UAL Chairman Tries to Get Support for Buyout Offer

Times Staff Writer

Stephen M. Wolf, chairman of UAL Corp., the parent of United Airlines, met with Transportation Secretary Samuel K. Skinner in Washington on Wednesday in an effort to win support for a $6.5-billion employee-management buyout.

A Transportation Department spokesman described the meeting as a "listening session" and said Skinner made no commitments to Wolf.

Skinner has said he is concerned that debt-financed airline buyouts could put airlines in financial trouble, jeopardizing safety. The department cannot block a takeover outright but can lift an airline's certificate to operate if it believes that safety has been compromised.

Meanwhile, there were indications that a new bid might emerge for UAL. A Wall Street source said a second European airline is exploring a bid in conjunction with an American partner. The source could not provide more details.

Looking for Partners

British Airways is involved in the employee bid for the airline and has agreed to contribute $750 million in exchange for UAL preferred stock. The other known bidder is Los Angeles billionaire Marvin Davis, who has said he might pay more than his current offer of $300 a share after reviewing the airline's financial records.

Davis, according to a source familiar with the situation, is negotiating with UAL over the terms of a confidentiality agreement that would allow him to see the company's books. In addition, Davis is looking for equity partners to help finance his offer for the airline. Davis, according to the source, is approaching foreign airlines, among other possible contributors.

Federal law provides that no more than 25% of a U.S. airline may be owned by foreigners.

Mentioned as possible bidders for a stake in UAL were Japan Air Lines, Air France and Lufthansa German Airlines. Lufthansa on Wednesday announced that it plans to raise the equivalent of $478 million by selling stock to its existing shareholders. The sale would reduce the West German government's stake in the airline to 52% from 65%.

In New York, a spokeswoman for Lufthansa said the airline does not plan to invest in UAL with the money raised from the stock sale. "However, Lufthansa's position is that if we were approached by Marvin Davis or someone else, we would be happy to listen," Lucille Hoshabjian said.

Davis is expected to court United's machinists union, which has reacted coolly to the proposed employee buyout. In a statement Tuesday, John Peterpaul, general vice president of the International Assn. of Machinists & Aerospace Workers, said he was skeptical about United's ability to survive with the additional debt needed to finance the proposed buyout.

Value of Deal Questioned

Peterpaul said his union believes that a debt-financed transaction would "jeopardize the future of the carrier and safety of the traveling public" and said the Transportation Department should discourage any airline takeover that involves large amounts of debt.

Peterpaul said additionally that the machinists union does not think that UAL is worth $300 a share. He said the union's analysis shows that it is worth $195 to $240 a share. "Furthermore, we believe no transaction is necessary to protect employees against the purported risk of a takeover," he said.

Airline industry analysts said that lack of the machinists' support could hurt the proposed employee bid. These analysts said the machinists, who earn substantially less than pilots, are no doubt reluctant to grant wage or productivity concessions to help finance a buyout.

Though the pilots said they can finance the transaction without machinists' participation, analysts said a lack of support from the machinists might make it harder to finance the employee buyout. United's flight attendants, meanwhile, are talking to the pilots about the possibility of joining the transaction.

Stock Price Slips

Airline industry analysts said Wednesday that they doubt that the Transportation Department would try to prevent a takeover, although they said the department might later place restrictions on the airline if it ran into financial trouble. "They can't block a transaction just because they don't like it," said Robert Decker, an analyst with the investment firm of Duff & Phelps in Chicago.

Amid the takeover speculation of recent weeks, UAL stock has shot up, but it fell $3.875 on Wednesday in New York Stock Exchange trading to close at $286.875.

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