United Reaches Agreement With Two Unions on Employee Buyout : Airlines: Shareholders must approve $5-billion purchase, which would create largest worker-owned company in U.S.
United Airlines and two of its major unions reached final agreement Friday on an employee buyout that would make the airline the nation’s largest worker-owned company.
The $5-billion buyout ran into a major stumbling block 10 days ago when the nation’s largest airline and its unions failed to meet a signing deadline amid squabbling over the size of employee concessions and other matters. After Friday’s resolution of those differences, the only barrier left for the buyout is shareholder approval, which isn’t certain because some are said to believe the amount of cash being offered is too little.
Chicago-based United, the Air Line Pilots Assn. and the International Assn. of Machinists and Aerospace Workers unveiled the buyout last December. The buyout would give members of these unions as well as United’s management employees 53% of the carrier in exchange for wage and other labor concessions.
“This transaction represents the best path to a competitive and successful future for United Airlines,” Stephen Wolf, UAL chairman and chief executive, said in a statement.
United hopes to use the concessions to reduce its labor costs and build a separate airline to fly short routes. The new airline would have the same United markings as the rest of the fleet but would operate differently to get more use out of jets and crews on shorter flights.
Short routes have been a problem for United as Southwest, Reno Air and other regional upstarts have cut into the market with lower fares. Flights of about two hours or less are important to United as feeder routes for its more profitable international and long domestic flights. In addition, United and other major carriers have been forced to cut costs to compete against such newly invigorated airlines as Continental, Northwest and Trans World Airlines.
Meanwhile, United’s pilots and machinists unions, which had sought to own the airline to ensure job security, officially named former Chrysler executive Gerald Greenwald to serve as chairman and chief executive of the company under their control. Greenwald was to have served in the same position when an earlier, but unsuccessful, union attempt to take over United was launched in 1990.
Many shareholders have remained lukewarm to the deal since they will have to swap their shares primarily for $26 in cash plus a combination of debt and securities, whose exact value will not be known until they begin trading.
Financial advisers to the union value its offer at $173 a share in cash, stock and debt, but investors have been reluctant to tie up money in the stock and drive up the price since the payoff might not be until the fall, analysts said.
Still, word of the agreement sent shares of United’s corporate parent, UAL Corp., soaring $7.75 Friday to close at $131.50 on the New York Stock Exchange.
However, United’s stock price remains down about 15% from the $150 per share it hit when the deal was unveiled about three months ago, said Samuel C. Buttrick, an airline industry analyst with Kidder, Peabody & Co. in New York.
“The transaction has been received very tepidly in the marketplace,” said Buttrick. But, “as management . . . is better able to share more convincing merits of the transaction, we would expect shareholder sentiments to warm up.”
