UAL unions offer wage cuts in return for equity

July 16, 1993|By New York Times News Service

United Airlines' unions indicated their willingness yesterday to make sizable wage concessions in return for a majority stake in the nation's second-largest carrier -- a move that underscored a significant shift toward a more collaborative relationship between airline labor and management.

With the industry awash in losses, airline leaders like Stephen M. Wolf, chairman of UAL, United's parent, have said that lower labor costs are necessary for the survival of the nation's largest carriers. It appears that employees are agreeing, but are xTC exacting a hefty price for their cooperation.

Unions at Northwest Airlines, for example, are in the final stages of voting on a pact that would give the employees a 30 percent stake in the company in return for $886 million worth of concessions. Similarly, Trans World Airlines, which is operating under bankruptcy protection, is restructuring itself with $660 million in givebacks from workers in exchange for a 45 percent stake in the carrier.

While these talks are taking place, a national commission has been appointed by the Clinton administration to study the industry's problems. The talks are encouraging signs to many industry analysts, who say that the best solutions will come from within, rather than from the government.

Although United's unions signaled their interest in talking about concessions yesterday, the spirit in which the talks will unfold is uncertain. But the fact that they approached the carrier with high-minded language about the need for change contrasts with the often-strained talks at United and other carriers over the years.

Labor leaders have talked lately about the need to negotiate before airlines are driven to file for bankruptcy protection, and United, with $1.5 billion in the bank, is the best example to date of that thinking.

"Labor is now coming to recognize that they are part of the solution to the industry's problems," said Julius Maldutis, an airline analyst at Salomon Bros.

The statement issued by United's unions presented more questions than answers yesterday. People familiar with the unions' discussions said that a specific proposal did not yet exist, but that one would be written after labor leaders meet with United executives.

Nevertheless, any proposal would be likely to involve wage concessions and changes in work rules to increase productivity.

The unions also said they would not back down from their demand for a majority stake, that it was a condition for the concessions the employees' would make.

How employees might acquire a majority stake in United, which would cost roughly $1.6 billion, based on yesterday's closing stock price of $130.75, down $2.25, on the New York Stock Exchange, is unclear.

There is little likelihood of using a leveraged buyout, in light of how the debt from Northwest's 1989 buyout has come close to driving that carrier into bankruptcy.

One option would be establishing an employee stock ownership plan, or ESOP, to grant shares to workers while minimizing the additional debt burden. Offering sizable concessions to reduce United's operating costs would presumably help offset protests from current shareholders about the dilution of their holdings.

United Airlines had no comment yesterday, saying that it had not heard from the United Airlines Union Coalition, made up of the Air Line Pilots Association, the International Association of Machinists and the Association of Flight Attendants.

A potential buyout was rumored Wednesday afternoon, and that pushed up the stock of UAL by $6.75, to close at $133. Yesterday's decline came after talk circulated on Wall Street that the offer was not serious.

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