Fair Value August 12, 2008, 5:37PM EST

United Airlines: O'Hare Today, Gone Tomorrow

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Ground crews at Chicago's O'Hare International Airport prepare a United 757 for a flight in this June 2008 photo. Justin Bachman

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Pilot Problems

It all goes back to 1994, when United won salary concessions from workers by giving them 55% of the stock and three board seats, a gambit that theoretically should have aligned everyone's interests. But in mid-2000, when the carrier was raking in high fares during the dot-com boom and counting on a big summer, the pilots essentially shut down the airline to win a big raise. "We don't want to kill the golden goose," said Rick Dubinsky, then the pilots' union chief. "We just want to choke it by the neck until it gives us every last egg." Management caved, just as recession and September 11 lurked.

Shift ahead to last month, when United sued to block the pilots' union from continuing work slowdowns and sickouts that prompted 330 flight cancellations affecting 36,000 travelers.

The union's position: United pilots resent having to work for five years under "draconian contract and work rules negotiated under the duress of bankruptcy," in the words of a union hotline recording. The pilots then upped the ante by warning regulators that recent engine problems demonstrate how "maintenance standards have deteriorated at United as operational decisions are increasingly driven by economic considerations." They also called for the "incompetent" CEO's head.

"United's unions feel that they are being made to pay for management's mistakes," says Gary Chaison, a professor of industrial relations at Clark University. "It's as though they are senior partners in sharing losses but junior partners in partaking of the profits in better times."

Customer Dissatisfaction

Of course, "better times" presupposes a customer goodwill that United, fraught with so much infighting, isn't exactly nourishing. According to government statistics, the carrier consistently ranks near the bottom in U.S. airline-customer satisfaction. UAL's torpor may have affected its Chicago hub at O'Hare, which ranks last in on-time departures among the 32 busiest U.S. airports.

You practically have to stage your own sickout to avoid hearing United horror stories, such as this one from an irate BusinessWeek colleague at the water fountain: "Last week, I waited for six hours at LaGuardia, through two canceled flights—one of which was canceled 10 minutes before boarding—and little to no communication about what was happening. Finally, one passenger discovered via his phone's Web connection that there had been a pilot walkout."

At various points, United has tried (in fact begged, an executive tells me) to merge with Continental, US Airways (LCC), and Delta, all to no avail.

Is it any surprise? The entire system is hopelessly gummed up. Too many second and third chances. Too many inefficient players chasing too few dollars. With the margin for error now nanometrically thin, there's no spare room for United's peculiar baggage.

Back in the day, United and its big peers divvied up the posthumous spoils of the old Eastern Air Lines and Pan Am. It's time the tired octogenarian joined those dearly departed.

BusinessWeek Senior Writer Farzad covers Wall Street and international finance.