Fatal Flying on Airlines No Accident in Pilot Complaints to FAA
Dec. 30 (Bloomberg) -- On the evening of Dec. 10, 2007,
pilot Kenny Edwards got the order to fly a Continental Airlines
Inc. commuter flight from Tampa, Florida, to West Palm Beach. He
told his dispatch supervisor he wouldn’t do it.
The plane’s collision avoidance system was broken, and a
worn seal around the main cabin door made it difficult to
maintain air pressurization above 10,000 feet, he told his
bosses.
Gulfstream International Airlines Inc., which operated the
Continental flight, ordered Edwards to fly the 19-passenger
Beechcraft 1900D turboprop plane anyway, Edwards says. He
refused. As a result, he was fired.
Edwards filed a complaint with the Federal Aviation
Administration, bringing into focus the hidden dangers of flying
on regional airlines, which account for half of all scheduled
passenger flights in the U.S., Bloomberg Markets magazine
reported.
In May 2009, the FAA found that Gulfstream had violated
multiple regulations; it proposed a $1.3 million fine.
Gulfstream is appealing the penalty, which would be the largest
ever for a regional, says FAA spokeswoman Alison Duquette.
FAA inspectors found that Fort Lauderdale-based Gulfstream
put planes in the air even after the company’s own staff had
repeatedly reported malfunctions in the aircraft.
Gulfstream crews documented seven times in a month that one
turboprop had faulty landing gear; eventually that plane touched
down without wheels under its nose, on its belly. Gulfstream
also scheduled crew members to work more hours than allowed,
according to the FAA.
Automotive Parts
And the airline had installed automotive parts not
certified by the FAA for use in airplanes. Edwards, 44, has sued
Gulfstream (which isn’t related to business jet manufacturer
Gulfstream Aerospace Corp.) under a Florida whistle-blower law,
alleging the company retaliated against him by firing him.
“They were trying to force pilots to fly airplanes that
weren’t in any condition to fly,’” Edwards says. “They did
everything to cut costs, and they seemed to be crossing a line
to where it was not safe.”
Edwards’s concerns resonate across the U.S. for millions of
people who fly regional airlines every year for business and
pleasure. Companies like Gulfstream run the fleets that Delta
Air Lines Inc., UAL Corp.’s United Airlines, Continental and
most other majors use for commuter flights.
Fatal Crash
Continental Flight 3407, operated by Colgan Air Inc.,
crashed in icy weather on Feb. 12, 2009, outside of Buffalo, New
York, killing all 49 people on board and one person on the
ground.
The plane’s captain had been trained by Gulfstream, which
also has an aviation school known as Gulfstream Academy. The
pilot and his first officer may have erred in responding to a
stall warning by pulling up the nose of the plane rather than
pointing it down to increase speed, the National Transportation
Safety Board found.
Gulfstream also trained the co-pilot on the last fatal
commercial airline flight before the Continental crash. That
involved a Delta commuter plane, operated by Comair Inc., which
used the wrong runway in Lexington, Kentucky, in August 2006,
killing 49 people.
Gulfstream also previously employed the two pilots who
crashed a Pinnacle Airlines Inc. plane with no passengers after
deciding to fly at their jet’s maximum altitude to have fun, the
NTSB found. They crashed and died in Jefferson City, Missouri,
in October 2004. The first officer attended Gulfstream Academy,
according to the NTSB.
A Coincidence
Gulfstream Chief Executive Officer David Hackett says it’s
just a coincidence that the crashes were piloted by graduates
from the company’s academy.
“The analogy we like to use is: You’re 25 years old; you
had a car accident; who taught you to drive at 16?” Hackett
says.
Pilots for regionals are often less experienced than those
who fly for the majors and are forced to work more-grueling
schedules, says U.S. Senator Mark Begich, a Democrat from Alaska
who sits on the Aviation Subcommittee of the Senate Commerce
Committee.
