Finding my Mojo - Part 2

For months now, I have tried to sit down to write, yet could not find the energy or drive. My day job has been kind of a nightmare, things at home are a little unsettled, and new medications have had their side effects.  All of the crap that comes up in our lives can distract us from some things we do care about, and I have learned that in order to not lose my mind altogether, I have got to make the time to focus on something I enjoy.  It is time to get my mojo back, and it is time to get back to the Friendly Skies.

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In Part 1 of this post, I recapped everything that has gone on over the last ten months at United.  So much has happened, confusing the employees and customers.  Would there ever be a truly great United Airlines once again?

Flight Attendant Contract Negotiations

I want to bring this up first as it has been six years since the merger of United and Continental was announced and the three Flight Attendant groups, pre-merger United ("pmUA"), pre-merger Continental ("pmCO) and pre-merger Continental Micronesia (pmCM), are all still working under separate contracts.  A federal Mediator was brought in after talks with management had stalled, and it appeared there was still divisiveness among the three flight attendant groups.  Mediated negotiations sessions have been going on since the summer of 2015.

Though not made public, it was rumored that a thorn in the negotiations was the Continental MEC President, Marcus Valentino.  He was Union President when Continental and Continental Micronesia Flight Attendants were represented by the IAM, and was also rumored to be a close confidant for Jeff Smisek.  He fought hard against the vote to have the the two Continental groups join the AFA alongside the United Flight Attendants.  With contract negotiations being hampered by Mr. Valentino, AFA's International Office, and International President, Sara Nelson (herself a United Flight Attendant) stepped-in.  Mr. Valentino was asked to resign as MEC President and step away from the negotiations. With this settled, United's AFA releases a joint announcement that the three groups are standing together in the negotiations and vow to get an industry leading contract for United's Flight Attendants.

United's Flight Attendants have the Our Contract web site (www.ourcontract.org) where you can find information about the negotiations.  United management has set up their own United Negotiations web site (www.unitednegotiations.com) to present their side in the ongoing negotiations.  It is interesting to read the releases from both sides, who blame each other for the lengthy negotiation process.  

These negotiations are especially important to the pmUA Flight Attendants.  They fought hard to set in place protections that would limit the length of duty days, set minimum rest periods between trips, and put into place an A/B Reserve rotation system.  This rotating system allows junior Flight Attendants the opportunity to hold lines every other month rather than be "on reserve" all the time and not have the security of knowing when they would have to report for duty.  Limits on duty days, and minimum rest periods are needed to ensure that Flight Attendants are well rested and alert, and are able to properly respond in the event there is an emergency in flight.  On the Continental side, their duty days are longer, minimum rest periods are shorter, and they do not have the rotating reserve system.  This allows the company to set their schedules such that in the event of irregular operations, they may not get the proper rest periods, which compromises safety.  All United Flight Attendants, and I certainly agree with this, should not be asked to give up protections that are in place to ensure the safety of crew members and passengers. 

It was not until April of 2016 that any real talks about compensation began.  Both sides have offered proposals that they say are comparable to the wages paid to American and Delta Flight Attendants.  United management immediately responded saying they thought that the AFA proposal would have a negative impact on United's financial performance, something they could not accept.  Management was supposed to come back with a revised proposal in May, yet there is no indication that the two sides are close to an agreement. Contract talks are resuming today in Reston, Virginia. 

Compensation for United management is dependent upon profitability of the airline and so many managers feel that the Flight Attendants do not deserve much more than they are getting now.  The AFA delivered their compensation proposal to management on April 21, 2016, the same day first quarter results were released.   With the release of the first quarter results and dimmer outlook, UAL's share price has taken a significant hit.  Part of the compensation for United management is determined by share price performance. Management is now under pressure to get costs down and any proposal by the Flight Attendants is going to be deemed as having a negative impact on United's financial performance.     

It is ironic that management complains about compensation demands, given the amount they themselves make and are worth.  When UAL's share price stared to drop dramatically, United managers and Directors started to buy up shares to publicly show their confidence in the company.  One of those managers is Michael Bonds, Executive Vice President for HR and Labor Relations, and the one who rejected AFA's compensation proposal back in April.  On April 26 he purchased an additional 2,000 UAL shares at a cost of $96,766. The Form 4 that was filed with the SEC says he directly owns 52,865 shares in UAL, which at today's trading price is worth $2.4 million. Those shares would have been worth $3.3 million back in February, so Mr. Bonds has taken quite a hit.  I only bring this up to point out that Mr. Bonds and most of United's management, at the Senior Vice President level and above, are millionaires.  Their compensation, including profit sharing and other incentive payments, are all at six figures and above.  It is hard for me to accept Management's complaints about the negotiations while Flight Attendants are struggling to make ends meet with average compensation below $50,000 per year. 

