Who Will Be Ual's Next Pilot?

An outsider and an insider are finalists to replace Greenwald

Gerald Greenwald is a finance guy who spent decades working his way up the auto industry. So is Louis R. Hughes. Greenwald headed one of the Big Three's European operations. So did Hughes. When Greenwald became convinced he'd never get to be chief executive of his company, he left Detroit and in 1994 became CEO of the world's largest airline. Now, Hughes may be following Greenwald's path yet again.

BUSINESS WEEK has learned that the 50-year-old head of new business strategies at General Motors Corp. has emerged as the leading external candidate to become the next CEO of UAL Corp., the parent of United Airlines Inc. He is one of two finalists, UAL insiders say. The other is insider James E. Goodwin, 54, the 32-year United veteran whom Greenwald made president last September. Both have met in recent weeks with board members, who could make a decision as soon as their Mar. 25 meeting.

There is a wild card: United's pilots' and machinists' unions, which together own 60% of the company and can veto any candidate if they stick together. Last summer they forced out Greenwald's hand-picked successor, then-President John A. Edwardson, because, they said, he didn't work well with labor. The unions have described Goodwin in almost glowing terms since he replaced Edwardson. He has settled many lingering disputes and boosted United's on-time departure rate. Greenwald--who wants to retire to his Aspen home--declined comment, as did Goodwin and Hughes. United says the search is proceeding in an "orderly manner" and includes "a number of outstanding candidates."

Hughes's appeal is clear: He is a member of the global business elite--a Harvard business school grad and the only American ever to serve on the board of Deutsche Bank. He ran GM's $35 billion global operations, turning a strong profit when few other GM units were. And he has experience dealing with--and at times clashing with--powerful German workers, who wield clout similar to United's.

Whoever gets the top UAL job will inherit a company facing a slew of challenges. United and the two unions must decide by April, 2000, whether to renew the 1994 employee stock ownership plan (ESOP). Doing so would mean employees would again give up wages in exchange for stock. But ending the ESOP would, over time, dilute the unions' share and lessen their control. Also, it would create two classes of UAL employees: owners and new hires. "The negotiations are going to be very tough," says Kevin Lum, president of the flight attendants' union, which is not part of the ESOP.

"MAD DOG." Meanwhile, United faces tough competition in the air. American Airlines Inc. is attempting to grab market share on the West Coast as United tries to build up in the East. And, despite a balance sheet and credit rating that have improved sharply thanks to record profits under Greenwald, United lacks the resources of its major rivals.

The tasks facing UAL might not seem daunting to Hughes: For six years, he ran a GM unit whose annual revenues surpass UAL's. The Ohio-born mountain-climber has spent his entire career at GM. His first boss, John F. Smith Jr., now GM's chairman, dubbed Hughes "Mad Dog" for his hard-charging style.

Hughes eventually went to Europe and built Germany's Adam Opel operation into one of GM's few successful auto divisions of the early '90s. "They had big share gains and big profits, and he was responsible for it," says Morgan Stanley Dean Witter auto-industry analyst Stephen Girsky.

Hughes even abolished the executive dining room and lunched regularly with assembly workers. But his later record may raise a red flag with United's unions. After he was named chief of GM's international division in 1992, Hughes butted heads with workers' representatives, who thought his push into Asia and Latin America was hurting Europe. Says Rudolf Muller, head of the works council and a board member at Opel: "He didn't listen." Opel's share of car sales in western Europe declined from 13.1% in 1995 to 11.3% today. The troubles--including a public spat with Hughes's successor at Opel--led GM to recall Hughes to Detroit.

The conflict was more a dispute over strategy than a typical labor-management battle, though. Moreover, Hughes is the rare GM exec not to have suffered through a strike this decade.

INSIDER. If Hughes does land the UAL job, he would be the latest in a string of outsider CEOs in the airline industry. Others include Leo F. Mullin of Delta Air Lines Inc., Northwest Airlines Corp.'s John Dasburg, and Greenwald.

Goodwin, by contrast, is the consummate insider. He has run United's North American and overseas operations and its San Francisco maintenance center. Labor officials praise his intimate knowledge of United and the fact that he makes subordinates feel involved in decisions. Adds a UAL exec: "It's a much better place to work now."

On the minus side, Goodwin is nobody's idea of a polished CEO. Until he replaced Edwardson last summer, he had rarely spoken in public, and even United officials discouraged the idea that he was Greenwald's likely successor. Since then, though, he has met with analysts, investors, and members of Congress, raising his profile.

The first major task for the next CEO will be the labor talks. Many pilots, pleased with UAL's five-year stock performance and the power they yield, want ESOP 2. But the machinists--who barely approved it last time--are warier. If talks founder, United risks the kind of labor unrest that has plagued American and Northwest Airlines Does that corner office still look inviting?

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