Regional companies handled more than 158 million passengers
in 2008, according to the Washington-based Regional Airline
Association. Regional flights usually bear the names of their
major airline partners.
Five Crashes
That leaves many passengers unaware that the planes they
fly on -- and the pilots who command them -- may not match the
safety standards of the airline whose name they see on their
tickets, Begich says.
The last five fatal crashes of commercial passenger
carriers in the U.S. involved planes operated by regional
airlines, according to the NTSB.
Major airlines contract out to regionals to lower their
expenses by getting around union agreements, says Captain Paul
Rice, first vice president of the Air Line Pilots Association,
the world’s largest pilot union, with about 53,000 members.
“The way the industry is structured is that management
will go out and find a new airline and start siphoning off the
business to whoever will fly for cheaper,” says Rice, 52, a
pilot at United for 23 years.
“The American public is only just starting to wake up to
that,” Rice says. “What they are buying is the lowest-cost
operation that’s available.”
Guaranteed Cockpit Time
Pilots, mechanics and crew schedulers say Gulfstream
International doesn’t want to hear complaints about safety.
Founded in 1988 as a charter airline, Gulfstream now flies
commuter planes for Continental and United, mostly in Florida
and the Bahamas. Gulfstream has never had a fatal accident.
Pilots say Gulfstream has an unhealthy relationship between
its airline and its flight school. Gulfstream’s training program
is different from others, because it guarantees students time as
a first officer, the No. 2 position in the cockpit, flying
passengers for its own airline, Gulfstream says on it Web site.
“We offer the fastest possible transition to the ‘Right
Seat’ of a commercial airliner,” Gulfstream says.
For $32,699, students get 522 hours of training --
including 250 hours as a first officer for Gulfstream
International Airlines. That means student pilots are paying
Gulfstream for the privilege of flying as first officers.
“Gulfstream is selling the job,” says Charlie Preusser, a
regional airline pilot who flew for Manassas, Virginia-based
Colgan Air. “When you’ve got a guy fronting the cash, there’s a
lot of pressure on the company to keep him onboard no matter how
bad he is.”
Meeting Standards
Gulfstream CEO Hackett says all of the airline’s first
officers meet FAA standards to fly a commercial airline.
Gulfstream International Group Inc., the parent of both the
airline and the flight school, went public in December 2007.
Its share price dropped 21 percent in the week following
the May 21, 2009, FAA-proposed fine. The stock has tumbled a
total of 51 percent to $1.42 as of Dec. 29. In the four quarters
ending September 30, 2009, the company reported $6.5 million in
losses, with $88.7 million in revenue.
Gulfstream’s initial public offering was underwritten by
Taglich Brothers Inc., a New York brokerage that publishes
research on 31 companies with market values of less than $250
million. Michael Taglich, president and chairman of the firm, is
Gulfstream’s largest individual shareholder, regulatory filings
show.
“Gulfstream didn’t do anything materially wrong, and I’m
confident that there’s no material substance to the FAA
allegations,” Taglich says.
Shares Downgraded
Taglich Brothers, the only company that rates Gulfstream
stock, downgraded its recommendation on the shares to
“neutral” from “speculative buy” in June because of the
proposed FAA penalty.
In October, the U.S. House of Representatives voted to
toughen training requirements so that an airline pilot would
need 1,500 flight hours, up from 250 currently. The Senate
hasn’t yet voted on that measure.
“It’s clear there’s a difference between the major
airlines and the regionals,” Senator Begich says. “It’s bad
business and bad safety procedure for the majors not to
understand that whatever standards they’re living by, they
should have the same standards for their regionals.”
One of the FAA’s top priorities is making performance
consistent across major and regional airlines, says spokeswoman
Duquette.
‘Definitely Acknowledge’
“We definitely acknowledge there needs to be a greater
level of professionalism,” she says of regional airlines.
On June 15, the FAA asked airlines in the U.S. for written
commitments showing they’ve started or planned accident-
prevention programs; 98 percent have done so, the FAA said in
October.