Since mediated talks began last summer, United Flight Attendants have held a "Day of Action" every month, with informational picketing at the hubs and major airports to show their unified resolve to get the contract they want and deserve.  The next "Day of Action" is being held this Thursday, May 19.  I am taking the day off to go out to LAX and offer my support.  I need to get involved again as these negotiations are so important to the success of United Airlines.   If you are flying United on that day, or any day soon, please take a moment to thank your Flight Attendant as they are putting a lot on the line to ensure your safety and to make United Airlines great again.

There is much more I wanted to write about, but my day job is getting in the way again. Now that I have my mojo back, I am more motivated than ever to keep writing, and more importantly I want to get back into the Friendly Skies.  The Annual Shareholder's meeting is coming up on June 8, 2016.  I am hoping to make the trip so that I can address this new Board of Directors and once again voice my support for the Flight Attendants, Technicians, and all front line employees.  Thank you again to all of you for your support, I am looking forward to seeing you soon.

P.S. - I still have some "More than a Co-Worker" wrist bands to share.  If you are interested in any just e-mail me at jimfrompicon@gmail.com.  There is no cost, all e-mail addresses are kept confidential and used only for this purpose.  - Thank you!

Finding my Mojo - Part 1...

For months now, I have tried to sit down to write, yet could not find the energy or drive. My day job has been kind of a nightmare, things at home are a little unsettled, and new medications have had their side effects.  All of the crap that comes up in our lives can distract us from some things we do care about, and I have learned that in order to not lose my mind altogether, I have got to make the time to focus on something I enjoy.  It is time to get my mojo back, and it is time to get back to the Friendly Skies.

It has been 8 months since Mr. Smisek "resigned" amid the Port Authority scandal, and so much has happened.  The news shocked everyone.  I made a trip to New York right after this happened, and everyone I spoke with at United was overjoyed.  They were looking forward to getting their airline back.  Oscar Munoz, one of the UAL Board Directors, was appointed as President and he hit the ground running.  Right away he went out to the hubs and other stations to talk to customers and employees.  He wanted to find out what was needed to make United Airlines great again, and he recognized that this information was only going to come from the front lines.  He was having success in rallying the troops, and earning their trust and support.  However, all of the traveling and long days took their toll, and Mr. Munoz was sidelined by a heart attack just six weeks after he started.

The elation that the employees felt then quickly dissipated as the sudden uncertainty of what was going to happen next took hold.  Would Mr. Munoz be back?  Who is going to replace him?  It took a couple of weeks before UAL's Board of Directors made any announcement of an interim plan.  For Mr. Munoz, recovery prospects were good and he would be back to work In January of 2016.  Until that time, Brett Hart, UAL's General Counsel would step up and take the title of interim President.  Mr. Hart pledged to continue the plan that Mr. Munoz had laid out for the airline.  A plan that would stop customers from defecting and garner the support of the front line employees.

Side note #1 - about Mr. Hart, my first impression of him comes from the Shareholders Meeting held in New York City back in 2012.  He was curt, and acted like the whole thing was an imposition.  Then, in 2014, I had submitted a Shareholder Proposal to be put on the agenda at the next Shareholder's meeting.  The proposal called for an advisory vote for shareholders to weigh in and cast a vote of "no confidence" in Mr. Smisek, and his management team.  Not long after Investor Relations received the proposal, I was asked to go to Chicago and sit down with Mr. Hart and other managers to discuss what is going on at the airline and convince me to withdraw my proposal.  I went out, and met Mr. Hart.  This time, I found him to be very gracious and personable.  When it was announced he would step in as interim President, I was surprised.  James Compton was Mr. Smisek's right hand man, and Vice Chairman, and he came over from Continental with Mr. Smisek. He seemed to be the logical choice.  Brett Hart was a new hire after the two airlines merged, and I think the Board made the best choice in him because he was not a Continental manager and he pledged to carry on the work that Mr. Munoz had started.

