An Airline Divided -- Horizon Air Is No Longer Tiny, And It's No Longer One Big, Happy Family, Either

----------- Horizon Air -----------

Founded: 1981. Acquired by Alaska Air Group in 1986.

Headquarters: 19521 International Blvd., SeaTac.

Executives: John Kelly, chairman; George Bagley, president and CEO.

1998 revenue: $348 million, or 18.3 percent of Alaska Air Group's total.

1998 net income: $10.9 million, or 8.8 percent of Alaska Air's total.

Employees: 3,500.

Service: Flies to 40 cities in Washington, Oregon, California, Idaho, Montana, British Columbia and Alberta.

Biggest markets: Seattle, Portland and Boise.

Feeder volume: 25 percent of Horizon's passengers connect to Alaska Airlines flights.

Fleet: 22 Fokker F28-4000 jets (seats 69 people) and 40 de Havilland Dash 8-200 turboprop planes (seats 37 people). Also has on order 15 Dash 8-400s turboprops and 25 CRJ 700 jets.

George Bagley concedes that calling Horizon Air pilots "juvenile delinquents in uniform" was impolitic - especially since he is the Seattle airline's president.

But if he regrets antagonizing pilots, Bagley says he regrets even more the pilots' action that prompted it: a deliberate spike in maintenance write-ups that sent the number of on-time flights plunging.

The pilots say they were merely following safety rules to the letter.

But the flare-up in late July was part of what has become a nasty labor headache for Horizon. For the first time in the airline's 18-year history, Horizon's 650 pilots are negotiating a union contract. Pilots maintain they fly bigger planes for longer hours for less pay than their peers at other regional carriers.

Horizon, meanwhile, is trying to nullify the 1997 election that brought in the International Brotherhood of Teamsters. The airline contends a federal agency unfairly imposed a gag order during the first union vote two years earlier.

The outcome will determine the future of organized labor at Horizon. The pilots say they won't accept a contract without a clause that would require all workers to pay dues. Horizon's flight attendants and mechanics have voluntary union fees, which pilots say weakens their solidarity. If the pilots' insistence on a union shop prevails, the flight attendants and mechanics have "me too" clauses that would give them one as well.

The battle also marks the end of Horizon's adolescence. In 1981, founder Milt Kuolt, who made his millions selling campground memberships, assembled a motley crew of airline neophytes and converted them to the religion of customer service. After five years of scrambling to meet payroll, Kuolt sold Horizon in 1986 to Seattle's Alaska Air Group, which operates Alaska Airlines.

Horizon since has become the nation's fifth-largest regional airline. It ferries more than 4 million passengers a year to small and medium-sized cities like Wenatchee and Butte, Mont., that larger airlines can't serve profitably. Along the way, Horizon lost some of the entrepreneurial spirit that led pilots to help load baggage and prompted Kuolt to serve passengers coffee when he flew.

"As the company became larger, visionaries got replaced by bean counters," lamented John Kangas, a 13-year Horizon jet captain.

The pilots hold the power to derail Horizon's aggressive growth plan. After losing $800,000 in 1996, Horizon last year earned a record $10.9 million. Passenger traffic rose 30 percent in 1998 and is expected to climb 20 percent this year. And after years of flying mostly secondhand planes, Horizon has 40 new aircraft on order that will enable it to fly more people farther.

"Once we get the pilots contract taken care of, we will have a well- running company," Bagley said.

Bagley, 54, a lean, tall ex-Air Force pilot, once was a Horizon captain himself. Bagley says that's why he lashed out so strongly when Horizon pilots began reporting twice the usual number of mechanical and maintenance problems in late July. The carrier accused the pilots of doing so to protest the pace of contract talks. The pilots said they were simply following safety rules to the letter.

Whatever the case, Horizon's passengers and other employees paid the price. Mechanics scurried to check out all the reported problems. The percentage of Horizon's flights arriving on time plummeted to 71.5 percent in August, from 86.6 percent in July. Ticket and gate agents had to cope with irate passengers.

Incensed, Bagley fired off his now-infamous missive to the pilots on July 30. In an e-mail, Bagley asked: "What kind of disgusting, lowlife person would disrupt the travel and vacations of thousands of innocent people just to make a statement? A coward, that's who."

In a subsequent letter, Bagley warned the pilots that their actions could jeopardize Horizon's future, and implored them to "stop kicking your dog."

Bagley's statements outraged pilots and prompted one labor expert to observe that Horizon was baiting the pilots to get into a "pissing contest with a skunk."

"If any of us had written that letter, we probably would have been discharged," said Kangas, who is one of five executive council members of the Horizon pilots' union.

Sitting inside Horizon's modest headquarters building on International Boulevard near Sea-Tac Airport, Bagley's face flushed as he explained his feeling of betrayal by fellow pilots.

"What I was saying, if you could read through the anger, is that what makes the airline is the integrity of the people," Bagley said. Pilots "abused their authority to influence their financial relationship with the company."

Even Kuolt, Horizon's blunt-talking founder, allows that Bagley's tone may have been intemperate. Kuolt no longer has a financial stake in Horizon. But he still talks occasionally with Bagley, whom he hired in 1983 when Horizon bought Bagley's Transwestern Airlines in Utah.

