‘I’ve Got a Secret’ Was Name of the Game : 60 People Quietly Put Together $4.5-Billion Bid for United Airlines
The operation was dubbed Stealthco, after the super-secret Air Force bomber project. The participants arrived in separate cars and buses, used code names and stayed in the out-of-the-way Hamilton Hotel in the Chicago suburb of Itasca.
Guards patrolled the hallways. To maintain their anonymity, they signed room service bills with code numbers. They shuttled from room to room in small groups. All told, about 60 people attended the session, the culmination of nearly two years of top-secret talks.
By last Sunday evening, they had hammered out final details of a $4.5-billion offer to buy United Airlines.
The participants were the airline’s own pilots, their lawyers and bankers, and their public relations consultants. Finally, they submitted a surprise offer on behalf of the United local of the Air Line Pilots Assn. to Chicago-based UAL Inc., United’s parent company.
According to F. C. (Rick) Dubinsky, chairman of the United Pilots Executive Council, the cloak-and-dagger atmosphere was necessary to prevent any word of the prospective offer from leaking.
Over the weekend, he said, United management was “curious to know where we were and what we were doing. They put out an all-points bulletin for us. Wives of pilots in the council were getting anonymous phone calls, asking where their husbands were.” (A UAL spokesman denied that the company made such an investigation.)
The offer was made Sunday, according to one source close to the negotiations, because the pilots were concerned that recent diversification moves by UAL threaten the viability of the airline and their own futures. Representatives of the pilots had several discussions with UAL management to express such concerns, but sources close to the union say management appeared to be indifferent.
“I think with those concerns unresolved,” the source said, “the pilots began to look at an alternative course of action they could take.”
Despite the clandestine atmosphere, the cast at the weekend sessions was star-studded. The big investment banking firm of Lazard Freres represented the United Pilots Master Executive Council. Lazard Freres, in turn, brought its lawyers, New York corporate law specialists Wachtell, Lipton, Rosen & Katz. Representing the union was another well-known law firm, Paul, Weiss, Rifkind, Wharton & Garrison.
And another luminary was on hand: Boston criminal lawyer F. Lee Bailey, who has been acting as special counsel to the union and who first suggested to the pilots in a closed-circuit speech after their strike ended in the summer of 1985 that they should buy the airline.
The proposal was made public late Sunday by the pilots’ executive council. Rank-and-file members will hear the details at a nationwide teleconference tonight.
Favorable Response
Wall Street, meantime, is asking many questions about the proposal: Can the pilots finance such a venture? Will UAL fight the proposal? What effect will the bid to buy the airline have on its operations?
Initially, the investment community’s response has been favorable. Shares of UAL rose sharply Monday to $63.75, up $6.625 on volume of 3 million shares.
Analysts said some of the positive reaction may be to due to investors’ belief that the pilots’ offer could be a prelude to a takeover battle for all of UAL, which also owns the Hertz car rental firm, Westin Hotels and Hilton International Hotels. They note that wealthy New York real estate investor Donald Trump has reportedly accumulated just under 5% of UAL’s common shares.
“The combination of Trump and the pilots is a catalyst,” said David Sylvester, airline analyst at the San Francisco brokerage house of Montgomery Securities. “This announces that the company is ‘in play,’ and there are people out there sharpening their pencils. It could be a hotel company or a travel company or any other corporation.”
Dubinsky said Monday that the pilots have not discussed their offer with Trump.
Edward Starkman, who follows airlines for the New York brokerage house of Paine Webber, said the pilots will likely have a hard time getting favorable financing. “Leveraged buyouts by employee groups have traditionally had difficulty . . . . They will have to turn to junk bonds, high-risk, high-yield debt.”
Others Welcome
Most analysts feel that the pilots are serious and that they would be able to arrange the financing.
The pilots have said other union and non-union United employees are welcome to join the effort, but there was no initial reaction from them Monday. United has 50,000 workers.
Louis Marckesano, airline analyst at the Philadelphia brokerage house of Janney Montgomery Scott, calculated that of the $4.5 billion the pilots have offered, $2.2 billion would come from the assumption of United Airlines debt to buy airplanes and long-term plane leases. The pilots have said that they would use much of their pension fund, about $300 million, and raise another $300 million from their membership. That, Marckesano said, would leave some $1.8 billion left to finance from public offerings.
He predicted that the pilots would eventually sell as much as 40% of United in a public stock offering to help pay down debt.