Another surprise comes on January 6, 2016 when it was announced that Mr. Munoz had undergone heart transplant surgery.  What now?   Assurances were put out there that he was going to be better than ever and would be returning to work late in late March or early April.  Business news television and newspapers interviewed physicians and other executives who had undergone transplant surgery.  They all felt Mr. Munoz should take a year off.  That would mean looking for a new President and the positive momentum that Mr. Munoz was able to get started would be halted.  In February, Mr. Munoz was back at the Willis Tower on a part-time, advisory basis and he returned to full-time duties on March 14, 2016.  There are critics who say he pushed himself to get back in order to receive a cash incentive bonus that was promised when he was made President.  That may be part of it, but I do think Mr. Munoz is the type of person that needs to be working and he was dedicated to getting his plan for the airline out there.

Just as Mr. Munoz is getting back to work, along comes another distraction.  Two of UAL's largest shareholder groups, PAR Capital Management ("PAR") and Altimeter Capital ("Altimeter"), announce their proposal to nominate six new Directors of their choice. They felt that more airline and travel experience was needed on the Board, and one of their choices just happened to be Gordon Bethune, the former President and Chairman of Continental Airlines.  He is credited with the turnaround of Continental in the early 1990's.  He also hand-picked Mr. Smisek and hired him as Continental's General Counsel. Just as UAL's Board was finally doing something to make changes in management and right the ship, comes the news that someone wants to bring in the "savior" of Continental Airlines.  Continental managers have had five years to make this merger successful, and Mr. Smisek's ouster is a definite sign that their style of management was not going to unite the two distinct carriers.  Letting PAR and Altimeter succeed in bringing in Mr. Bethune was not the right thing for UAL.  Reaction by employees was swift.  I received calls from employees asking me what I thought was going to happen, and the pilots and technicians made their opinions very public by protesting outside the offices of PAR and Altimeter. 

Side Note #2 - about Mr. Bethune.  In the early 1990's, while Frank Lorenzo was still at the helm, Continental was my only choice to fly to my home town in Wyoming to see the family.  It was always an uncomfortable experience with not so friendly employees, so many new hires, and an overall less than classy feeling.  Mr. Lorenzo was ousted by the Continental Board and Gordon Bethune stepped in.  He simply recognized his first goal was to improve the morale of the employees, then upgrade the fleet and facilities.  He closed competitive hubs and took advantage of hubs they could monopolize, Houston, Cleveland and Newark.  Continental quickly showed improvement in customer service and returned to profitability.  I flew Continental again after Mr. Bethune took over, and even though he made a lot of positive changes, he held on to some of Mr. Lorenzo's ways of running things.  For example, he raised wages, but they were never brought up to the level other airlines were paying.  That made it hard to recruit experienced talent to work the front lines.  CNBC has Mr. Bethune on a lot as commentator and contributor, and I did gain some respect for him with his last interview a couple of weeks ago.  The segment was on the airline business in general, and he was asked what he would do if he were asked to step in again and run an airline, i.e. United Airlines.  His response, and I am paraphrasing, was to get middle and senior managers out of their ivory tower offices and have them on the front line more often.  You can only effectively manage if you are working side by side with the employees you are managing and have the chance to talk with the customer yourself. Read back to some of my earlier posts and you will find that I have said the same thing many times.

PAR/Altimeter and UAL go back and forth with press releases and making themselves available to television and newspapers.  Brad Gerstner, Founder and CEO of Altimeter, gets out there with the message of how important it is to have more airline and travel industry experience on UAL's Board, and this is the only way to make effective changes. He tries to reassure employees that Gordon Bethune, as Chairman of the Board, would only have an advisory position and that Mr. Munoz would continue as President. Shortly after the announcement of PAR and Altimeter's proposal and possible proxy fight, UAL's Board announces three new Director appointments, James Kennedy, Robert Milton, and James Whitehurst, all of whom have airline experience.  PAR and Altimeter are not not entirely convinced by the new appointments and keep moving forward with their proposal. However, they are showing some signs of compromise.  Through a phone-in interview with CNBC, Mr. Gerstner states that the appointment of Mr. Bethune is not critical to their plan.  They are once again trying to reassure United employees and customers that they do not want to disrupt the momentum behind Mr. Munoz.

