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United Airlines

United Airlines

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Published by Diarmuid McDonnell
Case study of an American employee-owned company.
Case study of an American employee-owned company.

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Published by: Diarmuid McDonnell on Apr 02, 2012
Copyright:Attribution Non-commercial

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04/26/2013

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Democratic Enterprise: Ethical busi
United Airlines
In July 1994, United Airlines (UContinental Holdings, publicly l(which is a financial instrumentemployees) purchased 55% of tcompany’s largest shareholdersin the world. In December 200211 bankruptcy in the US, resultibringing an end to the compan
How the ESOP came about
 The eventual launch of the ESOownership to UA. During the mirepresented the pilots in UA, maround that time. The ESOP implemented in 1994economic turbulence in the airlimodel of high volume flights aforced other airlines to adapt olabour costs, among other initiaAnticipating this loss in wages aparticular ALPA and the Internaof the equity to the employeesdeal was announced in July 199equity stake in the company, th
Early performance
Between the launch of the ESOhighest in the history of the coby over $4bn. Both managemeduring this time and this was rewere entitled to sit on the boarsignificant stake in the governa
ness for the 21
st
century Co-operative EduCreative Commo
Case Study 8.3
), which has now merged with Continental Airliaunched its Employee Stock Ownership Plan (Eused to transfer ownership of a company, in thhe company’s shares, making UA’s 85,000 empland UA became, for a time, the largest employ, with shares in the company only worth $0.82,ng in the biggest bankruptcy in American airliny’s brief flirtation with employee ownership.P in 1994 was actually the 4
th
attempt to introdid 1980’s, the Air Line Pilots Association (ALPA),oted the possibility of employee ownership inarose out of a need to restructure labour contrine industry. Southwest Airlines, with its disrupd low costs (replicated by Ryanair and Easyjet tface ruin. The management of UA saw it necestives, to remain competitive in a rapidly evolvind benefits, a number of the more powerful untional Association of Machinists (AIM), proposeof the company. After negotiations with senior4 and the ESOP was publicly announced. In exce unions agreed to wages and benefits concessand the end of 1996, UA ‘soared’. The share prpany in 1995, increasing the collective value ot and the unions embraced the concept of emflected in the operations of the company. Firstlof directors (out of twelve seats in total), givinnce of the organisation. UA incorporated empl
cation Trust Scotlandns 3.0 Licence
 
nes to form UnitedSOP). The ESOPform of shares, tooyees theee owned companyUA filed for Chaptere history andce employeethe union thatresponse to a strikea
 
cts in the face of ive new businesso name a few),sary to cut theirg industry.ions in UA, intransferring somemanagement, ahange for a 55%ions of $4.88bn.ice rose to itsf all the shares in UAloyee ownership, three employeesg employees ayee ownership into
 
Democratic Enterprise: Ethical busi
its marketing strategy, changinfriendly skies’. Increased emploan estimated $20m reduction iconsisting of pilots, ramp work from the creation of cross-functsolutions to organisational progroups. CEO Jerry Greenwald aat every opportunity and the co
Table 1-Performance benefits 1995
Increase in share priReduction in absenteeIncreased revenue per emReduction in employee griReduction in compensatio
Issues
 The record levels of profit genemarket helped to mask the earlbegan to fall due to volatile trainitial benefits of the ESOP.Firstly, The Association of Flightnever opted into the ESOP as thconcessions ranging from 15%ongoing dispute. Therefore, theof the entire employee base (itmost deserved to be employeeProblems also arose in upper mmanagement support faded aftresulted in two of the initial chafrom their positions in the unio
ness for the 21
st
century Co-operative EduCreative Commo
its slogan from ‘Come fly the friendly Skies’ toee participation also generated savings in thefuel costs in 1995 due to a solution proposedrs and managers. Most of the benefits outlinedional BOB (‘Best of Business’) teams, who’s purlems through increased collaboration betweend other senior managers were championing empany went from strength to strength.e (%) 120%ism (%) 17%ployee (%) 10%evances (%) 74%n
 
claims (%) 17%
Source:
ated by the airlines in 1995 (over $2bn) and a bissues with the ESOP, outlined below. As sooning conditions, these issues surfaced and procAttendants, the union representing the UA’s fliey felt that their members (some 20,000 of the24% and also has a mistrust of management s55% equity the ESOP held in the company wasould be argued that the flight attendants wereowners as they interacted with the customersanagement and in the leadership at the trade uer the first two years and changes in the leadermpions of the ESOP, Rick Dubrinsky and Roger. Similarly, senior management who were origi
cation Trust Scotlandns 3.0 Licence
 
‘Come fly
our 
 company, includingy a panelbelow stemmedose was to finddifferent employeeployee ownership
usiness week 
ull run in the stock as the share priceeded to erode theght attendants,) could not affordtemming from annot representativethe group whon a daily basis).nions. Initial seniorhip of ALPAHall, being removednally opposed to

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