UAL, Union Revise Accord on Buyout
United Airlines and its pilots union agreed Sunday to revise a buyout accord under which the airline’s employees will become majority owners of the company.
Under the agreement, members of the Air Line Pilots Assn., the International Assn. of Machinists and salaried and management employee groups get a new formula for ensuring the longer-term value of their wages, benefits and work-rule concessions, which are worth more than $4.5 billion. Shareholders will be guaranteed a certain amount for their stock through an underwriting financed by UAL Corp., the holding company for the airline.
The deal was designed to smooth over discontent that emerged when the price of the company’s stock plummeted in recent weeks amid turmoil in the stock and bond markets. The stock, which hit a 52-week low of $117.75 a share on May 16, closed Friday at $119.375.
The deal, which must be approved by the Securities and Exchange Commission, is expected to be presented to shareholders for a vote next month.
After the deal is approved and all existing shares of UAL are tendered, a new stock will be created. Under the plan reached Sunday, unions will get a 55% share in the company instead of a 53% share in the original proposal. The unions will be able to increase the stake to 63% if the “new” UAL stock reaches $74.55 within a year instead of $89.22 under the original proposal.
The proposal will give the company flexibility to operate a low-cost “airline within the airline” to better compete against Southwest Airlines and other low-cost imitators.
“These changes work for our shareholders and will help ensure that United becomes competitive in the aviation marketplace,” said Steven Wolf, United’s chairman and chief executive.
The last-minute maneuvering is the latest twist in a deal that is expected to make United the nation’s largest employee-owned company and the first of its size to take that step while in relatively healthy financial condition.
United’s drive toward employee ownership was slowed when its stock dropped below a level at which unions, by some interpretations, had the option of walking away from the deal. The declining stock price gave new ammunition to dissidents within the pilots union who had fought the deal from the start.
The pilots union leadership went back to the company a week ago seeking an adjustment in some financial conditions to insure the employee stake. The company, meanwhile, was concerned about the erosion in the return for shareholders under the original agreement, which had called for shareholders to receive a mix of cash, debt and preferred stock totaling $88 a share.
