Thu, Dec 12, 2002 page12

• United Airlines' workers may lose big in bankruptcy

  WORKERS AND OWNERS The airline's work force is the only one in the industry to own a majority of its company's shares and workers may lose their jobs, pensions, stock and seats on the board

  • BLOOMBERG
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  Ken Bradley, a retired United Airlines pilot, may follow his former employer into bankruptcy.

  Bradley estimates he's lost US$600,000 in retirement funds tied to company stock. Shares of United's parent, UAL Corp, slid after the company filed for bankruptcy this week, bringing this year's decline to 93 percent. Now Bradley is concerned United will use court protection to cut the pension he spent 35 years building.

  "We've had so many sleepless nights over the past three or four days over fears that we'll go under," said 61-year-old Bradley, whose wife, Susan, is a flight attendant for United.

  "It's very much an emotional issue because United is so much a part of our lives."

  United Airlines workers, the only in the industry to own a majority of their company's shares, have become the most vulnerable as the world's second-largest airline uses court protection to shave costs, analysts said. Employees may lose their jobs as well as their pensions, stock and seats on the company's board.

  The 59 million shares United's employees were given in exchange for US$4.9 billion in pay and benefit concessions to help the company in 1994 may become worthless as a result of the bankruptcy proceedings. The shares, worth US$6 billion at a high of US$101.75 in October 1997, closed Tuesday at US$1.07.

  United employees' 55-percent ownership of UAL through an employee stock ownership plan, or ESOP, will probably end with the reorganization because the shares are likely to be wiped out, analysts said. Some consultants said worker control contributed to United's downfall by making it difficult to run the company because of conflicting interests.

  "The beginning of this slippery slope is when the ESOP was designed the way it was," said Aaron Gellman, a Northwestern University professor following transportation issues, who said employees, especially pilots, got too much control.

  Both the pilots and machinists' unions have used their board seats in the past to press for management changes and influence strategy on issues such as acquisitions.

  Chief Executive Officer Glenn Tilton, who took over in September, has said he wants to work with the unions to get more than the US$5.2 billion in previously planned concessions. Those cuts were deemed inadequate by a federal board that rejected United's request for a US loan guarantee.

  UAL can request court approval to void contracts, defer payments to workers, and contract outside companies for services.

  Union leaders know that more concessions are needed and trust that Tilton will negotiate the changes and not try to ram them through court. Talks between United and unions began Tuesday. Tilton will have to tread lightly to avoid upsetting and demoralizing workers, something that may lead to disruptions in service and push the company into liquidation, ana-lysts said.

  "With the filing, management has a bigger club, however, implicit in the use of that club is the risk of an implosion of service," said George Ireland, whose Ring Partners LP investment firm owns some airline stocks and has bet others will fall.

  "Frequent fliers put up with that in 1999 and 2000 when UAL was healthy, but they might not be so forgiving now."

  Everyone's biggest fear

  The biggest fear for many workers is the possibility of losing their jobs. Even senior workers who have kept their jobs and may make it past the next cut know they could always be next, said Tom Reardon, the machinists' leader in Chicago.

  United planned to trim its work force to 74,000 people by 2004, down from 81,000 today, and now will likely go beyond that, analysts said.

  "I tell the members don't buy a car, or a house, because you don't know where we're going to be," said Michael Peat, a machinist union vice president in Chicago. "There's probably going to be massive layoffs as well as pay cuts."

  In addition to worries about pensions, flight attendants are nervous about cuts in health care, said Sara Dela Cruz, a United attendant and union worker. And the attendants don't feel that their pay, which is already pegged to industry averages, should be reduced as much as other workers.

  "We have no idea what they're going to ask for or what we're going to have to end up giving," she said. "The uncertainty is what's scary."
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