Maybe They Should Call It Disunited Airlines

First it was the deal that wouldn't die. Now the employee buyout of United Airlines Inc. looks like the deal that may not make it. After years of trying, United's machinists' union staged an 11th-hour objection to the $5 billion buyout agreed to last December. The Mar. 15 deadline that came and went without a final agreement was self-imposed, so the deal isn't dead. But the snafu puts the buyout in jeopardy just as the company was about to send out details to shareholders in preparation for their vote.

What went wrong? The machinists' primary objection is the big compensation package asked for by Gerald Greenwald, the unions' choice to take the helm of United. The union also wants United managers to take steeper pay cuts in exchange for their stock. It's upset, moreover, by fees of more than $45 million that all of the unions' lawyers and bankers stand to collect. "We ought to be able to fix this, but it isn't fixed yet," says one source close to the deal. United and its unions continued talks on Mar. 16, but no new deadline has been set.

Behind the machinists' action lies a growing rank-and-file challenge to the unions' leadership. A bare 56% majority of the International Assn. of Machinists (IAM) voted to approve the deal in January. The large no vote reflected a feeling among higher-paid mechanics that the double-digit pay cuts they've surrendered for 53% of the carrier's stock are too high. Dissidents claim to have collected 6,400 signatures asking for an election to break away from the IAM. That has put a scare into IAM Vice-President John F. Peterpaul, who's in charge of the union's airline workers. Says Rutgers University Management Professor Joseph Blasi: "Clearly, there is an insurrection taking place."

To avoid further backlash, Peterpaul has lashed out at the Greenwald's contract demands. The former Chrysler Corp. vice-chairman has asked for a lifetime golden parachute, a $1 million annual contract, and large stock options, say those involved. Another source of conflict: Current United CEO Stephen M. Wolf wants middle and senior managers to take a smaller percentage pay cut than lower-paid staffers because he fears a mass talent exodus, insiders say.

NO GNASHING. The fracas means shareholders will not be receiving proxy materials in mid-March as promised. Investors aren't gnashing their teeth yet, though. John B. Neff, managing partner of Wellington Management Co., United's top shareholder with 10%, says he isn't sure he would vote yes anyway: He doesn't think employees are kicking in enough. "We aren't a great fan of the deal," Neff says.

When United and its unions agreed to preliminary terms in December, the buyout was supposed to bring labor peace to United and set a precedent for other airlines. Now, says Blasi, the trouble at United "shows that restructuring the big airlines will be a lot more complicated than anyone thought." So much for soft landings.