Roger Cohen, president of the Regional Airline Association,
says the more than 30 companies he represents follow all federal
regulations.
“There is no gap between major airlines and regionals on
safety because it is the No. 1 priority and the same for every
airline,” he says. The association opposes raising minimum
flight hours to 1,500 because that could discourage people from
becoming pilots, Cohen says.
The major airlines say they trust their regional
counterparts.
‘Top Priority’
“Safety is Continental Airlines’ top priority, and we
expect the same from our partners,” spokeswoman Julie King
says. She declined to comment on Continental’s affiliation with
Gulfstream.
United Airlines spokeswoman Megan McCarthy says, “All of
our regional airline partners meet FAA and United’s own high
standards.” US Airways Group Inc. spokeswoman Valerie Wunder
declined to comment. Delta Air Lines spokeswoman Betsy Talton
didn’t return calls for comment.
The majors don’t typically hire pilots straight out of
flight school. Pilots usually get experience at regionals first
and have accumulated about 4,000 hours of flight experience
before they’re hired by the large airlines, according to the
Bureau of Labor Statistics.
Regional airlines pay pilots annual salaries as low as
$18,264, according to Kit Darby, a retired United Airlines
captain who’s now a consultant and flight instructor in Atlanta.
That salary level was below the official poverty line of $21,834
for a family of four in 2008, according to the U.S. Census
Bureau.
Pilots Commute
Pilots endure the low pay for the promise of six-figure
salaries at the major airlines, says Darby, who has testified in
civil cases for both defendants and plaintiffs as an expert on
pilot hiring and compensation.
Pilots for regionals frequently commute across the U.S. for
flights because they can’t afford to live near the airports
where they’re based, Darby says.
Before operating a plane, they often sleep in crew lounges
or at so-called crash pads, temporary apartments where as many
as six pilots share a bedroom. Former Colgan pilot Preusser
lived full time in a crash pad in Albany, New York, in 2007.
He says he slept on an air mattress and shared a room with
three or four people. One pilot slept in a walk-in closet, he
says. Many regional pilots can’t afford meals and keep track of
which hotels offer free continental breakfasts, Preusser says.
Preusser says he remembers falling asleep in the cockpit
while piloting a 50-seat Embraer RJ145. He had been on standby
and was assigned at the last minute to fly a 7 p.m. flight from
Dallas to Cincinnati.
‘It’s Very Scary’
The next day, he started at 5 a.m. and flew three more
flights. On the final trip that day, he dozed off for a few
seconds.
“That adds up to: Let’s just play Russian roulette with
air traffic safety,” Preusser says. “In the pilot world, being
aware of your environment and what the airplane is doing is
absolutely requisite. You’re not fully conscious or even
conscious at all and then you snap to, and it’s very scary.”
John Nance, a retired Air Force pilot who also flew for
Alaska Airlines and has about 40 years of flying experience,
says airlines are closing their eyes to issues of training, pay
and living conditions among regional pilots.
“This business of see no evil, hear no evil doesn’t cut
it,” says Nance, who’s testified for both plaintiffs and
defendants in civil cases as an expert on air safety. “It is
totally unacceptable legally, morally, ethically for any airline
leadership to pretend they don’t know what they know.”
‘Fly Smart’
At Gulfstream Training Academy in Fort Lauderdale, the
company tells prospective students that the school will teach
them all they need to know about being commercial pilots.
“Jump-start your airline pilot career,” the academy says
on its Web site. “Fly safe, fly smart, fly Gulfstream.”
The aviation school is about five miles (eight kilometers)
from the Atlantic coast, and its campus is peppered with palm
trees. Former Gulfstream pilot Edwards, who says the academy
trained him well, says students would study sitting by the
ocean.
“We would go to the beach and sit there in chairs on the
sand and quiz each other,” he says.
Gulfstream pays its new first officers $19.01 an hour to
fly. Before September, the trainee first officers were paid $8
an hour.
