Nineteen ninety-nine may be the year history started repeating itself in airline employee ownership. Pilots at American Airlines began debating in the fall whether to lead a buyout of AMR Corp., the world's second-largest carrier. Voting in Dallas/Fort Worth, Miami and Los Angeles, small groups of pilots, members of the independent Allied Pilots Association, overwhelmingly endorsed resolutions to proceed with a study. Although members who voted 102-10, 37-3 and 41-1 constitute less than 2 percent of the union's membership of 9,800, the circumstances of their decision, the prevalence of employee ownership in the airlines, and current industry conditions all point to even odds that the initial stirring will culminate in eventual employee control at American.

The APA buyout votes followed by about eight months a pilots' sick-out over seniority issues in the integration to American of pilots at Reno Air, which American acquired in late 1998, a job action that some observers saw as avoidable if American management had been better at communicating with its pilots. The sick-out cost the carrier an estimated $225 million in lost fares during high-travel Presidents' Week and resulted in a federal fine of $45 million slapped against the APA.

In this respect, events at American echoed those at United Airlines in the 1980s. Pilots at United made their first attempt at a buyout in mid-1987 while still smarting from a 20-day strike two years before over introducing two-tier pay scales (to better compete with American). United's pilots, members of the Air Line Pilots Association, succeeded. By June 1994, on their fourth try and in league with the International Association of Machinists and Aerospace Workers, they made United the only majority-employee-owned airline to date. (United's third largest union, the Association of Flight Attendants, opted out of the ESOP, which includes salaried employees.)

Today, the pilots and the Machinists each have seats on the board of directors of United's parent company, UAL Corp., as do salaried employees. Through supermajority voting provisions the two unions have veto authority over major transactions, their directors sit on the board's most important committees, and they effectively select the company's top executives. At the moment UAL is the world's largest airline and in December was the only U.S. carrier to have a "bullish" Standard & Poor's technical rating. Its stock, which quadrupled in value in the years after the 1994 buyout, took a free fall in January 2000 because of projected fuel price hikes and pay raises for employees. This is an industry-wide phenomenon, but most acutely felt at UAL.

The two colossi of an industry that rewards enormous scale, United and American have swapped No. 1 and No. 2 rank a couple of times in the last few decades. United last surrendered the top spot not long after its 1985 strike but overtook American in market share in 1996.

By the time United became the first majority employee-owned carrier in 1994, minority employee ownership had become common in the airlines. At least 11 had used one kind or another. ESOPs at Trans World Airlines, Northwest Airlines, and Hawaiian Airlines were instituted in 1993 as company-savers, all three bringing significant union representation to the boards of directors. ESOPs in the 1980s were critical to survival strategies at Eastern, Pan Am, Western, Republic and Pacific Southwest Airlines; each company saved tens of thousands of jobs while gaining invaluable knowledge about employee participation. The startups People Express (1981-86) and Kiwi International Airlines (1992-95), badly managed and short-lived though they were, likewise contributed useful lessons; both nonunion carriers used non-ESOP employee-investment schemes to get off the ground. Southwest Airlines, today's fastest-growing major airline, is partially employee-owned through stock options for pilots, and through a condition of company-wide profit-sharing that a quarter of the money go to buy company stock. There are millionaires and near-millionaires among rank-and-file employees of the highly unionized airline as a result, but no employee representatives on Southwest's board.

Employee ownership has been a natural for the major airlines since the Airline Deregulation Act of 1978 ended their status as a government-protected cartel and threw them into fierce competition with each other and a flock of startups. In the last three years of the crisis, through 1993, nine of the 10 top carriers (Southwest proving the phenomenal exception) together lost more than $12 billion. Beginning in the mid-1990s all but one of the top 10 (TWA) started generating cash.

1999 was the eighth consecutive growth year for air travel in the United States. The record 600 billion revenue passenger miles (RPMs) logged by the majors reflected a 2.5 percent gain over 1998. There is evidence, however, that the industry is heading toward change which — if nowhere near as jarring as that caused by deregulation in 1978 — may bring impetus for another surge of employee ownership.

A routine drama that played out one week last fall is symptomatic of a tightening market. On Nov. 22, American Airlines announced a 3 percent fare increase. Continental, Delta, and United quickly followed. But the refusal of Northwest, TWA, US Airways, Southwest, and America West Airlines to do so was decisive. Delta rescinded its 3 percent hike on Nov. 25, and the next day American, United, and Continental backed down.

