement to that demand might have helped US Airways secure the concessions.
Joe Tiberi, a spokesman for the International Association of Machinists, which represents mechanics and other workers, said: We asked for a board seat in negotiations, and we got the seat that we were looking for. We just wanted someone at the board level who could see the significant investments our members are making in US Airways.
The US Airways model could prove to be a good middle ground for employee governance, said L. Nick Lacey, an executive vice president at Morten Beyer & Agnew, an airline consulting company in Arlington, Va. They seem like an enthusiastic group with an attitude of `we''re going to come out of this; we''re going to get through this,'' he said. Whether they can flip the numbers remains to be seen.
Well before US Airways drew up its plan, another major airline showed that labor and management could sit together on a board without making the carrier dysfunctional. Since 1993, three unions at Northwest Airlines have each held one board seat, with the same powers as the 11 other directors.
I would have to say that our experience to date has been fine, said Douglas M. Steenland, the president of Northwest. Our labor directors have made constructive contributions to the corporate governance process, and they are fully aware of the fiduciary-duty obligations that they have.
Mr. Steenland said that the arrangement made sense, given the central role that unions play in the airline industry. When you have a work force like Northwest does that is largely governed by collective-bargaining agreements, to have that expertise on our board has been helpful, he said.
Chrysler was one of the first American companies to have a labor representative on its board. For more than 20 years, the United Auto Workers union has had a director at Chrysler, now part of DaimlerChrysler. The union first won the seat when it granted contract concessions so that a failing Chrysler, in 1979, could secure $1.5 billion in federal loan guarantees.
Today, the U.A.W. has one of nine employee-held seats on the DaimlerChrysler supervisory board. It has not succeeded in winning board membership at Ford or General Motors, though it usually seeks it during contract talks.
At United, a spokesman for the pilots'' union said that retaining board representation is one of the issues in the current round of concession talks. The machinists'' union declined to comment on the future of its UAL board seat.
Corporate governance has not been a high priority for United executives, who say they have been preoccupied with other issues since the airline filed for bankruptcy protection on Dec. 9. I think that''s an important down-the-road issue, Douglas L. Hacker, United''s executive vice president for corporate strategy, said. Clearly, we have to sort all that out.
Already, United''s unions have fought for and won 3 of the 13 seats on the creditors'' committee, so labor will have a voice, at least, in the company''s reorganization.
Post- Enron rules aimed at bolstering the independence of corporate boards add a new wrinkle to the issue of labor representation. Union board members stand in a murky middle ground between outsider and insider, experts say; they do not have the same close ties to the company as management, but they still represent the interests of people who work for the company.
The issue of labor members on boards in public companies has never been litigated or tested, said Corey Rosen, executive director of the National Center for Employee Ownership in Oakland, Calif. I think if things don''t go badly, nobody''s going to worry about it. If things do go badly, then someone might try to get at the unions by testing these laws.
Many United workers favor retaining board seats, though they are divided on how much power the labor representatives should have. Many workers say that even with their veto power, United had greater hostility between workers and management than at any other airline, and never developed a culture in which employees were treated, or acted, like owners.
In the end, these workers say, what is important is that the unions have a voice, and that the company hires managers who will listen to that voice.
They''re going to get the language into our contract that says we won''t be in the driver''s seat anymore, said Charlie Lincoln, a lead mechanic and shop steward in San Francisco. We want to be team players anyway. We envy their teamwork at US Airways.