Rival Air Carriers Closely Watch United's Employee-Ownership Plan

Article excerpt

AS United Airlines embarks on a historic employee-ownership plan, its rival air carriers may have to adopt aspects of the cost-cutting buyout to remain competitive, airline industry analysts say.

United shareholders must still endorse the plan, in which employees will trade $5 billion worth of wage and benefit reductions for a 53 percent share of the airline.

But if approved, the buyout promises such large operational savings for United that other major airlines will also have to find ways to radically slash costs, the experts say. United plans to use the savings from the buyout in part to build a low-cost subsidiary that would run its comparatively unprofitable short-haul flights.

"I think it's going to be really tough for Delta and American in particular to compete if you've got these very significant cost reductions" at United, says Jared Kaplan, a Chicago-based attorney who specializes in employee stock ownership plans.

"American and Delta would have to come up with something, and the path of least resistance would be to follow suit" with some form of buyout, he says.

Because of United's size, the buyout plan would also have an impact beyond the airline industry. The plan may influence industrial relations at companies in other sectors of the economy, the analysts say. United employs 82,000 people, more than any other company where workers own a majority share. The airline is a mainstay in an industry that the Clinton administration says is crucial to the country's economic well-being.

To survive, United States airlines have had to be innovative in management. Companies that weathered the deregulation of the past decade were then hit with a dreary recession, which only gave way to more vigorous growth late last year. Large carriers like United have proven to be lead-footed beside nimbler and smaller low-cost upstarts less bound by union agreements. …


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