Kuolt started Horizon three years after the airline deregulation of 1978. When the federal government stopped dictating to airlines where to fly and how much to charge, scores of major carriers pulled out of money-losing routes to smaller cities. Regional airlines such as Horizon sprung up to fill the market for short-haul flights using turboprop planes or small jets.

Today, Horizon serves 40 cities in western North America. It flies as far south as Los Angeles, as far east as Billings, Mont., and as far north as Edmonton, Alberta. About 25 percent of Horizon's traffic feeds into its sister airline, Alaska. But 70 percent of Horizon's passengers fly point-to-point, without connecting to another airline. The remaining traffic feeds into Northwest Airlines and other carriers.

Kuolt, 72, said pilots who pine for Horizon's early days "forget how tough it was when I was there."

"Horizon is not a small company anymore," said Kuolt, who has a home in Scottsdale, Ariz., and is an investor in two small airlines. "When I left, the company needed more disciplined management. They've got a hell of a person in George Bagley."

Kuolt left a legacy at Horizon that was none too hospitable for unions. Kuolt believes that "unions make workers lazy" and once said that if Horizon employees ever organized, it would be "because I deserved it."

In 1990, a U.S. District Court judge lambasted Horizon for engaging in the "mere pretense of negotiations and bad-faith surface bargaining" with its flight-attendants union.

In 1995, the Teamsters lost an election to represent Horizon's pilots. The union charged Horizon with interference. The National Mediation Board, which oversees labor relations in the airline industry, sided with the union and ordered another election in 1997.

The Teamsters won the second vote. But Horizon has asked the 9th Circuit Court of Appeals to overturn the results, contending the mediation board infringed on Horizon's free speech by preventing it from telling workers to consider alternatives to a union.

Among the 10 largest regional airlines, pilots at SkyWest Airlines in Utah are the only ones besides those at Horizon without a union contract.

Don Treichler, a Teamsters International representative and the lead negotiator for Horizon pilots, contends the airline's treatment of the union "goes beyond normal aversion to organized labor."

The pilots have been negotiating since April 1998. Treichler accused Horizon of stalling and asserted the company's goal is not to reach a contract but to decertify the union.

"They talk things to death. They talk after there is nothing left to talk about," Treichler said. "If they want an agreement, why do they have a (lawsuit) pending?"

Negotiators for the pilots and Horizon will start four days of mediation tomorrow in Portland.

Bagley said Horizon pilots deserve a fair contract with pay raises - and he insists they will get it.

"I don't know of any absolute barriers that would prevent us from reaching an agreement," he said.

One potential obstacle is the pilots' demand for an agency shop. An agency shop requires employees to pay the equivalent of union dues, even if they choose not to join the union. Treichler says that's only fair because unions must legally represent the interests of all workers, members or not, who are covered under a collective bargaining agreement.

Horizon's flight attendants and mechanics have what is known as an open shop, meaning that union dues are voluntary. As a result, only a fraction of those workers actually belong to their unions.

Bagley denied that Horizon is anti-union, but said he is philosophically opposed to an agency shop.

"Why should you have to pay to work?" Bagley asked.

Bagley agrees with the pilots that Horizon needs to switch from fixed salaries to hourly pay. New first officers at Horizon start at $18,240 a year, a low, but not unheard-of rate in an industry not known for fat paychecks. Jet captains with 10 years experience earn $63,629 a year.

Horizon pilots top out at $76,378. A jet captain at Alaska can earn up to $150,000 a year, said Gary Smith, chairman of the Horizon pilots union. Horizon jet captains earn $10,000 less annually than their peers at Air Wisconsin, a smaller regional carrier, Smith said.

"A first-year first officer with spouse and child can qualify for welfare and food stamps," Smith said. "Truck drivers make more money than most of our pilots do."

Pilots also complain that fixed salaries give Horizon a perverse incentive to make them work on their days off. Thanks to a pay formula agreed to by the pilots in their employment agreement, pilots earn less, on an hourly basis, than their regular rate when they are "drafted" on a day off.

Some pilots say they have resorted to installing second phone lines and screening phone calls to avoid Horizon schedulers.

"Everybody is too scared to say no," said one pilot whose son is taught never to tell strangers that his father is home. "I shouldn't have to teach my son to lie for me."

Bagley said an hourly pay system would better reward hard work by pilots. And he said he is eager to reach an accord with the pilots so Horizon can focus on its expansion plans. The first of 15 new turboprops it ordered will begin arriving next August. The 70-seat Dash 8 Q400 can carry nearly twice as many passengers as the planes it will replace.

In 2002, Horizon will begin taking delivery of 25 new CRJ 700 jets. Those aircraft will use half the fuel that Horizon's Fokker F28-400 jets use and fly up to three hours, enabling Horizon to operate more flights a day and add new routes - such as Seattle to Santa Barbara, Calif. - that it can't reach now.

Bagley said there is no reason for rancor between the company and its pilots.

"We share more with our employees than any company I know," Bagley said. "We have to be in this together."

Kyung Song's phone message number is 206-464-2423. Her e-mail address is: