Taking the Fall

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McBride, the pilot, notes that "Iverson might mention a good month. But no one ever told us when we had a bad month." And Kiwi, which reported profits in only two quarters during its first two and a half years, was having a lot of bad months.

The absence of centralized budgeting or purchasing hampered financial control. It took weeks to produce monthly financial statements. Taxes and fees went unpaid. Costs -- at least the ones that Kiwi managed to track -- escalated, sometimes three times faster than sales.

Employees had no clue. Perhaps if Kiwi had disclosed the ugly numbers, employees might not have bridled at cost-cutting measures that appeared to come out of nowhere. Flight attendants, who resisted a move to end hot meals on certain flights, never knew that food-service costs at Kiwi far exceeded industry averages. They never knew the airline had come dangerously close to missing payroll -- until they were asked to take pay cuts at the end of last year.

"We were sort of in the dark about a lot of things," says pilot Andy Sapol. So were the department heads. Unguided by the numbers and unchecked by any budgets, they might as well have been wearing blindfolds.

The Employees
Fiercely Loyal but badly served
From day one, the antimanagement coterie who ran Kiwi made sure that nothing would interfere with their exercise of power. Because of their fear that bogeyman Frank Lorenzo -- or someone like him -- might return, they set up a system that concentrated power in the hands of a few well-meaning novices. As Kiwi struggled to stay aloft, the voting trust moved to install more seasoned managers. But it refused to cede control. In the corner office, musical chairs ensued.

Russell Thayer, a 42-year airline veteran and until July an outside director, currently serves as chairman. After Iverson was toppled, in February, Byron Hogue, a former executive at Federal Express Corp., was named as his successor. He resigned less than three months later. In May the company trumpeted Danny Wright as the savior who would bring stable management to Kiwi as its new CEO. Wright, who had been a consultant to Kiwi, lasted two months in the job. "The board didn't feel that Danny had the background to move the airline forward," says Robert Marcus, a Kiwi spokesman.

Others had reached that conclusion much sooner. "Where [then-chairman] John Anderson found Danny Wright, I don't know," says Charles Stanziale, general counsel for Kiwi and a former outside director. "It's not like he came from American or Southwest or Delta."

While Wright and Anderson insist that the selection of Wright followed an exhaustive search, Stanziale and other former insiders say no formal search occurred. Members of the voting trust, they contend, simply installed Wright by fiat. "There wasn't a lot of time to check his background out," says Stanziale. Wright, however, claims he underwent the most extensive background check of his career.

Ironically, the latest CEO to decamp the employee-owned company was neither a shareholder nor an employee. A hired gun, Wright collected $600,000 in five months, according to Stanziale. Iverson had been paid one-tenth of that amount in a year.

"We need good airline management," says Thayer. "We're looking outside to fill the top positions in the company with seasoned management." Despite the constant changes in management, "this company could pull it out," says former financial adviser Jim Harris, owner of Seneca Financial, in Greenwich, Conn., who worked with Kiwi until April. "This airline has incredible worker loyalty and passenger loyalty. But all management has done is take away every opportunity for this thing to work out right."

Indeed, employee ownership has not failed Kiwi. Management has.

Kiwi's founders believed that employee ownership would protect their jobs and prevent bad management. They considered management a cynical exercise of power, not the necessary application of skill. But like every company, Kiwi badly needed leaders who were separated from their workers -- but by their managerial skill, not by venal hearts or the will to power.

"The managers at Eastern," reflects Doug Davis, the ramp-services manager, "were more concerned with their own agendas than with running an airline business." Davis hangs on to the hope that it could never happen at Kiwi.

And hope, despite everything, is what continues to drive these employee owners, most of whom don't have the power or privilege of ownership. Only the hope. But companies don't survive on hope. They don't survive on the dedication of workers or the enthusiasm of customers, although that goodwill goes a long way. They survive on the competence of their management, acting in concert with the market and in the interest of the owners, whoever they may be.

"A lot of people have put their emotional and economic lives on the line for Kiwi," says Harris, "and they're not being well served."

Not that employees, even when they call themselves owners, expect all that much. They expect to own their jobs. And even though their shares are, by the balance sheet's reckoning, worthless, many continue to pay for them out of payroll deductions. They won't let go of their piece of the sky.

"When I'm cruising at 30,000 feet, I look around me sometimes and I think, 'My God, this was almost taken away," says McBride. "Thank God, I got it back."

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