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inside big airline pilot unions

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Guest Kal

Met Fredrick on a couple of occasions. He reminded me of a couple of guys at the Canadian version of big airplane pilot unions guys.

Clash in the cockpit

April 13, 2003

United Airlines secretly paid $40 million in cash on Nov. 20, 1989, to a shell corporation run by the leaders of its pilots' union, a payment that forestalled what would have been a drastic, damaging holiday slowdown of the airline.

If the payment wasn't illegal, it was at least unethical, and has infected the airline's operations right through the sale of the airline to its employees in 1994, according to a forthcoming book, The Shame of the Friendly Skies, by Paul H. Weaver, former assistant managing editor of Fortune magazine. The Sun-Times is running an excerpt from the book in two parts; the first part appears today and the second will run in the Business section on Monday.

The book documents a history of mismanagement, blind greed and hatred that characterized labor and management during United's history. At one level, the book is the story of how employee ownership came to a great corporation and union. At another level, it is the story of a secret process of corruption that wormed its way inside the United Airlines master executive council of the Air Line Pilots Association, top management of the company and the cause of employee ownership itself.

UAL TIMELINE

Oct. 30, 1928: The predecessor to UAL Corp. was incorporated on Oct. 30, 1928, as Boeing Airplane Transport Corp., and changed its name to United Aircraft and Transport Corp. a year later.

Nov. 6, 1952: The first major strike by a United union, the flight engineers.

July 30, 1970: Stockholders of UAL Inc. approve the acquisition of Seattle-based Western International Hotels, and further diversified over the next several years with acquisitions of Hertz Corp. and Hilton International Hotels.

Jan. 1, 1975: Westin CEO Richard J. Ferris is elected president of United Airlines.

April 30, 1987: UAL Inc. changes its name to Allegis Corp. to reflect its diverse operations.

June 1987: Amid deteriorating financial results, the board fires Ferris to deflect a raid by dissident shareholder Conniston Partners, and buries its pilots' offer to buy the airline.

Sept. 3, 1987: Allegis directors approve the sale of Hilton International.

Oct. 29, 1987: Conniston Partners forces Allegis to sell off its interests in Hertz Corp. and Westin Hotels.

Dec. 12, 1987: Stephen Wolf is elected head of Allegis and United.

May 26, 1988: Allegis name is dropped, and the holding company is renamed UAL Corp.

April 30, 1992: Wolf relinquishes the airline presidency, but remains chairman and CEO of United and UAL Corp.

Dec. 22, 1993: UAL Corp. directors approve in principle United's Employee Stock Ownership Plan.

July 12, 1994: UAL shareholders approve the Employee Stock Ownership Plan, creating the largest majority employee-owned corporation in the world.

December 2002: United files for protection from creditors under Chapter 11 of the federal bankruptcy act.

Source: UAL Corp.

Nowhere was that bitterness and corruption more acute than in the face-to-face battle between United Capt. Rick Dubinsky, the charismatic and manic head of the United pilots' union, and Stephen Wolf, the United CEO who presided over the creation of the Employee Stock Ownership Plan.

This excerpt from Weaver's book begins in June 1987, just after the board fired CEO Dick Ferris, whose vision of the company as an airline (United), car-rental outfit (Hertz) and hotel (Hilton and Westin) company went so awry that it provoked an outside corporate raider to force the sale of the non-airline operations. Ferris' strategy also annoyed the hot-headed Dubinsky, because it short-circuited his scheme to buy the airline through its unions. But only for a few years.

How the pilots first tried to seize control of United Airlines, and how that struggle has tainted the airline and its unions ever since.

In the hours after (former CEO Dick) Ferris' departure, the disciplined face (pilots union leader Rick) Dubinsky had shown an often impressed Wall Street seemed to crumble, and an angry, whining note began to echo in his words and actions. He sounded less like the thrilled victor in a historic battle against a scary anti-union offensive, and more like a sore loser for whom corporate ownership itself and the personal glory, power, or wealth it would bring had been, or become, the real objectives.

Years later, over my tape recorder, Dubinsky was still furious at the long-gone CEO and still dissatisfied over the mildness of his fate.

Dubinsky: I wish there'd be some way to visit the pain on [Ferris] that he visited on the pilots.... Humiliation isn't good enough for him. He should be financially ruined as well.

Dubinsky immediately squared off against interim CEO Frank Olson, too.

