Compromise Could Save United’s Employee Buyout

Leaders of the machinists’ union at United Airlines were among the few who smiled with grim satisfaction Friday when the stock market plunged.

They didn’t want the deep, general slide in the market. They only wanted to block United’s executives and pilots in their attempt to make the airline the nation’s largest employee-owned corporation. To achieve that goal of 75% ownership of the company, United employees would have to accept substantial cuts in wages and benefits.

But the machinists’ leaders opposed the employee stock ownership plan so furiously that they frightened bankers who had promised money to finance the leveraged buyout. For that reason and others, bankers backed out, and United officials Friday were forced to put the deal on hold as they scrambled for new money.

That announcement helped to cause the market plunge by raising doubts about the United buyout, even though it could be good for both employees and executives if modifications are made.

More important, however, was that United’s problem at last raised serious, widespread doubts about the future of often-devastating corporate takeovers by billionaire speculators who so recklessly borrow the mountains of money it takes to finance them.

The pilots and United officials insist that they are still determined to try to complete the deal, which is somewhat less risky than most leveraged buyouts because of the major tax advantages offered employee stock ownership plans.

Brian Freeman, the machinists’ financial adviser, insists, however, that the United buyout plan is dead, or at least dying.

And John Peterpaul, vice president of the International Assn. of Machinists, which represents the company’s 25,000 mechanics, says the pilots and executives have formed an unholy alliance to try to force the rest of United’s workers to help finance an employee buyout that is “the most ludicrous transaction we have ever seen.”

“Their deal is based on totally unrealistic projections of profits, and we want no part of it,” Peterpaul says.

It is easier to spot villains to hiss than heroes to cheer in the struggle among United’s management, workers and the many outsiders involved in the employee buyout.

And, keep in mind that even if you figure out who the good guys are, the sad fact of this story is that United’s workers will have to pay the costs of the battle, no matter how it turns out.

In the long run, the 70,000 United employees could recoup their losses and even make new gains if the buyout is completed. But nobody thinks that recovery could come sooner than three years from now, if ever.

The hissable villains of the saga are a billionaire corporate raider, several banks, lawyers, investment companies and assorted other money manipulators who jumped into the fray and would take hundreds of millions of dollars from United for their roles in the deal, then move on to other corporate games.

The mechanics say they aren’t interested in the plan, even though it would give them more stock than any other employee group at the airline.

United would be so burdened by an enormous debt of nearly $7 billion that it might well collapse under the weight in the next year or so, the mechanics warned. The company’s debt load now is less than $2 billion.

And besides, there is an appearance of unfairness in the deal as it is planned.

In return for owning 75% of the company, the employees would give up at least 10% of their wages and more in benefits but would get only three of 15 seats on the board of directors.

While the workers would be making substantial financial sacrifices for years after the deal goes through, United’s president and chairman, Stephen M. Wolf, would immediately gain $76.7 million for his stock and options. Other executives would also reap sizable fortunes.

Wolf would remain the top executive, would occupy one of the three management seats on the board and would get to name eight independent board members, with some advice from the unions. British Airways, which would be buying into the deal, would also get a seat on the board.

Adding to the appearance of unfairness is the $45 million or so that lawyers are expecting to be paid for their services in the buyout, plus an estimated $59 million that the investment bankers are expected to receive.

Of course, Marvin Davis, the Los Angeles investor who put United into play on the stock market in the first place, would walk away--if he hasn’t already--without the company, but with almost $200 million in return for the estimated $100-million investment in United stock that he made a few months ago.

The company executives and leaders of the Air Line Pilots Assn. charge that the machinists are foolishly trying to kill a deal for United employees. They say that if this buyout is stymied, United’s employees may well fall into the clutches of a real anti-worker boss, someone like the union-busting Frank Lorenzo of Texas Air.

If logic could somehow prevail, United’s feuding factions would realize how urgently they need one another and how essential it is for all of them to cooperate so that the workers can become majority stockholders with a major voice in running an airline that is already profitable and could be even more profitable.

Maybe, in the contract negotiations scheduled to start today between the machinists and United, good sense will prevail and United executives, with the pilots’ approval, will agree to modify the present buyout plan to make it acceptable to all the feuding parties. Maybe then they could fly together in the now-not-so-friendly skies of United.

Maybe.