“I’ll stack our training program against any in the
industry,” says Hackett, 48, a former director of financial
planning at Continental who joined Gulfstream in 2003 and became
CEO in 2006.
Broken Parts
Dan Brisco, a licensed pilot who spent 18 months as the
lead mechanic at Gulfstream’s Tampa base until the end of 2007,
says Gulfstream Airlines is more concerned with cutting expenses
than in focusing on safety.
Brisco says Gulfstream routinely flew passengers on planes
with broken parts, including wheels and landing gear.
“They push the airplanes out in whatever condition they’re
in,” says Brisco, 51, who has more than 20 years of experience
as an airline mechanic. “Unless they physically stop running,
they’re not going to get any maintenance.”
Brisco says he left Gulfstream in 2007 after he repeatedly
complained to his supervisor that the company’s operations were
unsafe. He has since spoken with the FAA.
Gulfstream spokesman Bruce Hicks says Brisco never
complained about safety issues.
When the FAA announced its proposed $1.3 million fine of
Gulfstream in May 2009, the agency said the airline had
installed unapproved air-conditioner compressors in its planes
between September 2006 and May 2008.
Not FAA-Certified
Gulfstream has 23 Beechcraft 1900D turboprops, according to
a Nov. 16, 2009, regulatory filing. Gulfstream bought automotive
air-conditioner parts for its aircraft and modified them to use
in planes, an FAA inspector found.
Such equipment isn’t certified for use on aircraft, the
inspector wrote. Brisco says the danger of using non-FAA
certified parts is that they could explode because they may not
be able to withstand extreme temperature and air pressure
changes.
FAA inspectors found that crews had repeatedly reported
several malfunctioning parts on airplanes, including vapor cycle
systems.
The FAA hasn’t yet collected the fine. FAA spokeswoman
Laura Brown says she can’t comment on Gulfstream because the
agency is in the middle of an enforcement action.
The agency hasn’t publicly released its inspectors’
reports. Former Gulfstream pilot Edwards obtained them through a
Freedom of Information Act request.
No Safety Issue
Hackett says his company bought the same parts that are in
FAA-approved air conditioners to make repairs that met FAA
standards, so there was no safety issue.
“We believe what we did is correct,” he says. After the
FAA inspection, Gulfstream replaced the parts with FAA-approved
compressors.
Brisco says he remembers in May 2007 when the landing gear
for the nose of a plane didn’t come down when arriving in Tampa.
The plane landed on its belly and had to be evacuated on the
runway, a risky maneuver that could have resulted in death or
injuries, Brisco says.
Pilots had been complaining for several days that the gear
wasn’t working properly, and mechanics were signing off on the
safety of the aircraft without fixing it, Brisco says.
The FAA’s Service Difficulty Record database documents that
May 11, 2007, landing. The files show that the pilots shut down
one of the plane’s engines at an altitude of 1,000 feet (305
meters) and turned off the second engine before touching the
ground.
Six More Reports
There were six other reports filed in the previous month
about the landing gear malfunctioning on that same plane.
Gulfstream spokesman Hicks says the landing gear was a
manufacturer’s shortcoming, not a maintenance issue. He says
Gulfstream’s maintenance program has received the FAA’s diamond
certificate of excellence for 13 consecutive years, including
2008.
That distinction is based solely on the number of hours
personnel spend in training, says the FAA’s Duquette.
Gulfstream pushes fledgling pilots to fly for more hours in
a day than the FAA allows, says Mary Hebig, who was a crew
scheduler at Gulfstream from 2005 to 2007.
Hebig, 64, says she quit because she didn’t want to be
responsible for scheduling pilots who were flying while fatigued
and on unsafe aircraft.
‘Like Their Mother’
“I just felt like their mother,” Hebig says. “Some of
these kids are so young, and they want to do the right thing.
They come out of the academy, and everyone is telling them, ‘You
gotta suck up to Gulfstream, do what they say.’ These poor kids
are brainwashed from the time they hit the street.”
