CO United Airlines
October 23, 2001
By Hand Delivery
Board of Directors
UAL Corporation
World Headquarters
1200 East Algonquin Road
Elk Grove Township, Illinois
60007
Dear Members of the Board:
We live in challenging times.
The very fabric of our country has been, and continues to be, challenged
by terrorists whose callous disregard for human life has shattered the
dreams of countless numbers of families and left deep scars among all of
us that will never heal. Our economy, already reeling before September
11th, reflects the uncertainties and anxieties of our citizenry. As this
Board knows, these challenges have hit the airline industry especially
hard, both in terms of the financial losses that the carriers have experienced
and in terms of the extraordinary dislocation and economic hardship suffered
by the thousands upon thousands of employees who have lost their jobs in
recent weeks.
We are, no doubt, at a crossroads.
The weak will dwell on negatives, counsel defeat and never rise to face
the challenges that confront us. The strong will balance their understanding
and analyses of reality with the type of optimism required in order to
reverse the downward trends reflected in today's economy. Even more
important, the strong will lead.
As President of the International
Association of Machinists and Aerospace Workers, AFL-CIO, and as representative
of more than 40,000 current or recently laid-off employees of United Airlines,
it is apparent to me that UAL and United Airlines suffer from a woeful
lack of strong senior leadership.
If UAL and United Airlines
had strong leadership:
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UAL's stock would not be at
the lowest price since 1988;
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Lines of communication would
exist that would enable management and labor to partner in finding solutions
to the challenges that confront our company;
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The Chairman's horribly timed
and poorly conceived October 17th letter, and the resulting 21% drop in
UAL's stock price could have been avoided;
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Repeated warnings that sensitive
documents are routinely leaked from World Headquarters and other UAL locations
would not be disregarded;
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The approval by Congress of
an airline stabilization bill and the explicit recognition by our lawmakers
of the hardships confronting the airline industry would not have been followed
by an immediate and substantial downpayment on luxury business jets from
a foreign manufacturer;
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The failed merger with US Airways
would not have been so woefully mismanaged.
The Chairman's October
17th letter, itself, raises an extraordinary number of profound issues
concerning UAL's current leadership. We trust that the Board will
demand that Chairman Goodwin answer, at the very minimum, the following
questions:
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At a time when management is
spending precious advertising dollars to launch a new campaign featuring
the heartfelt, post-September 11th emotions of United employees, for the
very purpose of restoring the public's confidence in flying on United,
why would the Chairman announce that ".we are in a struggle just to survive"
and why would he publicly declare that if the "bleeding" is not stopped
soon, "United will perish sometime next year?" As we all know, expressions
of doubt about a carrier's financial viability can become a self-fulfilling
prophecy.
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At a time when United's remaining
employees are justifiably anxious about job security, why would Chairman
Goodwin tell them that "nothing is sacred or off-limits?" Given the
massive number of layoffs since September 11th, management should be doubling
its efforts to assure that the employees who remain on the payroll feel
secure so that they can perform their responsibilities to the best of their
abilities. Threats like this do nothing but destroy morale among the very
employees who are critical to United's future success.
-
It had to be apparent to Chairman
Goodwin that his letter would be read by the financial press and by financial
analysts. Indeed, management concluded that the letter was so newsworthy
from a financial point of view that the letter has been filed with the
SEC and posted on EDGAR. Given the exposure that this letter was
bound to receive, why would Chairman Goodwin say that "we are literally
hemorrhaging money?" Is this the way Goodwin speaks when he is addressing
financial analysts? How could the Chairman have ignored the reality
that his letter to employees would be read, interpreted, and analyzed by
the financial community.
-
Ratings by rating agencies are
very important to United, even in today's low interest rate environment.
I am sure that those agencies are focused on the airline industry in general,
and on United (among others) in particular. Given these sensitivities,
why would Chairman Goodwin state: "Our number one priority now is to get
United into a financial position that will allow us to continue operating.
We are not there yet."? It is impossible to see how such a statement
could help United's stock price or debt ratings. I cannot understand
why Chairman Goodwin would volunteer this information absent a duty to
disclose.
-
Statements which question an
entity's continuing viability can have independent legal significance in
a variety of contexts. Before the letter was leaked, did anyone check
with UAL's auditors or accounting staff to confirm that Chairman Goodwin's
hyperbole would not lead UAL's auditors to qualify the opinion that they
will be asked to express on the 2001 annual financial statements?
