Here is an interesting piece from July's Forbes magazine...
United Comes Untied
Caught between unions and customers, Jim Goodwin hasn't made his task any easier
What's the worst job in American business? Running UAL Corp., parent of United Airlines. James E. Goodwin, 57, got the lofty position two years ago. He probably wishes he had turned down the promotion.
Look at all the enemies Goodwin has made. Customers are still seething over last year's slowdown by United (nyse: UAL - news - people) pilots, which resulted in 23,700 flight cancelations. Caving in to the pilots, Goodwin jacked up labor costs in the last four quarters by $900 million, or 14%, and now 44,000 mechanics and 26,000 flight attendants are angrily waiting for comparable raises. Stockholders hate him for letting UAL shares sink from $62 a year ago to $33 recently. Bond-rating agencies are fretting about Goodwin's attempt to purchase USAirways Group (nyse: U - news - people); if the acquisition happens, UAL will have a monstrous $28 billion in debt (including off-balance-sheet airplane leases) perched atop $6.2 billion in equity. The merger would likely raise UAL's borrowing costs--scary when you consider that total debt service would amount to $2.5 billion a year.
Surely United's competitors are happy with this state of affairs? Unfortunately, Goodwin doesn't even have any admirers there. "United has everyone else in the industry mad at it because of that [pilot] contract," says Aaron Gellman, former director of the transportation center at Northwestern University.
Until it was recently upstaged by AMR's purchase of TWA, United, with $19.3 billion in revenues last year, was the largest airline in the world. It is also one of the most troubled. In our recent airline survey (FORBES, June 11) United ranked dead last among big carriers in punctuality, with 40% of its flights last year failing to arrive on time. That United ranked first in cabin comfort doesn't make up for this failing with the crucial business-traveler clientele, who account for 55% of United's revenues.
A 34-year veteran at the airline, Goodwin was supposed to settle labor problems after Gerald Greenwald's handpicked successor was driven off by United's fractious unions. But Goodwin was destined for trouble. Union members raised their equity stake in UAL to 46% in return for wage concessions in 1994. Those concessions have added up to a cumulative $4.9 billion. Last year, with the economy humming, the pilots figured it was time for a payback, and they did not look at their faltering shares of stock as restitution. By the time they had wrestled Goodwin to the floor, a senior 747 captain was making $291,000 a year.
Could Goodwin have fought back harder? Maybe--if he had been willing to take a strike and shut down the enterprise. A stronger leader could have convinced his restive troops to hang tight a bit longer on those concessions, since boosting the stock price is in everyone's interest. As it was, the pilot slowdown cost the company $500 million in revenue and an immeasurable amount in goodwill.
As 2000 drew to a close, United's operating expenses per seat-mile (including airplane depreciation) had ballooned 12.8% from the previous year to 10.6 cents. Operating revenue was up only 7.8% to 11 cents per seat-mile. This year costs are higher and passenger volume will probably be down. (It was off 3.3% in April and 1.4% in May from year-earlier levels.) James M. Higgins, a transportation analyst at csfb, predicts that United will post its biggest loss ever this year--$460 million.
What's Goodwin's answer to all this ill will? He's decided to compete with Warren Buffett by getting into the corporate jet time-share business--200 aircraft within five years. That makes about as much sense as, say, a California utility getting into the backup generator business.
But perhaps the dumbest move of all is his play for US Airways. Taking on that troubled carrier (2000 revenue: $9.3 billion) would only make matters worse. ual pilots fear they could lose their perks of seniority--affecting pay, the planes and routes they fly, pensions and days off. The machinists have threatened to block the merger unless they're guaranteed job protection. And the flight attendants claim that the merger would violate their contract with UAL.
US Airways is a chronic moneyloser saddled with high-cost union contracts, expensive gate leases and the threat of low-fare competition from Southwest Airlines (nyse: LUV - news - people). United would have a hard time trimming costs and, by its own estimates, have to spend four years integrating the two sets of labor contracts, computer systems and routes. The purchase would come with expensive hubs in Pittsburgh and Charlotte that overlap United's hubs in Chicago and Washington-Dulles.
Goodwin originally agreed to pay $4.3 billion in cash for US Airways, the equivalent of $60 a share, plus the assumption of $7.3 billion in debt. US Airways was then trading at $26 and has since slipped to $24. At almost any price, though, the acquisition would be no bargain.
"This is like merging a Ford and a Studebaker," says airline consultant Michael Boyd.
The U.S. Justice Department is holding up approval of the acquisition while it ponders what the deal would do to the concentration of gate ownership, and fares, in smaller cities. Here's one enemy of United that might be a friend in disguise. If Justice kiboshes the merger--or, barring its decision by Aug. 1, if either side walks away from the deal--UAL shares would probably rise.
Even that happy event might not be enough to save Goodwin's neck. Some money managers believe that come fall, he may get the boot.