(In June, 1987), the board officially buried Dubinsky's buyout. It formally rejected the pilots' proposal as underpriced and unfinanced. It also authorized an extraordinary dividend of $55 per share, to be funded by selling the nonairline businesses and by borrowing several hundred million dollars against the assets of the airline that would remain.

In other words, to appease (disgruntled shareholders who were tempted to ally themselves with Dubinsky and the pilots' union), the board decided not only to de-diversify and de-capitalize the airline, but also to load it up with fresh debt. It thereby sharply reduced the pilots' ability to buy the airline by leveraging it, buying security from a takeover at the price of limiting the airline's ability to take on debt to modernize equipment or expand the route structure.

Meanwhile, Dubinsky got to work putting the heat on--and venting his frustration with--the other two unions (the flight attendants and machinists, which opposed Dubinsky's takeover bid).

He castigated flight attendant president Pat Friend's opposition to employee ownership as "cruel stupidity," campaigned against a contract she had negotiated while it was out for a ratification vote by the flight attendant rank and file, and expressed a growing personal rage at the unmovable Friend with epithets and put-downs, of which the following joke is a mild example:

Q. What's the difference between a terrorist and a flight attendant with PMS?

A. You can negotiate with the terrorist.

Dubinsky also put the screws to the machinists with tactics ranging from a polite invitation to join the pilots' buyout at a meeting in August, to an extortionate threat that the pilots, once in power, would sell the huge San Francisco jet maintenance base, which employed about a third of the union's membership at UAL, if John Peterpaul, international vice president of the International Association of Machinists, didn't hurry up and become a member in good standing of the pilots' new company ownership club. The formidable Peterpaul, whose Lodge 141 was the largest and oldest labor group at UAL with roughly 30,000 members, told Dubinsky to get lost.

At the same time the board drove a stake through the heart of the pilots' buyout ambitions, however, it also gave Dubinsky new hope for a buyout by appointing Stephen M. Wolf to take over from Olson as United's permanent CEO.

For Rick Dubinsky, the arrival at United of a new boss who had made his name by selling airlines to pilots (Republic Airlines and Flying Tigers Airlines) was a godsend. It meant that, potentially at least, the United pilots' buyout crusade had a powerful new ally at the top. It offered new hope that the board's bitter opposition to pilot ownership might fade or be overcome.

The stage was set for a friendly meeting that could mark the beginning of a beautiful friendship.

(No such luck. At their first meeting in Chicago, Dubinsky felt insulted when Wolf failed to greet him as "Captain Dubinsky," but he invited Wolf to address the Master Executive Council of the pilots' union in Kona, Hawaii, a few weeks later. Wolf felt Dubinsky mocked him at that meeting in a variety of petty ways, such as providing a microphone stand that was too short for Wolf's tall frame so he looked stooped. But he also met privately with Dubinsky, who asserted the pilots would work with Wolf to take control of the airline.)

After Kona, the pattern of public abuse and private courting continued.

The pilots continued to put Wolf down. There was word-of-mouth slander--Wolf was ashamed of his height, pilot leaders said, he always seemed to stand bent over. Wolf must have a bad body image, they observed; why else would the man constantly fiddle with his clothes? Wolf was light in the loafers, they sniggered; they heard from their spies that the guy had a barber chair in his bedroom. Wolf didn't really care about his job, they buzzed; he had no intention of staying with the airline for the long haul. Not that he was much of an executive in the first place, they hinted. Any monkey could do what Wolf is doing, Dubinsky once scoffed into the union's dial-up codaphone message service for the rank and file.

The comments were offensive, Wolf conceded in our interviews. He seemed particularly steamed at the any-monkey-could-do-it crack.

But Wolf held his tongue, turned the other cheek, and continued to meet with Dubinsky to discuss the company's lack of interest in a transaction and the latest twists in the pilots' pursuit of one.

A few months after the Kona meeting, Wolf attended a top-secret get-together with Dubinsky in a Chicago hotel in which Dubinsky formally invited Wolf to join the pilots in a leveraged buyout of the airline. After the deal was consummated, he added, Wolf would be welcome to stay on as CEO. William R. Howard, the former chief executive of Piedmont Airlines, whom Dubinsky had hired as chairman of Airline Acquisition Corp., the pilots' takeover vehicle, to give the pilots' ambitions credibility, would be let go.

Wolf, still not fully accustomed to the game in which Dubinsky in public insults the CEO whom in private he is wooing to sell the pilots the airline, had a momentary lapse from his policy of being realistic and turning the other cheek and doing the more productive thing.

"How do you comport this request with what you said yesterday?" he asked.

"What's that?" Dubinsky asked.

