United’s Board Tentatively OKs Sale to Workers : Airlines: The $5.15-billion acquisition, financed partly by wage cuts, would give employees control of 53% of the carrier.
Paving the way for employee ownership, United Airlines’ board of directors on Wednesday tentatively approved a $5.15-billion deal that would leave workers owning most of the giant carrier.
The proposed buyout, which must still be approved by stockholders and union members, would make Chicago-based United the nation’s largest company owned primarily by employees. American, Delta and other major airlines could be forced to forge similar partnerships with their workers if the deal succeeds, industry analysts say.
“If United motivates employees and has a relatively good cost position . . . it is in a great position to grow,” said Harold Sirkin, transportation specialist at the Boston Consulting Group. “You can’t expect American or Delta to sit by.”
Completion of the deal is still several months away and both sides still need to work out a “definitive structure” for the buyout, United said. A previous union-led buyout in 1989 collapsed after it failed to line up sufficient financing. The current proposal, however, requires no outside financing, United said.
“For the first time, majority interest in a global air carrier will rest with its employees,” said United Chairman Stephen M. Wolf in a statement. “United’s employees will share in the company’s success and will have substantial incentive to ensure that United Airlines remains a global aviation leader.”
After meeting for nearly 10 hours in New York, United’s board agreed to a proposal by the pilots and machinists unions to sell workers--through an employee stock ownership plan--a 53% stake, which could rise to 63% depending on the stock’s performance.
In return, about 60,000 union and management employees would finance the purchase in part with wage and work rule concessions designed to make United compete more effectively against such low-fare, low-cost carriers as Southwest Airlines. In fact, the agreement would allow United to establish a separate low-fare airline operation, union officials said.
“The employees are anxious to get it started as soon as possible,” said Jerry Nelson, a machinists union official and negotiator. “It is going to be a different way to do business.”
In return for stock in a reorganized United, the airline’s 22,500 machinists would see their current pay reduced by 9.7% for the next five years and would forgo a 5% wage hike scheduled for next May, Nelson said.
The 8,000 United members of the Air Line Pilots Assn., who are typically paid more than the machinists, reportedly accepted a 15% pay cut and will also pass up a future pay increase.
*
Union officials for the pilots and machinists said they expect to win their respective members’ approval of the deal by the end of January.
However, the Assn. of Flight Attendants, which represents 18,000 United workers, has yet to decide whether to join the deal.
“We think (the board’s approval) is great news for the business and the unions,” Jane Goodman, a spokeswoman for the flight attendants union, said Wednesday. “But we’re still exploring our options to see whether it would be beneficial for us to enter into talks with management and the other unions.”
Under the proposal, United’s current stockholders would get a combination of cash, common and preferred stock in the reorganized airline and other securities valued at $173 a share, according to union officials.
On Wall Street Wednesday, shares in United’s parent company--UAL Corp.--rose $4.25 to close at $148.50 on the New York Stock Exchange.
The buyout would reportedly earn Wolf and President John C. Pope more than $45 million in cash and securities. By selling his stock and exercising options, Wolf, whom the unions would replace with former Chrysler co-Chairman Gerald Greenwald, stands to make nearly $29 million, according to a Wall Street Journal report. United declined to comment.
United’s unions have tried several times in the past seven years to buy all or part of the company.
Last month, buyout talks broke down after United rejected as too low a reported union offer of $5.5 billion for a 60% stake in the company. In addition, the machinists union was angered after the airline sold off its flight kitchen division, which employs more than 5,000 union members.
“This is the first time when everybody has been on board,” said Nelson of the machinists. “It’s a partnership of current shareholders and employees. It’s a situation where we’ve all got to work together to make sure this thing works.”
