Source: Chicago Tribune
Author: Julie Johnsson

It was the first shareholder meeting for United Airlines in five years and might have been an event for employees to cheer the resurgent company's emergence from bankruptcy. Instead, it was a morning of labor unrest and drama, signaling what analysts predict could be a summer of discontent for airlines and travelers.

About 400 United pilots, flight attendants and mechanics marched outside the main south entrance of Chicago's Field Museum, brandishing signs reading "Fix It Now" and "We Are United, They are Pigs" to protest a management team that union leaders contend is overpaid and out of touch with workers.

At the meeting's close, when United Chief Executive Glenn Tilton walked past one group of 70 workers, uniformed pilots dropped their hats to the ground in a show of defiance, according to several different participants. "Certainly, a confrontation is brewing," said Roger King, airline analyst with CreditSights.

Inside the meeting, Tilton responded to employee complaints, at times testily, while lauding the enormous improvement to parent UAL Corp.'s finances since 2002. The Chicago-based carrier has cut annual costs by $7 billion and turned 2002's $2.8 billion operating loss into a $447 million operating profit in 2006.

"We have pulled ourselves up and out of a crisis that threatened the very existence of our company, and for which we and other U.S. carriers were ill-prepared," Tilton said.

Still, the deep pay cuts that workers took during those years rankle many United employees, particularly after Tilton and other top executives reaped millions of dollars apiece in restricted stock after the carrier emerged from bankruptcy last year.

"It's just not fair," said Herb Hunter, a United 747 captain and spokesman for the Air Line Pilots Association.

The stock awards for Tilton and other executives represent 8 percent of the company's equity, and Tilton reminded employees it was a one-time payout.

"When you are here next year, there will be no discussion" about stock grants, he said.

Analysts say that growing discord at United and other major U.S. airlines could contribute to a long, hot summer riddled with service disruptions for travelers. Pilots at American Airlines plan to picket the New York Stock Exchange next week to protest executive compensation at that carrier.

"It's an industrywide problem," said airline analyst Julius Maldutis. "The fact of the matter is that management is going to lose their ability to motivate their employees. You're going to see job actions."

Federal law prevents airline workers from striking during years in which their contracts aren't up for negotiation, something that won't happen at United before 2010. And union leaders there say they will honor the law.

Still, having a disenchanted workforce could force United and other airlines to cancel flights during the peak summer travel season, particularly at the end of June or July, industry observers say. That's when carriers must rely on flight attendants and pilots to volunteer to fill in for co-workers who were caught in weather delays earlier in the month and have worked the maximum number of hours allowed.

"There's no question that this summer is going to be ugly," said Sara Nelson, a flight attendant for United and spokeswoman for the Association of Flight Attendants, noting that the airline's staffing already is stretched thin.

However, United doesn't intend to change its present strategy of operating leanly, Tilton told shareholders and employees.

"We want to staff our company to be able to compete," he said.

Airline annual meetings are often fractious, analysts say, and United's certainly continued that tradition.

"It's an [opportunity] to ask questions of management in this quasi-public environment that does get reported out," said Robert Mann, president of R.W. Mann & Co., an aviation consultancy based in Port Washington, N.Y. "It's not atypical. You see this happen where there are negotiations ongoing or broken down or stalled out, and people have gotten frustrated."

Several United employees attending the meeting grilled Tilton on morale and staffing issues. Margaret Freeman, a 767 captain based at O'Hare International Airport, asked Tilton if he had told shareholders that "today, employees are no longer behind you," a comment that drew applause.

Tilton said employee issues were one of four major areas that senior management tracks closely and reports regularly to United's directors.

"We care very much about it," he said. "At the end of the day, we want to make this a sustainable enterprise."

Tilton also said he would be willing to consider changes in a controversial mandatory program designed to teach workers the basics of its business and imbue in them a better sense of customer service.

But Tilton also said the airline isn't willing to change course for the sake of employee morale.

"As we went into bankruptcy, we were a happier company," he said. "We were happier all through the '90s as we were heading straight into insolvency, because we didn't tell one another the truth."

As United continues to regain its financial footing, it doesn't intend to compromise "so that we put ourselves back into insolvency again," he added.