"Yesterday's codaphone."

"I didn't record the codaphone," Dubinsky retorted.

"Rick, stop, stop. You're the chairman of the union, you're running the union, you know what the codaphone says, and if you didn't draft it or say it, it's certainly with your concurrence. And your own words are less than pleasant, most assuredly. I'm not trying to suggest why or trying to cause you to change. I'm merely asking, how do you comport your request that I run the business with your full support and concurrence while you are maligning me on a daily basis in such a malicious fashion? I mean, what do you do about the pilots?"

"Oh, we can fix that instantly," Dubinsky said breezily. "We just turn it off and send out a new message, and in a couple of days it will have been corrected."

In time Wolf accepted the pattern. The trashing was not meant personally, he told himself.

Personally, privately, the pilots knew that Wolf was an excellent executive doing a fine job, growing the airline and speeding the rate at which pilots moved up the title-and-pay hierarchy. But they had to say bad things about him in public to make the adversarial politics inside the union that would get the deal done.

(Although Dubinsky's scheme to buy the airline in 1989 was scuttled when the board fired Dick Ferris and loaded up the company with debt), it so happened that the just-exploded deal left Dubinsky holding a killer hand.

As an earnest expression of its good faith the previous month, the pilots union had given the company two interim contract concessions effective upon the signing of the deal:

**An increase in the ceiling on an individual pilot's flying time from 81 hours per month to 84 hours.

* A (two-tier) wage schedule to enable the company to fly its growing new fleet of 747-400s with union pilots.

The terms went on to provide, however, that should the deal fail to close, these interim concessions would "snap back" to the original levels on 30 days' notice. This latter provision had been suggested by Gene Keilin, the pilot's hand-picked investment banker at Lazard Freres on Wall Street.

The company's schedulers immediately incorporated the changes into the airline's operating plans, beginning with the October schedule. UAL thereby received an instant boost in productivity, but put itself at risk for the month that followed. November is the industry's peak traffic period, containing both the massively busy Wednesday before Thanksgiving and the travel-saturated Sunday after Thanksgiving, when capacity at every airline is stretched to the limit and virtually every able-bodied pilot and serviceable airplane is hard at work.

The fact that the airline's resources are stretched tight in the last days of November, combined with the pilots' ability to trigger the snap-back on 30 days' notice, gave Dubinsky a weapon of enormous power, and he now proceeded to fire it.

Ten days after the 1989 deal cratered, Dubinsky notified Wolf of the pilots' intent to cancel both concessions effective Wednesday, Nov. 22, the day before Thanksgiving.

The sudden disappearance of the extra flying hours during Thanksgiving week and toward the end of the month meant that on Nov. 22, some pilots, having already flown 81 hours, would immediately "go illegal"--that is, have the right under the contract to refuse any further flying for the rest of the month. The airline, having scheduled itself to the max, would have no extra personnel to assign in their place.

With each passing day the manpower crunch would worsen. By the Sunday after Thanksgiving, a significant part of UAL figured to be shut down.

Dubinsky proceeded to make United an offer it couldn't refuse.

He proposed to buy the company at a lower price the banks could finance.

Under the terms of this proposal, Wolf would be replaced with a new CEO of the pilots' choosing when the new owners took over.

In addition, management would negotiate an immediate amendment to the pilots' contract giving the pilots a bonus of $54 million.

Last but not least, the company would pay $47 million to Airline Acquisition Corp., the pilots' acquisition vehicle, as compensation for damages suffered when an earlier buyout proposal it had made had failed as a result of some anti-takeover provisions in United's contract with the International Association of Machinists.

If the company accepted the pilots' terms by 4 p.m. on Monday, Nov. 20, Dubinsky informed Wolf, the union would waive its right to cancel the 84-hour ceiling, and UAL would be able to fly Thanksgiving week as scheduled. If, however, the pilots' demands were not met, Dubinsky would send the pilots a mailgram announcing that the cap on flying time would revert to 81 hours as of 12:01 a.m., Wednesday, Nov. 22.

The Thanksgiving schedule would be devastated.

The board of directors was aghast. What Dubinsky was talking about was blackmail--it was extortion--in fact, some of it might very well be a crime.

The owners and officers of Airline Acquisition were members of the pilots union leadership, and company payments to union leaders are a felony under federal law. The directors might be opening themselves up to prosecution if they did what the pilot leader proposed.

But Dubinsky had the company over a barrel, and everyone knew it.

Wolf and the board promptly--and in the case of the board, at least, reluctantly--caved in

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