United Air''s Family Is Anything But
By EDWARD WONG - NY Times 10/6/02
SAN FRANCISCO -- Why does Patrick Palazzolo gripe about his job?
Mr. Palazzolo, a pilot for 24 years at United Airlines, seems to lead the kind of life that drives people mad with envy. His work takes him to the far corners of the globe, keeps him in the cockpit less than 60 hours a month, on average, and provides him with an annual salary exceeding that of 95 percent of all household incomes in America. All that has allowed him to settle down with his wife, Hilda, in a tidy suburb near here, and to put two sons through college.
But Mr. Palazzolo is relieved that those sons are not following in his footsteps.
He says that he believes in his heart of hearts that United is still suffering from a worker-management relationship that has turned sour — often downright ugly — in the last two decades.
Management needs to take a clean chalkboard and build a new airline, Mr. Palazzolo said recently while sitting in uniform in a hotel lobby here, awaiting a five-hour shift aboard a Boeing 777.
His attitude is typical not only of the privileged pilots at United, most of whom earn six-figure salaries, but also of the less-pampered machinists and flight attendants. Together, those three labor groups account for more than 80 percent of the 83,000 workers at United. As the company, which is based in Chicago, bleeds billions of dollars each year and tries to avoid issuing itself a ticket to bankruptcy court, its unions have only grudgingly considered management''s cost-cutting demands. They did agree late last month to offer $1 billion in annual concessions over five years, but that falls far short of the $1.5 billion over six years that the company asked of them in August. And the unions have not worked out among themselves just how the concessions would be divvied up.
Last week, Glenn F. Tilton, the new chief executive of UAL, United''s parent, met with labor leaders to discuss the unions'' proposal. His predecessor, John W. Creighton Jr., who served an interim stint of less than a year, had said that if the unions did not agree to deep concessions, United would fail to get a $1.8 billion federal loan guarantee needed to keep its planes in the air. Yet United''s employees, who own 55 percent of the company, refuse to meet management''s terms, despite the fact that its two most powerful labor groups — the pilots and machinists — have the most generous contracts in the industry and one seat each on the 12-member board.
How did United, once regarded as a potential model for employee-owned companies, end up on this tortuous path?
The problems were endemic well before the terror attacks of Sept. 11, 2001, shook the airline industry.
Executives at United have traditionally blamed what they called self-serving attitudes of the unions for pushing the airline''s costs sky high.
But union leaders and some industry experts say the roots of labor intransigence lie in disastrous business decisions made by management that alienated employees. The poorly structured employee stock ownership plan has also failed to immediately benefit — and thus motivate — workers. And now, there is rampant fear among the unions that management and the Bush administration are using the federal loan guarantee program as leverage to crack down on labor.
Even during the current crisis, it has been tough to persuade the unions to agree on solutions, primarily because of labor politics and income disparities among the different employee groups.
The unions pulled together to offer their concession package, but that does not mean they will necessarily forge ahead toward a common goal. They are siblings in a family more akin to the Sopranos than the Cleavers: sometimes squabbling, sometimes supportive, but usually looking out for their own interests.
What they have in common, though, is a deep-seated distrust of management, and they have their list of suggestions for Mr. Tilton, the company''s fourth chief executive in seven years: replace the old-school executives with fresh blood, form task forces that will seek advice from workers and, above all, overhaul the culture of United by impressing on workers that they are the airline''s owners, responsible for its fortunes.
As shareholder-owners, we don''t have the voice we need, said Charlie Lincoln, a lead mechanic and shop steward of the local chapter of the International Association of Machinists and Aerospace Workers. United''s executives, he said, need to show the people they''re willing to listen to us.
Mr. Tilton, a former ChevronTexaco vice chairman who lives in the exclusive Pacific Heights neighborhood here, declined to be interviewed for this article. As he and other executives negotiate for further concessions, they have been extremely guarded in their public comments on labor tensions.
In a voice mail message to employees last week, Mr. Tilton said, In the long term, our cooperation and our alignment will lead to a lasting advantage for United.
If workers'' perspectives at the United hub here, the airline''s second-largest in number of employees, are a good gauge of overall labor sentiment, any immediate concessions should be regarded as little more than a quick financial Band-Aid. Knocking down deep-rooted cultural barriers, a requisite for true recovery, is never simple at a plodding leviathan like United.
