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How airline workers' savings were hijacked by ESOPs

Published May 3, 2007 10:21 PM

In Employee Stock Ownership Plans (ESOPs), there are two winners: the banks and the corporations. As employees facing layoffs, our goals of saving our jobs and investing in our futures may lead us to accept all kinds of schemes to help “save the company,” and we may end up achieving neither goal.

Take United Airlines, for example. In July 1994, the Air Line Pilots Association (ALPA), the International Association of Machinists (IAM), and non-union employees at United “purchased” 55 percent of the company in the largest ESOP in history. They gave the company concessions valued at $5 billion over six years, including wage cuts of 12 to 15 percent. The stock itself could not be sold, and workers who quit prior to retirement paid heavy penalties and taxes.

And what did United’s “employee-owners” receive for these concessions? In the late 1990s, some workers received a few dividend payouts, ranging from a few pennies to a few hundred dollars. But what’s worse, the workers did not gain a majority voice in the company decision-making for their so-called majority ownership from 1994 to 2000.

Two things happened that underscored the fallacy of the ESOP. First, United Airlines made $8 billion in net profit during the economic boom of the late 1990s while employees struggled to survive under concessions. And second, overcapacity in the airlines industry left workers carrying the burden when the industry collapsed. In fact, 20,000 jobs had been cut at United by the end of 2001.

On Feb. 1, United emerged from Chapter 11 bankruptcy protection, under which it had operated as a debtor in possession since Dec. 9, 2002. It was the largest and longest airline bankruptcy in history. In bankruptcy the legal ownership of the corporation is up for grabs. That’s what a debtor in possession means.

The workers’ legal right as principal creditors should entitle them to assert their rights to run the company.

This may strike some as a novel idea, but a number of flight attendants brought this to the attention of the UAL unions. It never received a hearing and by 2003 the company was using the bankruptcy courts to get as much as 23 percent more in wage concessions. Of course, the workers’ stock was worth nothing. The company also demanded work rule changes, including workdays of up to 14.5 hours, for less pay. It then terminated our defined benefit pension plan.

Even under threat of losing everything, it’s still a bad idea for workers to trade

wages, healthcare or any other benefits for stock options. At United Airlines we learned the truth about ESOPs by losing billions.

It didn’t have to be that way. The lesson we learned at United is that class-conscious workers in positions of leadership have to be educated on the question of workers’ control. It’s an idea that is right for the current crisis.

Michelle Quintus has been a flight attendant at United Airlines since 1995. She is also a New York City representative and organizer for the Association of Flight Attendants- CWA.