Hackett says Hebig doesn’t understand FAA rules on flying
hours.
Hebig, who worked the night shift, says she remembers
seeing firetrucks in October 2006 surround an aircraft that took
off from Fort Lauderdale and made an emergency return after an
engine failed in flight.
“Thank God everybody made it back OK,” she said. “Two
days later, the same aircraft went out of Fort Lauderdale again
and had another return with the same engine and same result.”
Gulfstream fixed the engine after its second failure, she
says.
“We train our pilots to be overly cautious,” Hackett
says. “I’m not saying it’s an everyday matter, but sometimes
engines don’t always work perfectly.”
Exceeding Limits
When the FAA announced its fine in May, it said Gulfstream
hadn’t properly entered pilot flying hours from its manual,
hard-copy logbooks into its computers. As a result, crew members
flew more hours than the FAA allowed, both daily and weekly, the
regulator found.
Gulfstream dispatchers were routinely working shifts
exceeding the regulatory maximum of 10 hours, an FAA inspector
wrote.
John Horton, director of safety at Gulfstream, told FAA
inspector Terrence McMaster in May 2008 that most Aviation
Safety Action Program reports -- confidential complaints filed
by pilots without punitive consequences -- centered on crew
members who worked more than their legal limit of 16 hours a
day.
“Mr. Horton stated that in one case it was discovered by
him, during the course of his investigation, that a crew
scheduler had falsified flight times and duty times,” the FAA
inspector wrote.
Never Falsified Records
Hackett says the FAA is confused by Gulfstream’s record
keeping. He says the company never falsified flight or duty time
records and doesn’t ask its pilots to fly more than the legal
limits.
Edwards, the former Gulfstream pilot who’s now a whistle-
blower, had long dreamed of becoming an aviator. The walls of
his living room are decorated with images of airplanes from
vintage travel posters.
Since leaving Gulfstream, he has made ends meet by working
as a waiter in a sports bar and giving guitar lessons.
He attended Gulfstream Academy in 2000 and was hired by
Gulfstream Airlines in 2001 as a first officer after
accumulating about 460 hours of flight time, including the 250
he bought flying for the airline, he says.
Edwards, who’s 6 feet tall and sports a goatee, says his
Dec. 10, 2007, flight assignment from Tampa to West Palm Beach
wasn’t the first time he’d found a Gulfstream plane unsafe.
Stormy Weather
He refused to fly one of Gulfstream’s turboprops from West
Palm Beach to Tampa in stormy weather on Oct. 1, 2007, because
he says it didn’t have all of the equipment needed to safely
approach an airport and steer the aircraft on the ground.
After he complained, Gulfstream gave him a work schedule
that made it virtually impossible for him to fly home and see
his wife in Phoenix, Edwards says. Edwards decided to quit. He
gave Gulfstream two weeks’ notice several days before the Dec.
10 flight assignment.
The turboprop that day had a broken traffic and collision
avoidance system, or TCAS, which shows pilots the location of
other aircraft relative to their position in the air, Edwards
says.
In addition, worn-out door seals meant the cabin wasn’t
properly pressurized above 10,000 feet, he says.
Hackett says the TCAS on that airplane had been repaired,
and it wasn’t needed anyway.
“I can tell you with certainty that maintenance signed it
off,” Hackett says. “He inconvenienced a whole planeload of
passengers for a plane that was legal to fly.”
Nothing Wrong
Gulfstream spokesman Hicks says there was nothing wrong
with the plane’s air pressurization and that another pilot later
flew the plane without incident.
Edwards says he saw maintenance workers remove the broken
TCAS, which is a computer, lubricate its plug, and put it back
in, saying it was fixed.
“I didn’t think that plane was safe to fly,” he says.
Federal Aviation Regulation Part 121.533 says, “Each
pilot-in-command has full control and authority in the operation
of the aircraft.”