The boost had been reasonable. In a strong overall economy, airline profits were expected to be down by a quarter for 1999 because of higher fuel costs, seemingly a standard case for passing on some of the costs to consumers. Fuel is the second highest expense for the major airlines after labor, itself a rising expense. While announced airline fare increases had totaled about 15 percent in 1999, industry analysts said, passengers were actually paying nearly 1 percent less than in 1998 because they were landing better deals with the help of the Internet. Even traditionally price-insensitive business travelers were flying for less as corporate travel managers became more bargain-conscious. Nearly three-quarters of them surveyed in early 1999 said they expected reduced travel budgets. This is significant because business customers account for 50 percent of airline revenues but only 40 percent of passengers. The major airlines' thin profit margins were becoming thinner. Price competition and stepped-up strategic maneuvering are two consequences.

Union power and industry volatility make the major airlines well suited to employee ownership, and vice versa. International labor unions not only remain dominant in the major airlines but have gained strength since the 1980s when they first came to their employers' rescue through investment bargaining. They have a firmer footing than their counterparts in other industries because they are not governed by the National Labor Relations Act but rather the Railway Labor Act. The NLRA permits companies to shift work and jobs to non-unionized plants elsewhere. Under the RLA airlines unions serve their members in company-wide bargaining units.

A particular incentive for unionized pilots to seek control is that their jobs are industry-specific and their pay and pecking-order rank in one airline is based on seniority; they have more to lose than other employee groups if their employer merges or is acquired by another airline or is forced out of business.

Another reason for employee ownership in this highly unionized industry is that most of the majors, as Peter Cappelli observed in his book Airline Labor Relations in the Global Era, "are now too big to take a strike. The consolidated carriers simply have too many jobs to fill, especially for pilots and mechanics, in too short a time to use permanent replacements." Airlines have reason to want their unionized employees' interests aligned with stockholders'.

And because (as Cappelli notes) something resembling the pattern bargaining best known in the automobile industry has come to the increasingly competitive airlines and unions can demand higher settlements, it makes sense for them and for management to consider compensation in stock as well as wages. The larger unions find themselves in a position to couple this equity piece with boardroom clout.

The importance of customer satisfaction in a service business like the airlines makes employee-stockholder alignment of interests key. Motivated workers make a big difference in on-time flights, proper baggage handling, clean cabins, courteous check-ins, and in-flight hospitality. Southwest Airlines has exemplified this by winning the Department of Transportation's "Triple Crown" award — for best on-time performance, fewest customer complaints and lowest number of mishandled bags — every year since the award was established in 1987. And the increased employee and equipment productivity likely to result from this alignment are particularly relevant to airline companies that need to control costs to remain competitive.

Employee ownership doesn't guarantee harmony and trust and marketplace feats. Northwest Airlines was set back by a 15-day pilots strike in 1998, and after prolonged negotiations its Teamster-represented flight attendants rejected a contract in 1999 which at this writing is still unresolved. Northwest management seems never to miss a chance to demonstrate its lack of rapport with its union groups. TWA, which would be out of business without its ESOP and its employees' participation and which (by contrast with Northwest) has a management that repeatedly showers recognition on them, was the recipient of a mostly failing Machinists' "report card" in December 1998 that found little to recommend about the carrier's top two executives.

An example of union efforts to keep TWA flying is an unprecedented two-day meeting of its ALPA and Machinist leaders in Rome last November with their counterparts representing TWA employees in France, Spain and Italy on the airline's international operation and ways to increase revenue while reducing costs. ALPA leader Tom Brown termed the conference "the first time in my 30 years [at TWA] that the domestic employee groups teamed with our international co-workers to address the issues of competition." William O'Driscoll, president of IAM District Lodge 142, said the information garnered would "assist the TWA board of directors in making the right decision about the international operation." It is, of course, possible that discussions included the merits of another equity infusion into TWA.

Brown, head of the ALPA Master Executive Council at the airline, says the perspective he enjoys as a member of the board of directors, is much more valuable than the pilots' 4 percent of stock, which has been declining in value. At UAL, Captain Mike Glawe, who just stepped down as MEC chairman and a board member, sees the value of United's industry-leading ESOP as twofold: "work together with trust and harmony, and fairly divide the wealth."

Five AFL-CIO unions have built up more than a century of experience with ESOPs in the airlines in less than two decades. ALPA has represented its members at eight ESOP airlines beginning with Pan Am in 1981. The Machinists are next with experience at six, followed by the Teamsters with five, the Transport Workers with four, and the Flight Attendants with three. (The Airline Mechanics Fraternal Association, a craft union founded in 1962, opposes ESOPs as irrelevant or counter to their members' interests.) As is the case in hundreds of union experiences with employee ownership in other industries, those in the airlines have provided openings for new roles in business as well as opportunities for labor-management and inter-union cooperation.

A final thought, perhaps not too Polyannaish, is that falling value of airline stocks is not a bad thing for employee ownership in this industry with a solid future. It makes large blocks of stock that much more affordable to would-be employee owners.