United employees to buy airline for $5 billion

March 26, 1994|By Chicago Tribune

CHICAGO -- After months of sometimes acrimonious negotiations, United Airlines and its unions agreed yesterday on a proposed employee buyout that would create the nation's largest employee-owned company.

Now the question is whether the two sides can persuade stockholders to accept the deal -- and whether the airline can return to profitability under employee ownership.

After seven years of failed attempts to gain control of the company, union leaders who were pushing the deal were understandably relieved yesterday.

"It's just a great sense of elation," said Roger Hall, who leads the United division of the Air Line Pilots Association. "It's almost hard to believe that we're finally at the point that we are."

The definitive agreement paves the way for the airline's employees to acquire at least 53 percent of United's stock in exchange for $5 billion worth of pay and benefit concessions.

United hopes to use the savings realized from employee pay and benefit concessions to lower its operating costs and to establish separate carrier within the airline that can compete with Southwest Airlines and other low-cost carriers on short-haul flights.

"This transaction represents the best path to a competitive and successful future for United Airlines," said Stephen M. Wolf, chairman of the Elk Grove Township, Ill.-based carrier.

The Clinton administration and many industry analysts have applauded the employee-buyout effort, because they say it is the best way to lower the airline's operating costs and avoid the thousands of layoffs and labor strife that otherwise seem inevitable.

With almost 80,000 employees, UAL would be far larger than the best-known employee-owned company, the car rental firm, Avis.

Currently, Publix Supermarkets, owners of a chain of supermarkets in Florida, is the nation's largest employee-owned company, followed by Science Applications of La Jolla, Calif., and Long Island, N.Y.-based Avis.

Stockholder approval of the United buyout is by no means assured, industry analysts say.

So far, they note, investors have been cool to the deal, valued at $173 a share.

After word of the agreement yesterday, UAL's stock surged $7.75 a share on the New York Stock Exchange, to close at $131.50, but that's still about $10 less than what it was selling for in mid-December, just before United and the unions agreed in principle to an employee buyout.

Furthermore, even if the buyout wins shareholder support, United management will face the difficult task of getting all its employees to work together to make employee ownership work.

Some members of the Air Line Pilots Association and the International Association of Machinists, which negotiated the deal along with United, are bitterly opposed to the buyout.

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