There are weeks of uncertainty and lots of back and forth public announcements by UAL's Board, PAR and Altimeter.  Then on April 20, 2016, the day before the release of the first quarter 2016 earnings, UAL announces that a settlement has been reached.  Robert Milton, a former executive from Air Canada, is going to take over as Non-Executive Chairman, succeeding Henry Meyer.  In addition, two of PAR and Altimeter's nominees would be added to the Board, and there would be a third addition to be chosen by both sides.  This brings the total number of Directors to 14 - 11 "independent" Directors, Mr. Munoz, one Director from the ALPA, and one Director from the IAM.  PAR and Altimeter withdraw their proposal and a proxy fight is avoided.  Mr. Munoz is now free to get on with the business of running United.

The First Quarter, 2016 Earnings Release comes out and Mr. Munoz himself participates in the conference call with investors and the media.  Even though the results show a profit, largely coming from lower fuel prices, the numbers show a continuing decline in market share and weakening demand.  Weakening demand puts pressure on Revenue and forward looking projections paint a less optimistic picture for United.  As of Friday, May 13, UAL stock is trading at $43.54, nearly 30% lower than the $60-$63 dollar range we saw in February of 2016.  These numbers are evidence that all of the changes and distractions at United have eaten away at employee morale and have chased customers away.

So - to recap the last ten months:

1. July 2015 - John Rainey, UAL's Chief Financial Officer, announces his resignation and that he has accepted a position at a technology startup.  His reason is that this new position offers a track to top leadership making it evident that UAL's Board does not see him in line for succession to Mr. Smisek.  Red flags are raised - if you recall, Mr. Rainey, shortly after he took over as CFO in 2012 (after Zane Rowe's sudden departure), at the JP Morgan Aviation Conference, makes the announcement of the changes to the Mileage Plus program.  These changes would reign in the number of free-bees given to United's over-entitled customers.
2. September 2015 - The surprise announcement of the resignation of Jeffrey Smisek, Nene  Foxhall, and Mark Anderson.  UAL's Board cites Mr. Smisek's, Ms. Foxhall's, and Mr. Anderson's involvement in a bribery scandal involving a New York Port Authority official.  One of the bribes is supposedly the awarding new slots at Newark International Airport in exchange for United adding a non-stop flight from Newark to Columbia, South Carolina, which close to a getaway cabin that is owned by the Port Authority official under investigation.  The route is unprofitable and United pulls it from the schedule after the announcement that this Port Authority official is being investigated, along with Mr. Smisek and Ms. Foxhall.  Oscar Munoz, one of UAL's Directors is named President, succeeding Mr. Smisek, and Henry Meyer is named Non-Executive Chairman.
3. October 2015 - Mr. Munoz suffers a heart attack and after two weeks, UAL's Board chooses Brett Hart, UAL's General Counsel, to step in as interim President until Mr. Munoz can return to work.
4. December 2015 - Mr. Munoz' family announces that his recovery is going well and that he is expected to return to work in January of 2016.
5. January 2016 - Right after the new year comes the surprise announcement that Mr. Munoz has undergone heart transplant surgery.  His return is pushed back to March or April of 2016.
6. February 2016 - PAR Capital Management and Altimeter Capital announce their proposal for the appointment of six new Directors and begin the process of soliciting proxies from shareholders.  Key among their nominees is Gordon Bethune, former President and Chairman at Continental Airlines.  Also in February, Mr. Munoz comes back to work, on a part time advisory basis.
7. March 2016 - Mr. Munoz returns to work full time, and right away, in response to the proposal submitted by PAR and Altimeter, the UAL Board announces their own selection and appointment of three new Directors, all with airline and travel industry experience. This does not convince PAR and Altimeter and they move forward with their proxy fight.
8. April 2016 - UAL reaches a settlement with PAR and Altimeter and they withdraw their proxy fight.  Gordon Bethune is out of the picture.  Robert Milton, formerly of Air Canada, will be taking over as Non-Executive Chairman.  The earnings release for the first quarter of 2016 paints a dimmer picture which dampens forward looking projections.  UAL's trading price drops 30% from it levels in February.

Many of you already know about all of these events, but I wanted to go over them myself as they are important to what is going on now at United.  Especially critical are the ongoing contract negotiations with the Flight Attendants and Technicians. These two groups still do not have unified contracts and continue to work under the pmUA and pmCO divisions.  The time to take care of these is now as they are critical to the success of this United Airlines.  I will write about this in the post titled "Finding my Mojo - Part 2."  Thank you again for reading and thank you for all of your support.