Looking for WSJ 10/21/02 Editorial on UAL
Oct 21, 2002, 7:55 am
#1
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Looking for WSJ 10/21/02 Editorial on UAL
Does someone have access to the Wall Street Journal's On-Line Edition? There is a good piece on some of United's problems and why the government shouldn't bail them out. I thought this group would be interested.
Oct 21, 2002, 8:04 am
#2
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The article referred to is the lead house edit in today's paper Journal. I realize FTers want everything for free, but the paper only does cost a buck, and if you buy it they throw in a whole bunch of other articles, too.
Oct 21, 2002, 8:06 am
#3
Join Date: Apr 2001
Location: California
Posts: 192
Here it is. Hope this is of benefit to you.
As of Monday, October 21, 2002
United They Fall
When the management of Northwest Airlines walked into recent negotiations with its machinists union, it was confronted with an unusual sight: Its labor counterparts were sporting buttons that read "112%."
That happens to be the salary increase the company would have to cough up if Northwest ground workers were paid as much as those at rival United Airlines. It also happens to be a very good reason why United's current request for $1.8 billion in federal loan guarantees deserves to be turned down flat.
The airline industry is flying on empty, set to rack up some $7 billion in losses this year. Just last week, the major carriers reported significant third-quarter losses, and Delta said it would cut more than 10% of its work force. Some of this red ink is due to an industry slowdown after September 11, but most of it stems from plain old bad business practices. High fixed costs, primarily from expensive union contracts, are driving the industry bankrupt. And those all-time industry highs trace back to a bidding war that was started by United.
Airlines are never going to make money on any permanent basis unless they address these labor issues. And that means confronting the problem at United, which goes back to its flawed employee buyout of 1994. The idea behind that unusual experiment in worker capitalism was to get employees and management hooked up to the same incentives. United's pilots, machinists and salaried nonunion employees gave up $4.8 billion in pay cuts, raises and pension contributions; in exchange they received 55% of the company stock and one seat each on the board.
IMPOVERISHED PILOTS
Pilots' annual salaries
After 5 years Maximum
United $129,000 $306,000
Delta 117,000 263,000
Northwest 100,000 220,000
American 97,000 212,000
US Airways 110,000 203,000
Continental 98,000 201,000
Alaska 107,000 175,000
Southwest 87,000 152,000
America West 77,000 133,000
American Trans Air 46,000 110,000
Source: AIR, Inc.
The problem was that in effect the owners sold their company not to the workers but to the unions. Workers couldn't sell their shares until they quit or retired. And almost immediately the unions reneged on their side of the bargain, working to win back everything they had given up to gain ownership. Pilots staged a slowdown in 2000 that the airline reckons cost $700 million. For this lack of cooperation, pilots won what would become the most expensive contract in history: An immediate pay raise of 22% to 28%, and a 4.5% annual raise through 2004.
Before long, every airline union was demanding "industry-leading" contracts. Delta pilots came first in April 2001, receiving raises of 24% to 39% over five years (cost to Delta: $2.4 billion). US Airways was also on the hook because its pilots' contract has a "parity" clause that forces it to reckon with Delta and United. Northwest's mechanics wangled a 24% wage increase.
United management also found itself powerless to stuff the genie back in the bottle. The union board members have special voting rights, which give them power to pick chieftains who wear the union label, and punish those who don't. United's new CEO, Glenn F. Tilton, is the fourth in seven years. The CEO-before-last, James E. Goodwin, was shown the door a year ago after he made the mistake of warning that the airline would "perish" because it was "hemorrhaging money."
None of this is to say that employee stock option plans are inherently bad; structured correctly they can make a difference to company performance. United's mistake was giving all the power to union leaders more interested in turning the boardroom into a local labor office than looking out for the interests of rank-and-file shareholders. The market value of the company's shares, which hit a high in 1997 of $5.2 billion, has fallen under mounting losses to $98 million. The losers include the worker-owners.
And even now, with bankruptcy looming, the unions show no sign of enlightened self-interest. United has been trying since June to get the Air Transportation Stabilization Board to give it a loan guarantee. Mr. Tilton has made it clear that to qualify, the company must cut labor costs by $9 billion over six years. The unions' recently agreed to think about $5.8 billion over close to five years.
Bankruptcy looms, which may not be the worst outcome. Chapter 11 would void the current union contracts and give management a chance to set up a viable cost structure. That, in turn, could help correct labor agreements at other airlines. A federal loan guarantee would only reward United's excesses, and put taxpayers on the hook for a failed stock ownership plan.
As to how to keep from getting into this trouble again, we have a suggestion. The airlines are currently governed under the Railway Labor Act. That gives the President some powers to keep airlines running, but it doesn't halt the threat of strikes. And since airlines aren't able to absorb even short strikes without bankruptcy, management must constantly give in to union demands for higher wages.
Senator John McCain has offered legislation that would force the airlines and unions to submit to binding arbitration -- baseball style. That's a good project for the next Congress.