Edwards says that on the evening he refused to take the
plane in the air, Gulfstream’s director of operations told him
he should consider his resignation effective immediately.
The next day, Dec. 11, 2007, Gulfstream sent Edwards a
letter saying he was fired because he had refused to operate the
flight.
“Your decision delayed the flight for over two hours and
inconvenienced our customers without just cause,” the notice
says.
Suit Contested
Edwards filed his lawsuit in September 2008 in Broward
County under a Florida whistle-blower act that protects
employees from retaliation if they complain about wrongdoing at
their company. He’s seeking compensatory damages of more than
$15,000.
In a court-filed response dated Nov. 11, 2008, Gulfstream
denied any wrongdoing and requested dismissal of the case, which
is pending.
The cost-cutting culture is pervasive at regional airlines,
putting passenger safety at risk, says Scott Erickson, a captain
at Pinnacle Airlines, based in Memphis, Tennessee, and head of
Pinnacle’s pilots union.
Pinnacle Airlines Corp. owns Colgan, which operated the
Continental commuter that crashed near Buffalo. Pinnacle
spokesman Joe Williams says, “The goal is to be the industry
leader in safety, not just the regionals’.”
Erickson says the battle for the lowest ticket price that’s
ensued since airlines were deregulated undermines protection of
passengers and flight crews.
“We say, ‘Competition is the enemy of safety,’” says
Erickson, who lives in Minneapolis and joined Pinnacle in 2000.
Lower Fares
The Airline Deregulation Act of 1978 removed government
controls on fares, routes and schedules to encourage
competition. Adjusted for inflation since 1978, the cost per
passenger of flying one domestic mile has halved to 4.19 cents
as of 2008, according to the Air Transport Association.
The growth in commuter airlines accelerated in the past two
decades with the invention of the regional jet.
“The geographic scope of regional airlines now has gone
almost coast-to-coast from just a couple hundred miles with
turboprops,” says Roger King, an analyst at Creditsights Inc.
who has covered airlines for 20 years.
“As the jets came in, they were able to fly more people
cheaper and faster. The demand accelerated,” King says. In
exchange for flying routes at decreased costs for major
airlines, the regional carriers get to piggyback off their
larger partners’ brand and customer base.
A Fixed Fee
“Without the majors, the little airline would have to do
its own marketing; it would have to take the risk of oil price
hikes and demand,” King says.
“They’re providing the service to the major airline for a
fixed fee,” he says. “They’re forced to cut their costs to the
bone to make up for the fact that the major airline can’t
because of union contracts.”
SkyWest Inc.’s agreement to fly under the Delta name
requires the regional airline to keep its costs at or below the
average rates for all of Delta’s commuter airline partners,
SkyWest Chief Financial Officer Bradford Rich said on its first-
quarter earnings call in May.
When Delta acquired Northwest Airlines Corp. and its
commuter contracts in 2008, Delta’s average rates went down,
forcing SkyWest to cut its costs, said Rich, who didn’t return
calls seeking comment.
CEO Jerry Atkin said in June that St. George, Utah-based
SkyWest’s costs are among the lowest in the industry, allowing
it to take market share when competitors’ contracts expire.
‘Do Things Right’
Rice of the Air Line Pilots Association says the cost-
saving approach in the industry discourages regionals from
putting more effort into safety.
“The regional airlines that do things right, that train
well above the minimum required standards, should not be
penalized by the industry structure that we have in this
country,” Rice says.
Many regional pilots say that affording a place to live is
often harder than flying. Low pay coupled with airlines that
regularly open and close bases have made the commuting of
hundreds of miles to work the norm, says pilot Mark Segaloff,
who lives in Austin, Texas.
His flight assignments are based out of Newark, New Jersey.
‘Didn’t Really Know’
“I didn’t really know how difficult it would be,” he
says. His initial pilot salary was $22,000 a year, so he worked
a side job as a waiter at a TGI Friday’s restaurant in Albany,
New York.
