UNITED AIRLINES INTRODUCTION

•UNITED AIRLINES is the largest employee owned enterprise in the US.

•In 1994 July, employees represented by the Air Line Pilots Association, the Internal Association of Machinists & non-union employees at United purchase 55% the company.

TERMS OF THE EMPLOYEE STOCK OPTIONS

•Pilots & machinists accepted pay cuts.

•Non-union employees took 8.25% cuts in pay.

•Employees are guaranteed employment security for 6 years.

•Pilots accepted a two-tier wage plan.

•A “market hiring rate” was to be used in hiring future non-union, non-management staff.

•New recruits were to contribute 25% to their medical plan.

•ALPA , IAM & non-union employee s each gained the right to appoint one member to the 12-member board of directors & to jointly select , four outside independent directors.

•These governance provisions last as long as the employees own atleast 20% of the company stock. This governance structure should stay in place until approximately 2019.

•Company profits have increased & the value of stock has increased.

•Labor relations have not changed.

•There is little evidence that employees enjoy greater involvement & voice in day-to-day issues.

•Cultural change efforts have been largely symbolic & incremental rather systematic.

•Supervisors relations in numbers & changed role may have had negative results.

•Employment security has been maintained.

•Union representatives have influenced a number of critical decisions, including the section of CEO.

•Long-term future of ESOP rests on how the parties address several critical changes, facing them in the next 2 years.

KEY EVENTS•The 1985 pilot negotiations , ESOP be itself in 1994 .

•The 1997 wage reopener , the passenger service agent organizing campaign .

•The regional jet negotiations flight attendants negotiations in 1997 .

•The issue of rest time for pilots flying 777 on pacific routes .

•Past and future leadership succession .

•The renegotiation of bargaining agreements & the ESOP .

1985 PILOT NEGOTIATIONS

•A 1985 strike by United’s pilots set the stage for the series of events leading upto the 1994 ESOP .

•Effects linger in residual distrust between the union and management , as well as between political factors within the union .

•The issue strike was largely the company’s demand that pilots accept a ;long term , two – tier wage agreement that would allow United to compete on short – haul flights .

•Union agreed to a modified two – tier provision, the pilot’s success in shutting down the airline & forcing a compromise signaled their considerable bargaining power to management.

•CEO Richard Ferris initiated United’s short-lived effort to diversify the company & make it a “ full – service “ travel business .

•He bought Hilton Hotels & Hertz Rent – a – Car . This diversification efforts was strongly opposed by the pilots & let their first bid to buy the company .

•Between 1997 & 1993 , the pilots made three additional efforts to engineer employee buyout of the airline .

The ESOP deal :-

The ESOP negotiations focused on the financial accepts of the deal .

This narrow focus is a major cause of many problems .

ALPA was the moving party & was interest in gaining a voice in the governance process & some control over the strategic direction & decisions of the firm.

IAM was primarily interest in gaining job security.

Greenwald stated he was committed to spending upto 50% of his inaugural year with employees.

TAKING STOP OF THE ESOP

•Recent data published by the Department of Transportation show that out of the 10 major US airline companies.

• United ranks 5th in passengers declined boarding, 9th in on-time performance, 10th in baggage mishandled & 6th in consumer complaints.

•90% of the profits are attributable due to:-

Labor cost, tax benefits of the ESOP

•;

The increased demand for air travel experienced in the industry.

Savings and market growth associated with the regional jet / United Shuttle arrangement.