Updated October 21, 2002
As of Monday, October 21, 2002
United They Fall
When the management of Northwest Airlines walked into recent negotiations with its machinists union, it was confronted with an unusual sight: Its labor counterparts were sporting buttons that read "112%."
That happens to be the salary increase the company would have to cough up if Northwest ground workers were paid as much as those at rival United Airlines. It also happens to be a very good reason why United's current request for $1.8 billion in federal loan guarantees deserves to be turned down flat.
The airline industry is flying on empty, set to rack up some $7 billion in losses this year. Just last week, the major carriers reported significant third-quarter losses, and Delta said it would cut more than 10% of its work force. Some of this red ink is due to an industry slowdown after September 11, but most of it stems from plain old bad business practices. High fixed costs, primarily from expensive union contracts, are driving the industry bankrupt. And those all-time industry highs trace back to a bidding war that was started by United.
Airlines are never going to make money on any permanent basis unless they address these labor issues. And that means confronting the problem at United, which goes back to its flawed employee buyout of 1994. The idea behind that unusual experiment in worker capitalism was to get employees and management hooked up to the same incentives. United's pilots, machinists and salaried nonunion employees gave up $4.8 billion in pay cuts, raises and pension contributions; in exchange they received 55% of the company stock and one seat each on the board.
IMPOVERISHED PILOTS
Pilots' annual salaries
After 5 years Maximum
United $129,000 $306,000
Delta 117,000 263,000
Northwest 100,000 220,000
American 97,000 212,000
US Airways 110,000 203,000
Continental 98,000 201,000
Alaska 107,000 175,000
Southwest 87,000 152,000
America West 77,000 133,000
American Trans Air 46,000 110,000
Source: AIR, Inc.
The problem was that in effect the owners sold their company not to the workers but to the unions. Workers couldn't sell their shares until they quit or retired. And almost immediately the unions reneged on their side of the bargain, working to win back everything they had given up to gain ownership. Pilots staged a slowdown in 2000 that the airline reckons cost $700 million. For this lack of cooperation, pilots won what would become the most expensive contract in history: An immediate pay raise of 22% to 28%, and a 4.5% annual raise through 2004.
Before long, every airline union was demanding "industry-leading" contracts. Delta pilots came first in April 2001, receiving raises of 24% to 39% over five years (cost to Delta: $2.4 billion). US Airways was also on the hook because its pilots' contract has a "parity" clause that forces it to reckon with Delta and United. Northwest's mechanics wangled a 24% wage increase.
United management also found itself powerless to stuff the genie back in the bottle. The union board members have special voting rights, which give them power to pick chieftains who wear the union label, and punish those who don't. United's new CEO, Glenn F. Tilton, is the fourth in seven years. The CEO-before-last, James E. Goodwin, was shown the door a year ago after he made the mistake of warning that the airline would "perish" because it was "hemorrhaging money."
None of this is to say that employee stock option plans are inherently bad; structured correctly they can make a difference to company performance. United's mistake was giving all the power to union leaders more interested in turning the boardroom into a local labor office than looking out for the interests of rank-and-file shareholders. The market value of the company's shares, which hit a high in 1997 of $5.2 billion, has fallen under mounting losses to $98 million. The losers include the worker-owners.
And even now, with bankruptcy looming, the unions show no sign of enlightened self-interest. United has been trying since June to get the Air Transportation Stabilization Board to give it a loan guarantee. Mr. Tilton has made it clear that to qualify, the company must cut labor costs by $9 billion over six years. The unions' recently agreed to think about $5.8 billion over close to five years.
Bankruptcy looms, which may not be the worst outcome. Chapter 11 would void the current union contracts and give management a chance to set up a viable cost structure. That, in turn, could help correct labor agreements at other airlines. A federal loan guarantee would only reward United's excesses, and put taxpayers on the hook for a failed stock ownership plan.
As to how to keep from getting into this trouble again, we have a suggestion. The airlines are currently governed under the Railway Labor Act. That gives the President some powers to keep airlines running, but it doesn't halt the threat of strikes. And since airlines aren't able to absorb even short strikes without bankruptcy, management must constantly give in to union demands for higher wages.
Senator John McCain has offered legislation that would force the airlines and unions to submit to binding arbitration -- baseball style. That's a good project for the next Congress.
Updated October 21, 2002
Oct 21, 2002, 8:20 am
#4
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Flyertalk's TOS ask that users do not post material protected by copyright. Following is a passage from FT's FAQ's:
It is recognized that WSJ is a pay site, which is even more reason to respect Randy's wishes on copyright.
Thanks
------------------
Craig6z
Buzz & United Moderator
[email protected]
[This message has been edited by Moderator2 (edited 10-21-2002).]
Code:
What is your stand on the issue of posting news? We understand that certain news is protected by copyright and would always suggest that any member posting news try to link to the original source of the information, give proper credit to the source of the information and/or give a brief recap of the news and provide the appropriate link. FlyerTalk has no commercial interest in any news posted on its Web site and would ask that members respect the origin of the news itself.