Segaloff, 26, is now a captain and head of the Colgan
pilots union. To cope with the commute, many pilots stay in
crash pads near airports.
The Web site www.crashpads.com has a database with 350
listings, says Steve Botkin, president of Flight Crew Services,
who started the site in 1997. Crash pads provide better sleeping
conditions than crew lounges, says Botkin, whose site has had
10,000 members.
Mark Yakopovich, a flight attendant for Republic Airways
Holdings Inc., says he decided to run his own crash pad near
LaGuardia Airport in the borough of Queens, New York, eight
years ago after staying at unlocked apartments that sometimes
didn’t even have beds.
Yakopovich, 56, charges $200 a month for one of 22 beds in
his five-bedroom, two-bathroom apartment in East Elmhurst, New
York. The crash pad is two apartments on the first and third
floors of a brick building that’s a five-minute walk to a US
Airways building.
Arrows to Mattresses
The bottom apartment’s living room functions as the common
area for both spaces, with a futon, a television and a desk. The
kitchen is upstairs in the third-floor apartment. The bedposts
have stickers on them with pilots’ and flight attendants’ names,
along with arrows pointing to their mattresses.
“You need a place that doesn’t smell like sewage,” he
says. “I feel very strongly about having a quiet place, a
secure place and your own bed to get the rest. It’s all about
saving lives.”
The commuting and living conditions, the pilot fatigue, the
minimal training and the use of faulty aircraft are posing a
danger for millions of Americans.
“Here’s what the customers do: They assume the FAA, the
federal government and the airlines are doing their job on
safety,” says Senator Begich.
No Action
The FAA and federal government have failed to ensure that
regional airlines are as safe as their major partners, says
Begich, whose father died in a 1972 charter plane crash.
In the 10 months since the fatal crash in upstate New York,
the U.S. Senate held six hearings on aviation safety and two
more on the reauthorization of the FAA. So far, it has taken no
action.
The FAA said in mid-2009 that it would introduce new
regulations regarding pilot flight hours by Dec. 31. Now, it’s
saying the rules will change in 2010.
Former Gulfstream pilot Edwards says government delays in
enforcing and improving safety rules put the public at risk.
“The only thing that I think would really change the
situation, as much as I hate to say this, is more accidents,”
he says.
Until the FAA steps up, passengers traveling on commuter
flights will be left wondering whether buying a cheaper ticket
will continue to mean bargaining away their safety.
To contact the reporter on this story:
Caroline Salas in New York at
csalas1@bloomberg.net;
***********************
Mr. Cotten's character, a pulp fiction writer named Holly Martins,
asks him how he could do such an evil thing for money. The two men are
at the top of the Ferris wheel, and the people below them look like
tiny dots. Mr. Welles's villain looks down and says, "Tell me, would
you really feel any pity if one of those dots stopped moving forever?
If I offered you £20,000 for every dot that stopped, would you really,
old man, tell me to keep my money, or would you calculate how many dots
you could afford to spare?"
United is one of the proudest names in airline history. It has long
been a synonym for fine service and extensive, convenient routes. In
the early 1990's, when some investment bankers were casting around for
a way to make tens of millions of dollars, they came up with a doozy:
the employees of UAL would give up some of their salaries and benefits
in exchange for stock in UAL, eventually becoming UAL's largest owner
through an employee stock ownership plan.
The deal went through — with staggering compensation to Wall Street
— and in 1994 the American employees of UAL, as a group, became its
largest owners. Within a few years, overseas personnel were allowed the
privilege of tossing their life savings into UAL, too.
Trouble was not far behind. The employees found management demanding
pay cuts, big (and, for passengers, inconvenient) changes and cuts in
scheduling and services, and even silly changes in their once-great
flight attendant uniforms. Then came the blows of 9/11 and a recession,
and then rising fuel costs. There were demands for more cuts in pay and
benefits and more layoffs. That was not enough. About three years ago,
UAL was "forced" to enter bankruptcy to stay alive.
