What do you do when the unions do not believe anything management says? Let the bankers send the message: play ball or face liquidation.
"There are two scenarios for United," said one United Airlines banker in an interview with Flight International before Christmas - and before UAL's workforce faced an ultimatum to negotiate or face the possibility that the courts will throw out the union contracts: "Say yes, or they [management] will close it down."
The message could not be clearer. United's lenders for the debtor-in-possession (DIP) loan placed huge hurdles for losses, profits and cashflow as conditions for the $1.5 billion DIP loan, funding only $800 million in the process. Access to the remainder is contingent upon meeting these cashflow and profit/loss targets, and upon further cost cuts - with labour required to kick in a major portion.
United's management has little or no credibility with the unions, say observers. Although the new chairman, Glenn Tilton, has received plaudits from employees in his first four months on the job, the unions did not give the full $9 billion in cuts Tilton and his predecessors said were needed, and the International Association of Machinists did not give at all. Many IAM rank-and-file members voted against concessions, saying the entire mess was management's fault. Before Christmas, the head of United's pilot union said the concessions now demanded by the airline were too onerous and the pilots would not agree to the requests.
Unions at UAL have never been willing to face the realities. Former United chief executive James Goodwin lost his job, forced out by the unions, when he said shortly after 11 September that United would perish without labour concessions and major cost reductions. It turns out he was right.
So the banks are doing what management has been unable to accomplish: tell it like it is and force changes.
Something similar happened at US Airways. Although David Siegel, the new president and chief executive brought in to replace the discredited team of chairman Stephen Wolf and president Rakesh Gangwal, successfully won labour concessions his predecessors only dreamed of, it was not enough. Siegel, says the chairman of one airline, had gone as far as he could with labour, so it was up to the money people to extract more. The Retirement Systems of Alabama, which agreed to lend US Airways $500 million and invest $240 million, threatened to liquidate the airline unless another $200 million in concessions were granted by unions.
The unions complied, and US Airways is on the way to emerging from bankruptcy.
Source: Flight International
