UAL heads for buy-out: Vote due on worker control

A PLAN to transfer control of UAL Corporation, the parent of United Airlines, to its workers - making it the biggest employee-owned company in the United States - is expected to win support from shareholders on Tuesday.

After months of intense lobbying for the buy-out, UAL management and employees are hopeful they will gain the simple majority required to implement it. Wall Street analysts feel the odds are tipped in favour of a 'Yes' vote.

'I'd say that it will pass,' said Ray Niedl, airlines analyst at the brokers Furman Selz. 'Many stockholders who didn't like the deal have already voted with their feet and sold.'

If shareholders block the plan, analysts foresee turbulence as UAL management and workers argue over the operating-cost reductions that management says are necessary to ensure the future viability of United. The giant US carriers are under increasing attack from fast-growing, low-cost airlines eating away at their market share on busy routes.

Under the terms of the buy-out, the unions have agreed to dollars 8.2bn (pounds 5.3bn) worth of concessions on pay, working hours and benefits over the next 12 years. In return, employees will come to own 55 per cent of the company via stock ownership plans. They have already voted in favour of the deal.

The carrot for existing UAL shareholders to approve the transaction is an dollars 84.81 cash payment per share, plus half a share in the recapitalised UAL.

After taking their cash the existing shareholders will initially own 45 per cent of the new UAL, which will have a lower cost base and projected higher profitability. Analysts estimate that with the union agreement under its belt, UAL will generate an extra dollars 550m in cash each year between now and 1999.

The pay-out to shareholders will cost the company dollars 2.1bn, which will be financed out of cash reserves plus the proceeds from two recent capital-raising exercises. Two weeks ago UAL completed a sale of bonds and preferred stock, raising dollars 1.15bn.

UAL originally intended to give the paper to shareholders as part of their dollars 84.81 pay-out, but this ran into opposition from institutional investors.

United's concern over its future owes a great deal to Southwest Airlines, the Dallas-based carrier whose lower wages and flexible work rules have come to be seen as a model for the future of the US aviation industry - at least within the ranks of management.

United is currently working on plans for a subsidiary codenamed U2, billed as 'an airline within an airline', which will be able to compete more effectively with low-cost carriers on short hauls.

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