The company''s problems are reflected in the market valuation of its publicly traded shares, which tumbled from a high of $5.2 billion in 1997 to a paltry $124 million today. Though United is generally considered to have the best route structure in the industry, it lost a record $2.1 billion last year on revenue of $16.1 billion and has lost $851 million in the first half of this year on revenue of $7.1 billion. That set of figures is among the worst in airline history.
That was far from what the employees envisioned in 1995, when Gerald Greenwald, a former Chrysler executive, signed on as chief executive to guide the airline as it put in place the employee stock ownership plan. The pilots, machinists and salaried nonunion employees had formulated the plan the previous year with Stephen M. Wolf, Mr. Greenwald''s predecessor. Those employee groups agreed to give up $4.8 billion in pay cuts, raises and pension contributions in exchange for 55 percent of the company stock and one seat each on the board. The pilots would own about half of the employees'' shares.
Though the flight attendants drew other employees'' ire by refusing to join the plan — because of what they saw as a lack of job protection — expectations still ran high. Mr. Palazzolo referred to that time as a new dawn.
There were extremely high hopes that Gerald Greenwald could change the culture, the culture that had been calcified here over the years, the `us versus them'' mentality, Mr. Palazzolo said. He said all the right things. But he made a fatal mistake, which is he didn''t clean house. The middle management structure, and most senior managers around him, never changed.
Mr. Palazzolo and many other United workers blame the old-school managers for not following through on the seamless contracts that Mr. Greenwald promised the employees. The idea was to have negotiators from both sides work together to hammer out new contracts well before the old ones expired.
First up were the pilots.
Management and the Air Line Pilots Association began talks in December 1998, way ahead of the contract expiration on April 12, 2000. Then Mr. Greenwald retired at age 63, and in came James E. Goodwin.
Mr. Goodwin, a congenial West Virginian, quickly turned his attention to buying US Airways, which was being run by Mr. Wolf.
When the pilots found out, the contract negotiations fell apart. They feared that many United jobs would be given to pilots at US Airways with more seniority.
No industry labor group has more at stake in keeping jobs than the pilots, who have a much tougher time than other employees finding comparable jobs. The most senior United pilots make more than $300,000 a year for working an average of 80 hours a month, though often less than two-thirds of that is actually spent in the cockpit. Many pilots have second careers or, in the case of Mr. Palazzolo, spend long stretches of time with their families. Pilots argue that their high pay is warranted because of their layover days away from home and the many job demands, like meeting stringent medical requirements.
With all that at stake, and having just seen pilots at Delta Air Lines negotiate high wages, the United pilots dug in their heels during talks. April 12 came and went. The pilots refused to pick up overtime and, executives say, made coordinated efforts to slow down operations. Flights were delayed for hours, passengers became irate, and United says it lost $700 million during the slowdown. Ryan Murphy, council representative of the local chapter of the Association of Flight Attendants here, said he hid in the cockpit once a flight landed to avoid the glares and invective from passengers.
In August 2000, to appease the pilots, Mr. Goodwin handed them what is still the best contract in the industry: an immediate pay raise of 22 to 28 percent, and a 4.5 percent annual raise through 2004. Executives at rival companies were shocked. Even pilots have shaken their heads, in retrospect.
By the end of the summer, Goodwin backed up a Brink''s truck to the dock and dumped out the cash just to keep the employees happy, Mr. Palazzolo said.
T. Scott Cooper, vice chairman of the local chapter of the pilots'' union and a first officer on Airbus A320''s, said, Had there been a good faith contract proposal, we would have settled for less.
Critics say the pilots were just plain greedy.
But because they received such a generous contract and need to keep their jobs at United, the pilots are now more willing than the other labor groups to make concessions.
Yet much bad blood remains. In July 2001, the Justice Department blocked the US Airways deal on antitrust grounds, a decision that cost United $116 million and that workers say showed them that management was squandering the money they had given up in exchange for stock. That blunder, they say, was compounded by management''s decision that summer to pour millions into a new business-jet division later called Avolar, which United soon wrote off as a $102 million loss. United''s plan to use nonunion flight attendants at Avolar had also infuriated the union workers.
Executives say those business decisions were viewed at the time as moves to increase shareholder value, for outsiders as well as employee stockholders.
