United’s Pilots Ask to Buy Firm for $4.5 Billion
In a surprise move, the pilots who fly for United Airlines announced late Sunday that they wanted to purchase the carrier for more than $4.5 billion.
If such a deal were to be completed, the price for United would be more than four times the price paid for any airline in the recent frenzy of airline takeovers. United Airlines, which flies to all 50 states, carries 17% of the nation’s passenger air traffic.
The pilots, who said that much of the money to finance the proposed transaction would come from their pension fund, made their offer in a letter to Richard J. Ferris, chairman of UAL Inc., United’s parent company. It was signed by F. C. (Rick) Dubinsky, chairman of the Air Line Pilots Assn. Master Executive Council, representing United pilots.
Takeover Rumored
The letter said the pilots feared that they would be left out in the cold in the event of a takeover, which has been rumored. They also charged that UAL, whose name will be changed to Allegis Corp. soon, has been diversifying too much. UAL also owns Hertz Corp., the rental company, and Westin Hotels Corp., and it recently purchased Hilton International Corp., which operates hotels around the world.
A spokeswoman for United said late Sunday that the company had received the proposal and will comment after it has had a chance to study it “fully.” UAL said it noted that “the proposal is unsolicited and it is not an offer but an invitation to negotiate.”
The pilots said that they and their financial advisers, Lazard Freres & Co., would be ready to discuss the proposed offer with management “and to commence negotiations immediately.”
The pilots said that their proposal represented a premium of about $1 billion over the estimated market value of the airline “if it were to trade (on the stock market) on a stand-alone basis.” UAL stock closed Friday at $59, unchanged.
The pilots said that among other things, they would be able to finance the purchase by anticipated wage, pension and productivity savings, which will total approximately $300 million annually. The pilots’ pension plan would also be amended to allow investment in newly issued United Airlines equity securities to provide “substantial equity for the transaction.”
Similar employee attempts to acquire airlines, including Continental and Eastern airlines, failed. Still, the offer for United “sounds to be an extremely legitimate proposition that is workable,” said Timothy Pettee, airline analyst with Bear Stearns & Co., a New York brokerage. “Under a new management, with new direction away from diversification, the company would attract capital.”
Sought Excess Assets
Pettee said that United management attempted to recapture excess pension fund assets in 1985, but regulatory agencies prevented all but $130 million of the total from being recaptured, or returned to the company treasury. At that time there was a $900-million excess in the fund. This and any additional funds accumulated since could be used by the pilots for the purchase, he said.
The pilots’ offer was to buy all of the physical assets of the airline, including landing rights and licenses, its Apollo computerized reservation system and all other assets of the company relating to airline business. The pilots said that other United unions and employees would join in the proposed buyout.
A source close to the pilots union, who declined to be identified, said that the pilots’ offer was made public at the same time it was made to the Chicago-based company so that “no inaccurate information would leak out.” He said that it was intended that the proposed takeover would be “friendly.”
Firm’s Direction Cited
“We have become increasingly concerned about the strategy and direction of our company, and certain other matters fundamental to its long-term prosperity and success,” the letter said. “We are also mindful of speculation in the financial press and the stock market about UAL as a possible takeover candidate. Lacking influence in the company’s management, we are concerned that events beyond our control may result in a transaction being forced on the company with consequent traumatic disruption in its business and operations, loss of jobs and the realization of less than maximum values for its stockholders.
“In today’s highly competitive industry environment,” the letter said, “a first-class airline cannot afford the drain of financial capital and corporate commitment that results from excessive diversification. In our view, an airline should not be operated as part of a diversified enterprise. Industry experience over the past several years provides ample evidence in support of this view.”
The letter said that “an employee-owned airline will create an environment more conducive to harmony between management and employees and will result in improved service, safety and profitability.” The pilots said that “qualified managers will be recruited from current management and from outside the company to be responsible for day-to-day operation of the airline.”
