United's pilots reject 10% raise Talks now headed for binding arbitration, which is fine with CEO

January 17, 1997|By BLOOMBERG BUSINESS NEWS

CHICAGO -- United Airlines pilots overwhelmingly rejected a proposed wage increase, in a move yesterday that could signal an end to the relative labor peace United has enjoyed since employees bought the airline in 1994.

The pilots voted down a contract amendment that would have given them a 10 percent salary increase over the next four years. Union leadership had tentatively accepted the offer in November.

"This is not simply a dispute over wages," said Michael Glawe, chairman of United's Air Line Pilots Association. "The pilots' overwhelming rejection reflects a vote against a business-as-usual attitude that has no place in an

employee-owned company."

The union said 89 percent of its membership voted on the wage increase, and 80 percent of those who voted rejected it.

According to terms of the employee-buyout agreement, the negotiations will now be overseen by an arbitrator whose recommendation must be accepted by both sides. The union isn't allowed to strike over the contract amendment.

Gerald Greenwald, chairman and chief executive officer of UAL Corp., United's parent, said he welcomes the arbitration. "Our overall goal remains unchanged -- to put compensation on a competitive basis just as quickly as possible," he said.

The pilots' unhappiness with the offer is one of the first signs of unrest by United's employee-owners since they bought the airline in the summer of 1994.

The pilots argue that the pay raises aren't enough in light of big profit gains at UAL.

Analysts say the rejection could lead to a permanent rift.

"United is finding out that employee ownership is not some magic candy bar that automatically eliminates disagreement between labor and management," said Joseph Blasi, professor of human resource management at Rutgers University.

United and its flight attendants -- the only employee group that did not participate in the buyout -- have been negotiating a new contract under federal guidelines since the attendants rejected a contract proposal in April. Negotiations could take up to three years.

Last week, United's mechanics union rejected a wage increase proposal.

All United unions claim that they deserve a bigger chunk of the airline's profit. But unions that gave up cash compensation for UAL stock in the buyout may be especially demanding, because they can't readily cash in their shares and take advantage of a sharp rise in UAL stock.

"The stock in an employee-ownership program can only be cashed out when you die, when you leave the company or when the program ends," Blasi said. "Labor is saying: 'Now that the airline is successful, we want our cash back.' "

Adjusted for a 4-for-1 stock split last March, UAL's stock price has more than doubled since the airline's employees bought the company in 1994. The stock closed yesterday at $59.525, up $1.625.

In October, UAL reported record third-quarter profit from operations of $474 million, or $3.58 a fully distributed share, on revenue of $4.49 billion. The airline is expected to report fourth-quarter results within a few weeks, and analysts predict that UAL will report earnings of $1.05 a share, compared with 74 cents in the year-ago quarter.

Nevertheless, United officials argue that boosting salaries too much would jeopardize the airline's financial health.

Sam Peltzman, a University of Chicago economist who studies the airline industry, said big airlines must keep labor costs down if they hope to compete with low-cost carriers.

"The little guys are expanding and the bigger guys are having trouble fighting them on costs," Peltzman said.

Pub Date: 1/17/97

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