In theory, the employee stock ownership plan should have provided enough incentive for the pilots and the machinists to keep the airline running smoothly, even if it meant settling for lower salaries or giving concessions. After all, many pilots saw their piles of stock turn into gold mines during the airline''s boom years. Mr. Palazzolo said his 4,627 shares were worth almost $390,000 in late April 1999.
But those riches were on paper only. Employees cannot cash out on their stock until they leave United, so workers continue to look to their paychecks as their primary compensation. (Mr. Palazzolo''s shares are now worth around $10,000.) There is no annual profit-sharing payment, an incentive that some newer airlines have set up. The ownership plan has also done nothing to ease employees'' fears about job security, or to erase the traditional antagonism between management and the unions.
Corey Rosen, executive director of the National Center for Employee Ownership in Oakland, Calif., said that to get past the culture problem, you can start by trying to get a commitment by management and labor that they''ll do this.
But peace will continue to elude United if its unions do not also iron out their conflicts with one another. The pilots, criticizing other unions for not hopping more enthusiastically on the concession bandwagon, say the machinists'' union agreed only reluctantly to the recent collective concession package. It''s hard for us pilots to understand why the machinists'' union leadership would rather let the company slide into bankruptcy than try to save it, one said.
Such differences have cropped up in the past. When the proposal to buy US Airways was put up for a board vote, for instance, the machinists'' representative voted for it while the pilots'' representative voted against it. One pilot said the machinists supported the merger because their union worried that a rival, the Aircraft Mechanics Fraternal Association, would take over representation of United''s machinists. A merger of United and US Airways would have allowed the International Association of Machinists and Aerospace Workers, the current machinists'' union at both airlines, to consolidate its members, shoring up its defenses.
Leaders of the machinists at United acknowledge that the A.M.F.A. still poses a threat, but they say that has had little influence on the current concession talks.
Instead, the machinists say they have been reluctant to give concessions in part because senior managers want to outsource an increasing amount of work to cheaper, nonunion subcontractors, said Rich Bourque, president of the local in San Francisco. Besides, he said, the union already agreed last spring to defer $500 million in retroactive pay that United owed to its members. And machinists are still angry that United went to federal court two years ago to get a restraining order against mechanics whom executives accused of staging a work slowdown during contract negotiations.
Items that may seem minuscule in the bigger picture can contribute to the fire, Mr. Bourque said. You can have all these little fires contributing to one big inferno.
After two years working without a contract, the machinists eventually negotiated industry-leading wages, with entry pay rates jumping as much as 43 percent and top pay rates jumping as much as 38 percent. But they still have much less incentive than the pilots to give concessions.
For one thing, their salaries have always been much lower. Mr. Bourque, for example, said he made about $54,000 a year in 1998, the last full year he was an aircraft and engine inspector. With 34 years in the industry, he lives with his wife, Karen, in a home he bought in the mid-1980''s in the hills south of San Francisco. Soaring housing costs have left many machinists short of cash, he said.
And machinists generally can find comparable jobs in other industries — perhaps for a bit less money but probably with better work hours, Mr. Bourque said.
The flight attendants have been the most vocal about not giving concessions. They never negotiated an industry-leading contract, nor did they take part in the stock ownership plan. Their pay scale ranges from about $23,000 to $50,000, including overtime and other compensation. Moreover, flight attendants often complain that they are treated with the least respect of any of the three. They point out, for instance, that pilots are allowed to walk out of an airplane holding a bottle of water from the pantry, while a flight attendant could be dismissed for doing the same thing.
We feel we do not have to take concessions, said Terry Ann Sousoures, vice president of the local chapter of the flight attendants'' union who has 18 years at United, as she sat in a cramped union office on the airport mezzanine. The majority of flight attendants can go out and get another job and maybe make what we do today.
Mr. Murphy, the council representative of the local, quickly added that, as a recent college graduate from Minnesota, he was making only around $25,000 a year — barely a living wage in the Bay Area.
He said that he and other flight attendants would be forced to confront two tough questions if deep concessions were asked of them: why stay in the profession, and why stay at a dysfunctional company like United? You come to work each day and you hear all these rumors, Mr. Murphy said. My feelings change by the day. Are we saving the company, or are we selling ourselves out?