Before the letter was leaked, did anyone review UAL's and United's credit
documents to assure that Chairman Goodwin's admissions do not allow third
parties to accelerate United's obligations under such documents?
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This single letter has had wide
repercussions within the financial community and within United's work force.
No single person should be able to wreak such havoc, given the system of
checks and balances that exist in any corporation, let alone in United's
tightly drawn governance structure. Was the Board of Directors consulted
about this letter before it was disseminated? I am not sure which
would be worse -- discovering that Chairman Goodwin acted unilaterally
or learning that the Board was aware of the letter before it was published
and failed to stop it.
-
Why did Chairman Goodwin write
the letter in the first place? This may very well be the most perplexing
question of them all. If he felt that he had a responsibility to
disclose financial information to the market, he should have communicated
directly with the financial community. Perhaps a more conventional
approach would have avoided some of the freefall in UAL's stock price that
we all watched last week. If he felt that the letter was necessary in order
to motivate United's remaining employees to improve their individual performance,
he should have realized that a letter predicting the doom of the airline
could easily have the opposite effect. My sense is that employee
morale at United is at an all time low, due in large part to the employees'
lack of confidence in Mr. Goodwin and United's senior management.
If Goodwin felt that his message would improve United's position when stalled
negotiations with the IAM resume in the next few weeks, he completely underestimated
the will and resolve of this Union: we will not bend in response to the
alarmist rants of a disenfranchised chief executive officer who is clearly
not up to the task of crisis management in a time of crisis.
On October 17th, I responded
to Jim Goodwin's letter by echoing what I have heard throughout the United
system. I stated then, and reiterate now, that United Airlines will continue
to fly tomorrow, next month and next year. It will continue to deliver
passengers safely, in comfort and on schedule. There are nearly 100,000
United Airlines employees who will see that it does exactly that.
It is apparent that Chairman
Goodwin has lost the confidence of the constituencies to which the UAL
Board is responsible. The public shareholders have expressed their
dismay, moving the stock price to historic lows. Employee-shareholders
wake up each day to the grim reality that the tangible economic sacrifices
that they made in the past and continue to make have come to naught.
Employees in and out of the ESOP have called for Goodwin's resignation
or removal. Perhaps it is only United's competitors who favor Mr.
Goodwin's continued stewardship.
At this juncture, it is incumbent
upon the Board of Directors to take decisive action. On behalf of
the IAM, I call upon the Board of Directors to:
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Immediately commence an executive
search to identify Chairman Goodwin's successor, with a goal of removing
him as soon as an acceptable leader can be selected in accordance with
UAL's governance procedures. This can and must be a top priority.
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Direct legal counsel to determine
whether "cause" exists for Mr. Goodwin's termination under his employment
agreement and to assess whether Mr. Goodwin's statements last week have
compromised United's positioning under any material agreement.
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Direct management to embark
upon a program of damage control to shore up the confidence drain evident
in the financial community.
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Establish a senior level "Return
to the Skies" committee, with direct reporting responsibility to the Board
of Directors, composed of members of management, labor representatives
and members of the flying public, and charge that committee with the responsibility
of making prompt and practical recommendations to the Board as to how United
can effectively encourage the public to resume their use of United Airlines.
IAM General Vice President Robert Roach and I have requested Scotty Ford
and Randy Canale, the leaders of IAM Airline Districts 141M and 141, to
serve on such a committee or appoint top-ranking delegates to represent
them on such a committee and to present such a committee with concrete
proposals as soon as the committee is formed.
Now is not the time to
engage in lengthy, public debates. Now is not the time for self-serving
rhetoric designed to prop up one interest group at the expense of other
interest groups. Now is the time for action. There is no question
but that this Board will be judged by the manner in which it responds to
the challenges currently facing United Airlines. Your constituents
demand and deserve nothing less than decisive action to select new management
leadership for the airline, to restore the public's confidence in the underlying
strength of this franchise and to demonstrate to the financial community
that last week's statements of gloom do not symbolize the manner in which
this Board intends to respond to today's challenges.
I look forward to prompt
action by the Board.
Sincerely yours,
R. Thomas Buffenbarger
INTERNATIONAL PRESIDENT
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