Employee buyout of UAL OK'd

July 13, 1994|By National Center for Employee Ownership, ESOP Association/Knight-Ridder TribuneNew York Times News Service

CHICAGO -- Concluding one of the longest-running buyout efforts in the history of corporate America, employees of United Airlines gained control of their company yesterday, exchanging deep cuts in pay and benefits for a majority stake in the second-largest employee-owned company in the country.

Except for a new advertising campaign that United began Monday night to publicize the deal, passengers will notice few changes.

But the completion of the buyout, a sweeping and complex transaction about seven years in the making, is expected to make employee ownership a more popular solution at companies struggling to lower their costs. Indeed, the Clinton administration has encouraged employee ownership as a way to preserve jobs.

"Inevitably, other companies will stand up and take notice," Labor Secretary Robert B. Reich remarked. "From here on in, it will be impossible for a board of directors to not consider employee ownership as one potential business strategy."

Shareholders of UAL Corp., United's parent, voted to approve the acquisition by workers of a 55 percent stake in the company, in return for wage and work-rule concessions valued at $4.9 billion over about six years.

The employees will have three seats on the 12-member board of directors and have named Gerald Greenwald, a former vice chairman of Chrysler Corp., to head United, the nation's largest airline.

About 54,000 employees of a total work force of almost 76,000 are involved in the buyout, and they have all taken immediate pay cuts. The pilots agreed to a 15.7 percent reduction and more flexible work rules. The machinists agreed to a 9.7 percent wage cut, and nonunionized employees will see their salaries reduced 8.25 percent.

The buyout, which makes UAL the second-largest employee-owned company in the United States, represents the most drastic and risky move by an established carrier to restructure itself since the industry was deregulated 16 years ago. It is also the first time that an airline has given employees control in exchange for concessions while it is still relatively healthy.

UAL will have $1.5 billion in cash reserves after the buyout, making United among the richest of carriers.

Yet United is facing increasing competition from airlines that have lower operating costs, in some cases because their employees are paid less or can be assigned wider duties.

A major goal of the buyout was to enable United to create an "airline within an airline" that will operate a shuttle-type service onshort routes modeled after Southwest Airlines, with few frills and low fares. The service, to start Oct. 1 in the West, will be called the United Shuttle.

The acquisition was trumpeted yesterday as the start of an era of harmonious labor relations at United.

But many United employees are not part of the transaction. The flight attendants are not involved in the deal. Their union's leaders were unable to reach an agreement over concessions with United's management.

And some industry analysts have said that the transition to majority shareholders will be too difficult for many employees and their labor representatives.

Lee A. Iacocca, Chrysler's former chairman, has also expressed doubts. "Somebody's crazy. It can't work," he said in Business Week magazine recently. "What do you think will happen when it's a choice between employee benefits and capital investment?"

TOP EMPLOYEE-OWNED FIRMS

With shareholders' approval of an employee buyout yesterday, the parent company of United Airlines becomes the nation's second-largest majority employee-owned company. The 10 largest such companies, by total number of employees:

Company ... ... ... ... ... ... ... ... ... ... Employees

Publix Supermarkets ... ... ... ... ... ... ... 87,000

UAL Corp. ... ... ... ... ... ... .. .. ... ... 76,000

Science Applications ... ... ... ... .. ... ... 15,000

Avis Inc. ... ... ... ... ... ... ... ... .. .. 12,500

Parsons Corp. ... ... ... ... ... ... ... .. .. 10,000

Amsted Industries ... ... ... ... ... ... .. .. 8,300

Avondale Shipyards .. ... ... ... ... ... .. .. 7,500

Morgan Stanley ... ... ... ... ... ... .. .. .. 7,053

Journal Co. ... ... ... ... ... ... ... ... ... 6,200

Weirton Steel Corp. ... ... ... ... ... ... ... 6,100

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.