By EDWARD WONG - NY Times 10/6/02
SAN FRANCISCO -- Why does Patrick Palazzolo gripe about his job?
Mr. Palazzolo, a pilot for 24 years at United Airlines, seems to lead the kind of life that drives people mad with envy. His work takes him to the far corners of the globe, keeps him in the cockpit less than 60 hours a month, on average, and provides him with an annual salary exceeding that of 95 percent of all household incomes in America. All that has allowed him to settle down with his wife, Hilda, in a tidy suburb near here, and to put two sons through college.
But Mr. Palazzolo is relieved that those sons are not following in his footsteps.
He says that he believes in his heart of hearts that United is still suffering from a worker-management relationship that has turned sour — often downright ugly — in the last two decades.
Management needs to take a clean chalkboard and build a new airline, Mr. Palazzolo said recently while sitting in uniform in a hotel lobby here, awaiting a five-hour shift aboard a Boeing 777.
His attitude is typical not only of the privileged pilots at United, most of whom earn six-figure salaries, but also of the less-pampered machinists and flight attendants. Together, those three labor groups account for more than 80 percent of the 83,000 workers at United. As the company, which is based in Chicago, bleeds billions of dollars each year and tries to avoid issuing itself a ticket to bankruptcy court, its unions have only grudgingly considered management''s cost-cutting demands. They did agree late last month to offer $1 billion in annual concessions over five years, but that falls far short of the $1.5 billion over six years that the company asked of them in August. And the unions have not worked out among themselves just how the concessions would be divvied up.
Last week, Glenn F. Tilton, the new chief executive of UAL, United''s parent, met with labor leaders to discuss the unions'' proposal. His predecessor, John W. Creighton Jr., who served an interim stint of less than a year, had said that if the unions did not agree to deep concessions, United would fail to get a $1.8 billion federal loan guarantee needed to keep its planes in the air. Yet United''s employees, who own 55 percent of the company, refuse to meet management''s terms, despite the fact that its two most powerful labor groups — the pilots and machinists — have the most generous contracts in the industry and one seat each on the 12-member board.
How did United, once regarded as a potential model for employee-owned companies, end up on this tortuous path?
The problems were endemic well before the terror attacks of Sept. 11, 2001, shook the airline industry.
Executives at United have traditionally blamed what they called self-serving attitudes of the unions for pushing the airline''s costs sky high.
But union leaders and some industry experts say the roots of labor intransigence lie in disastrous business decisions made by management that alienated employees. The poorly structured employee stock ownership plan has also failed to immediately benefit — and thus motivate — workers. And now, there is rampant fear among the unions that management and the Bush administration are using the federal loan guarantee program as leverage to crack down on labor.
Even during the current crisis, it has been tough to persuade the unions to agree on solutions, primarily because of labor politics and income disparities among the different employee groups.
The unions pulled together to offer their concession package, but that does not mean they will necessarily forge ahead toward a common goal. They are siblings in a family more akin to the Sopranos than the Cleavers: sometimes squabbling, sometimes supportive, but usually looking out for their own interests.
What they have in common, though, is a deep-seated distrust of management, and they have their list of suggestions for Mr. Tilton, the company''s fourth chief executive in seven years: replace the old-school executives with fresh blood, form task forces that will seek advice from workers and, above all, overhaul the culture of United by impressing on workers that they are the airline''s owners, responsible for its fortunes.
As shareholder-owners, we don''t have the voice we need, said Charlie Lincoln, a lead mechanic and shop steward of the local chapter of the International Association of Machinists and Aerospace Workers. United''s executives, he said, need to show the people they''re willing to listen to us.
Mr. Tilton, a former ChevronTexaco vice chairman who lives in the exclusive Pacific Heights neighborhood here, declined to be interviewed for this article. As he and other executives negotiate for further concessions, they have been extremely guarded in their public comments on labor tensions.
In a voice mail message to employees last week, Mr. Tilton said, In the long term, our cooperation and our alignment will lead to a lasting advantage for United.
If workers'' perspectives at the United hub here, the airline''s second-largest in number of employees, are a good gauge of overall labor sentiment, any immediate concessions should be regarded as little more than a quick financial Band-Aid. Knocking down deep-rooted cultural barriers, a requisite for true recovery, is never simple at a plodding leviathan like United.
