Windfall for Managers Accompanies UAL Exit From Bankruptcy

Aero-Views OPINION by Kevin R.C. "Hognose" O'Brien

It's good news for everybody at United Airlines (and it proves the first of our Cynic's Predictions for 2006 wrong) as the airline exited bankruptcy on Friday. But it's better news for some than it is for others. While flight attendants barely kept a much-diminished pension plan, and managers continued to prod other workers for greater givebacks, a Wednesday decision by the bankruptcy judge was good news for 400 top United executives. They'll split a giveaway of 8% of the new shares, valued at $152 million.

That amounts to $380,000 each, if it was evenly distributed. But it won't be evenly distributed. The lion's share is going to CEO Glenn Tilton, CFO Jake Brace, and other top dogs. They justify it by claiming hardship -- the top eight execs "only" take home $3.5 million in salaries (not counting other perks and bonuses, of course).

US Bankruptcy Judge Eugene Wedoff found the plan legal, if distasteful. "It may very well be that we have a culture in this country that overpays management ... but United is just one enterprise that functions in that environment," Wedoff said.

United survived the post-9/11 downturn in the industry, although the stock dropped in value from nearly fifty to around ten to twelve dollars. It held that value well into 2002 but in the second half of the year lost almost all remaining value. United's stock (UAL) plunged the last half-inch into the penny-stock range in December, 2002, as management stumbled their way into bankruptcy. Since then the stock has remained depressed as one deadline and promise after another have come and gone.

UAL stock closed Thursday at 65 cents.

Greg Davidowitch, the leader of the UAL group in the Association of Flight Attendants, sounded bitter over the new pension agreement. "Within the context of bankruptcy and today's political climate," his statement said, "this agreement provides a foundation of retirement security for flight attendants." Translation: "not very good, but it's the best we can get, and it could have been worse."

While it might not be a very good deal, it's better than the Air Line Pilots Association and the International Association of Machinists and Aerospace Workers did for their members.

FAs will now contribute to a new defined-contribution plan to replace the empty husk of a defined-benefit plan that UAL fobbed off on the PBGC last year, after having sucked the cash out of it in previous years. The company will contribute two percent of FA's wages to the plan, and will match a further three percent. By 2008 -- if the airline survives -- the company contribution part will increase to three percent, but in no circumstances will it go any higher than six percent overall, matching and company contribution both. The plan is retroactive to Jan. 1.

Despite the pension tension and the executive stock feeding-frenzy, if United survives, it will not be because of the executives at all but despite them, and because of the people who make the airline go, out in the real world: Pilots, flight attendants, gate agents, low-level managers, and mechanics. And the word is that the nearly 60,000 employees who run United's 3,400 flights to 200-plus destinations, must be doing something right.

Readers of Business Traveler magazine -- a sampling from a group of 60,000 road warriors who subscribe to the magazine in the USA -- voted United tops in the magazine's annual poll. United's Mileage Plus frequent flyer program -- the members of which, unlike the pilots and FAs, haven't lost their benefits -- also scored tops in the poll.

In fact, Mileage Plus was the top frequent flyer program in the magazine's poll last year. And every year in the last ten. Business Traveler (www.businesstraveler.com) has conducted this poll annually for 17 years.

If the rank and file of United can keep keeping the Business Traveler readers happy, then one day the airline might look back at the early years of the twenty-first century as the bottom of the cycle, and Friday, January 20th, as the day things started looking back up.

If not, well, at least things started looking up that day for Glenn Tilton and Jake Brace. Cha-Chingg!

FMI: www.united.com