Union Warns United Pilots of ‘Difficult Choices’ Soon

The Air Line Pilots Assn. told its United Airlines members Tuesday to be ready for “difficult choices” ahead after reports that the union and the airline’s parent company were discussing a plan that could include an employee-owned stake in the company.

In a letter to United ALPA members, Chairman Frederick C. Dubinski said UAL Corp.--which has received a $5.4-billion, $240-a-share takeover proposal from Los Angeles investor Marvin Davis--undoubtedly will be bought out by somebody.

“In fact, whether you like it or not, you and all the other employees are going to help pay for it,” Dubinski said. “The only choice is whether we buy it for someone else or ourselves.”

He said United pilots may have to “act rapidly, decisively and conclusively to assure our survival and prosperity,” noting that acquisition by an outsider likely would mean a leveraged buyout that could saddle the company with loads of new debt.

‘Inevitable’ Decisions

A leveraged buyout is an acquisition financed mainly by borrowed funds that are repaid with the target company’s cash flow or the sale of its assets.

“We must watch this situation very closely, ensuring that we have all the information we need to make the difficult choices that are inevitable,” Dubinski said.

The union has only two choices, Dubinski said--”concessions to an outsider or investment in the airline by the employees. There is no good third choice.”

UAL stock closed down $4.375 a share to $254.125 on Tuesday in New York Stock Exchange trading.

Several news reports indicated that ALPA and UAL officials met during the weekend to discuss plans for either a management-employee buyout or a recapitalization that would put a big enough block of UAL stock in an employee stock ownership plan to help thwart any hostile takeover attempt.

Representatives of UAL and ALPA refused to comment Tuesday on whether meetings were held during the weekend or on reports of the purported plans.

Telephone calls seeking comment Tuesday from two unions representing other United employees--the International Brotherhood of Machinists and the Assn. of Flight Attendants--were not returned.

Dubinski said in his letter that the level of contribution to any employee stock ownership plan by the pilots would depend on the number of employees and employee groups participating.

“Depending on the declared interest of the other employees, we may need a great level of participation or a slight level,” his letter read. “It would make good sense for you to be financially prepared for the worst.”

Pan Am Interested

United’s pilots in the past have expressed an interest in buying the company and in 1987 proposed a $4.5-billion plan to buy the airline from its then-parent, Allegis Corp. Last week, ALPA officials said its advisers were being consulted about the Davis bid.

In addition to Davis, New York-based Pan Am Corp. has expressed interest in a possible merger with UAL, and there has been speculation that a bid for UAL may be made by the New York corporate buyout firm of Kohlberg Kravis Roberts & Co.

Louis Marckesano, an analyst with the Philadelphia investment firm of Janney Montgomery Scott Inc., said a deal involving UAL management and its employees would eliminate fears in Congress and the Transportation Department that the airline would be stripped of valuable assets, as might happen with a leveraged buyout.

“With that kind of plan, you would assure continuation of UAL as a strong airline,” Marckesano said, referring to a management-labor buyout. “It would create labor peace, which would be pretty important in the future.”