The company''s problems are reflected in the market valuation of its publicly traded shares, which tumbled from a high of $5.2 billion in 1997 to a paltry $124 million today. Though United is generally considered to have the best route structure in the industry, it lost a record $2.1 billion last year on revenue of $16.1 billion and has lost $851 million in the first half of this year on revenue of $7.1 billion. That set of figures is among the worst in airline history.
That was far from what the employees envisioned in 1995, when Gerald Greenwald, a former Chrysler executive, signed on as chief executive to guide the airline as it put in place the employee stock ownership plan. The pilots, machinists and salaried nonunion employees had formulated the plan the previous year with Stephen M. Wolf, Mr. Greenwald''s predecessor. Those employee groups agreed to give up $4.8 billion in pay cuts, raises and pension contributions in exchange for 55 percent of the company stock and one seat each on the board. The pilots would own about half of the employees'' shares.
Though the flight attendants drew other employees'' ire by refusing to join the plan — because of what they saw as a lack of job protection — expectations still ran high. Mr. Palazzolo referred to that time as a new dawn.
There were extremely high hopes that Gerald Greenwald could change the culture, the culture that had been calcified here over the years, the `us versus them'' mentality, Mr. Palazzolo said. He said all the right things. But he made a fatal mistake, which is he didn''t clean house. The middle management structure, and most senior managers around him, never changed.
Mr. Palazzolo and many other United workers blame the old-school managers for not following through on the seamless contracts that Mr. Greenwald promised the employees. The idea was to have negotiators from both sides work together to hammer out new contracts well before the old ones expired.
First up were the pilots.
Management and the Air Line Pilots Association began talks in December 1998, way ahead of the contract expiration on April 12, 2000. Then Mr. Greenwald retired at age 63, and in came James E. Goodwin.
Mr. Goodwin, a congenial West Virginian, quickly turned his attention to buying US Airways, which was being run by Mr. Wolf.
When the pilots found out, the contract negotiations fell apart. They feared that many United jobs would be given to pilots at US Airways with more seniority.
No industry labor group has more at stake in keeping jobs than the pilots, who have a much tougher time than other employees finding comparable jobs. The most senior United pilots make more than $300,000 a year for working an average of 80 hours a month, though often less than two-thirds of that is actually spent in the cockpit. Many pilots have second careers or, in the case of Mr. Palazzolo, spend long stretches of time with their families. Pilots argue that their high pay is warranted because of their layover days away from home and the many job demands, like meeting stringent medical requirements.
With all that at stake, and having just seen pilots at Delta Air Lines negotiate high wages, the United pilots dug in their heels during talks. April 12 came and went. The pilots refused to pick up overtime and, executives say, made coordinated efforts to slow down operations. Flights were delayed for hours, passengers became irate, and United says it lost $700 million during the slowdown. Ryan Murphy, council representative of the local chapter of the Association of Flight Attendants here, said he hid in the cockpit once a flight landed to avoid the glares and invective from passengers.
In August 2000, to appease the pilots, Mr. Goodwin handed them what is still the best contract in the industry: an immediate pay raise of 22 to 28 percent, and a 4.5 percent annual raise through 2004. Executives at rival companies were shocked. Even pilots have shaken their heads, in retrospect.
By the end of the summer, Goodwin backed up a Brink''s truck to the dock and dumped out the cash just to keep the employees happy, Mr. Palazzolo said.
T. Scott Cooper, vice chairman of the local chapter of the pilots'' union and a first officer on Airbus A320''s, said, Had there been a good faith contract proposal, we would have settled for less.
Critics say the pilots were just plain greedy.
But because they received such a generous contract and need to keep their jobs at United, the pilots are now more willing than the other labor groups to make concessions.
Yet much bad blood remains. In July 2001, the Justice Department blocked the US Airways deal on antitrust grounds, a decision that cost United $116 million and that workers say showed them that management was squandering the money they had given up in exchange for stock. That blunder, they say, was compounded by management''s decision that summer to pour millions into a new business-jet division later called Avolar, which United soon wrote off as a $102 million loss. United''s plan to use nonunion flight attendants at Avolar had also infuriated the union workers.
Executives say those business decisions were viewed at the time as moves to increase shareholder value, for outsiders as well as employee stockholders.