This step meant that UAL could drastically cut workers' pay — and it
did. Pensions were simply jettisoned and made the burden of the federal
government's Pension Benefit Guaranty Corporation,
which meant cuts of close to two-thirds in some pilots' pension
payments. And, of course, the bankruptcy simply eliminated all of that
equity in UAL that the employees had bought with their hard-earned
savings.
Thus, in a series of evil events, management of UAL basically ruined
the lives of the employee-owners, if that is not putting too fine a
point on it, by taking away their savings, incomes and pensions. (I am
indebted to my pal, Phil DeMuth, for much of this research.)
All right, you might say. What else could management have done amid
high fuel costs and a deregulated, supercompetitive market? That's
"creative destruction," and it's good for the economy, some of my
fellow Republicans and admirers of the free market might say. But what
about the rules of law and common decency? Because, you see, there is a
bit more to the story.
Now UAL has been reorganized. It is preparing to emerge from
bankruptcy. It will soon have a stock offering. This offering is
expected to raise very roughly $6 billion. It is presumably worth that
because UAL now has such low labor costs that it may actually make a
profit of some size. (I'll believe it when I see it.)
Here comes the good part: management has asked the bankruptcy court
to let it have — free — roughly 15 percent of the stock in the new
company, or about $900 million. Mr. Tilton, the chief executive, who
plays the Orson Welles character in this drama, would get about $90
million personally for his hard work shepherding UAL through bankruptcy
(for which he was already paid multiple millions of dollars).
The bankruptcy court, instead of ordering Mr. Tilton's arrest,
instead cut the management share to about 8 percent, so he will get
more than $40 million, more or less. That is more than Lee R. Raymond,
the chief executive of Exxon Mobil,
one of the most successful companies of all time, was paid in 2004 (not
counting Mr. Raymond's 28 million shares of restricted stock).
So here it is in a nutshell: employees are goaded into investing a
big chunk of their wages and benefits in UAL stock. They lose that.
Then they lose big parts of their pay and pensions. They become peons
of UAL. Management gets $480 million, more or less. "Creative
destruction?" Or looting?
Wait, Mr. Tilton and Mr. Bankruptcy Judge. The employees were the
owners of UAL. They were the trustors, and Mr. Tilton and his pals were
trustees for them. How were the trustors wiped out while the trustees,
the fiduciaries, became fantastically rich? Is this the way capitalism
is supposed to work? Trustors save up, and their agents just take their
savings away from them?
If the company is worth so much that management has hundreds of
millions coming to them, shouldn't the employee-owners get a taste?
Does capitalism mean anything if the owners of the capital can be wiped
out while their agents grow wealthy? Is this a way to encourage savings
and the ownership society? Or is this a matter of to him who hath shall
be given?
I know that this is basically the same story I described recently concerning the Delphi Corporation,
where something similar is going on. But that's exactly the point.
Management is using competition, higher fuel costs and every other cost
complaint to cut the pay and pensions of its own employees while
enriching itself.
And I can well imagine what goes through Mr. Tilton's mind as he
does it: "Hey, I'm a great executive. Great executives in
private-equity firms make more than I do. Why shouldn't I get the
moolah? Basically, I've worked it so UAL is now a private-equity deal
anyway. That's what it's all about now, isn't it? Who's got the most at
the end of the day at Bighorn or the Reserve or whatever golf course I
choose to retire at? And, anyway, wouldn't you take $48 million for a
few of those dots we used to call our employees and owners to stop
moving?"
Ben Stein is a lawyer, writer, actor and economist. E-mail: ebiz@nytimes.com.
Correction: Feb. 5, 2006, Sunday:
Because of an editing error, the Everybody's Business column last
Sunday, about executive pay at the UAL Corporation, misstated part of
the compensation for the leader of another company in 2004. Lee R.
Raymond, then the chief executive of Exxon Mobil, received restricted
stock worth $28 million; he did not receive 28 million shares of
restricted stock.