Thanks
------------------
Craig6z
Buzz & United Moderator
[email protected]
[This message has been edited by Moderator2 (edited 10-21-2002).]
Oct 21, 2002, 8:33 am
#5
Join Date: Apr 2001
Location: California
Posts: 192
"It is recognized that WSJ is a pay site, which is even more reason to respect Randy's wishes on copyright."
Thanks[/B][/QUOTE]
My apologies. Was only trying to be helpful. If you feel it's appropriate, please feel free to delete my reply.
Thanks[/B][/QUOTE]
My apologies. Was only trying to be helpful. If you feel it's appropriate, please feel free to delete my reply.
Oct 21, 2002, 10:50 am
#6
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Thanks, sawsmanfc. I subscribe to the paper version, but not the online version. I thought it was interesting reading that other FTer's would want to see.
Oct 21, 2002, 11:27 am
#7
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Don't worry about it. Just wanted to comment for future consideration.
Regards,
------------------
Craig6z
Buzz & United Moderator
[email protected]
Regards,
------------------
Craig6z
Buzz & United Moderator
[email protected]
Oct 21, 2002, 1:24 pm
#8
In Memoriam
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Now that we are finally past the TOS issues, how about the editorial??
This is spot on and reflects what many of us have been saying for a very long time. C11 is a great club to get all sorts of contractual commitments in alignment with reality – plus it would wipe out the existing shareholders resulting in ownership from the new equity that would be driven for profits and not union payouts. C11 for UA may be the best possible thing for all of us in the long term.
This is spot on and reflects what many of us have been saying for a very long time. C11 is a great club to get all sorts of contractual commitments in alignment with reality – plus it would wipe out the existing shareholders resulting in ownership from the new equity that would be driven for profits and not union payouts. C11 for UA may be the best possible thing for all of us in the long term.
Oct 21, 2002, 2:45 pm
#9
Guest
Posts: n/a
Amen! Had read the editorial before seeing this tread. Couldn't agree with the WSJ editorial more! It is about time that the mechanics and pilots learn a lesson. Let's go back to basics and make UA a product with the customer first - service - service - service 
[This message has been edited by PSC 1K (edited 10-21-2002).]
[This message has been edited by PSC 1K (edited 10-21-2002).]
Oct 21, 2002, 9:44 pm
#10
Join Date: Dec 1999
Location: Paradise Lost
Posts: 286
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by sawsmanfc:
Here it is. Hope this is of benefit to you.
As of Monday, October 21, 2002
United They Fall
The problem was that in effect the owners sold their company not to the workers but to the unions. Workers couldn't sell their shares until they quit or retired. And almost immediately the unions reneged on their side of the bargain, working to win back everything they had given up to gain ownership. Pilots staged a slowdown in 2000 that the airline reckons cost $700 million. For this lack of cooperation, pilots won what would become the most expensive contract in history: An immediate pay raise of 22% to 28%, and a 4.5% annual raise through 2004.
United's mistake was giving all the power to union leaders more interested in turning the boardroom into a local labor office than looking out for the interests of rank-and-file shareholders. The market value of the company's shares, which hit a high in 1997 of $5.2 billion, has fallen under mounting losses to $98 million. The losers include the worker-owners.
Bankruptcy looms, which may not be the worst outcome. Chapter 11 would void the current union contracts and give management a chance to set up a viable cost structure. That, in turn, could help correct labor agreements at other airlines. A federal loan guarantee would only reward United's excesses, and put taxpayers on the hook for a failed stock ownership plan.
Updated October 21, 2002</font>
Here it is. Hope this is of benefit to you.
As of Monday, October 21, 2002
United They Fall
The problem was that in effect the owners sold their company not to the workers but to the unions. Workers couldn't sell their shares until they quit or retired. And almost immediately the unions reneged on their side of the bargain, working to win back everything they had given up to gain ownership. Pilots staged a slowdown in 2000 that the airline reckons cost $700 million. For this lack of cooperation, pilots won what would become the most expensive contract in history: An immediate pay raise of 22% to 28%, and a 4.5% annual raise through 2004.
United's mistake was giving all the power to union leaders more interested in turning the boardroom into a local labor office than looking out for the interests of rank-and-file shareholders. The market value of the company's shares, which hit a high in 1997 of $5.2 billion, has fallen under mounting losses to $98 million. The losers include the worker-owners.
Bankruptcy looms, which may not be the worst outcome. Chapter 11 would void the current union contracts and give management a chance to set up a viable cost structure. That, in turn, could help correct labor agreements at other airlines. A federal loan guarantee would only reward United's excesses, and put taxpayers on the hook for a failed stock ownership plan.
Updated October 21, 2002</font>
Piney,
Are you reading this? The rank-and-file are the losers. The gainers/greedy takers are only the union leaders. I was FORCED to join the union but do not agree with how uncooperative they are about keeping this airline flying. Lesson to be learned and probably too late - Don't bite the hand that feeds you.