In theory, the employee stock ownership plan should have provided enough incentive for the pilots and the machinists to keep the airline running smoothly, even if it meant settling for lower salaries or giving concessions. After all, many pilots saw their piles of stock turn into gold mines during the airline''s boom years. Mr. Palazzolo said his 4,627 shares were worth almost $390,000 in late April 1999.
But those riches were on paper only. Employees cannot cash out on their stock until they leave United, so workers continue to look to their paychecks as their primary compensation. (Mr. Palazzolo''s shares are now worth around $10,000.) There is no annual profit-sharing payment, an incentive that some newer airlines have set up. The ownership plan has also done nothing to ease employees'' fears about job security, or to erase the traditional antagonism between management and the unions.
Corey Rosen, executive director of the National Center for Employee Ownership in Oakland, Calif., said that to get past the culture problem, you can start by trying to get a commitment by management and labor that they''ll do this.
But peace will continue to elude United if its unions do not also iron out their conflicts with one another. The pilots, criticizing other unions for not hopping more enthusiastically on the concession bandwagon, say the machinists'' union agreed only reluctantly to the recent collective concession package. It''s hard for us pilots to understand why the machinists'' union leadership would rather let the company slide into bankruptcy than try to save it, one said.
Such differences have cropped up in the past. When the proposal to buy US Airways was put up for a board vote, for instance, the machinists'' representative voted for it while the pilots'' representative voted against it. One pilot said the machinists supported the merger because their union worried that a rival, the Aircraft Mechanics Fraternal Association, would take over representation of United''s machinists. A merger of United and US Airways would have allowed the International Association of Machinists and Aerospace Workers, the current machinists'' union at both airlines, to consolidate its members, shoring up its defenses.
Leaders of the machinists at United acknowledge that the A.M.F.A. still poses a threat, but they say that has had little influence on the current concession talks.
Instead, the machinists say they have been reluctant to give concessions in part because senior managers want to outsource an increasing amount of work to cheaper, nonunion subcontractors, said Rich Bourque, president of the local in San Francisco. Besides, he said, the union already agreed last spring to defer $500 million in retroactive pay that United owed to its members. And machinists are still angry that United went to federal court two years ago to get a restraining order against mechanics whom executives accused of staging a work slowdown during contract negotiations.
Items that may seem minuscule in the bigger picture can contribute to the fire, Mr. Bourque said. You can have all these little fires contributing to one big inferno.
After two years working without a contract, the machinists eventually negotiated industry-leading wages, with entry pay rates jumping as much as 43 percent and top pay rates jumping as much as 38 percent. But they still have much less incentive than the pilots to give concessions.
For one thing, their salaries have always been much lower. Mr. Bourque, for example, said he made about $54,000 a year in 1998, the last full year he was an aircraft and engine inspector. With 34 years in the industry, he lives with his wife, Karen, in a home he bought in the mid-1980''s in the hills south of San Francisco. Soaring housing costs have left many machinists short of cash, he said.
And machinists generally can find comparable jobs in other industries — perhaps for a bit less money but probably with better work hours, Mr. Bourque said.
The flight attendants have been the most vocal about not giving concessions. They never negotiated an industry-leading contract, nor did they take part in the stock ownership plan. Their pay scale ranges from about $23,000 to $50,000, including overtime and other compensation. Moreover, flight attendants often complain that they are treated with the least respect of any of the three. They point out, for instance, that pilots are allowed to walk out of an airplane holding a bottle of water from the pantry, while a flight attendant could be dismissed for doing the same thing.
We feel we do not have to take concessions, said Terry Ann Sousoures, vice president of the local chapter of the flight attendants'' union who has 18 years at United, as she sat in a cramped union office on the airport mezzanine. The majority of flight attendants can go out and get another job and maybe make what we do today.
Mr. Murphy, the council representative of the local, quickly added that, as a recent college graduate from Minnesota, he was making only around $25,000 a year — barely a living wage in the Bay Area.
He said that he and other flight attendants would be forced to confront two tough questions if deep concessions were asked of them: why stay in the profession, and why stay at a dysfunctional company like United? You come to work each day and you hear all these rumors, Mr. Murphy said. My feelings change by the day. Are we saving the company, or are we selling ourselves out?
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