June 7, 1995

Kiwi International Struggles to Overcome Problems

NCEO founder and senior staff member

Kiwi International Airlines is the only major airline started as an employee-owned firm. With all the recent publicity about employee ownership at United Airlines and Northwest Airlines, where employee ownership seems to be working well so far, and at TWA and USAir, where employee ownership is being used or proposed to stave off bankruptcy, it's not surprising that the press would turn its attention to Kiwi. The airline was started in the late 1980's by former Eastern Airlines pilots, who invested $50,000 each to help get the company underway. Now new hires must buy at least $5,000 of Kiwi stock each. Kiwi is not an ESOP; instead, most of its stock is owned directly by employees through after-tax purchases.

Flying out of Newark with low fares and full service, Kiwi did well at first. But a series of problems, culminating in the 1994 voluntary grounding of the airline for failure to maintain proper safety records, raised doubts about the company's ability to succeed. It had grown from 200 to 1,000 employees, but faced serious management problems. Its first CEO, Kenneth Iverson, a former Eastern pilot, was forced out in 1994 and its next CEO lasted only three months. Iverson said the biggest mistake he ever made was calling the employees owners. Iverson and other managers believed employees wanted too much say in the operations of the company; employees contended that since they were shareholders, they had a right to a say. In fact, employee control rights were very limited, much more limited than at the ESOPs at the other major airlines.

A spate of recent stories has covered Kiwi's problems, but the company has made money recently. It is currently looking for a major investor to help it grow, but wants to retain majority employee ownership. So far, the investment community has been skeptical.