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3/6/2003

Stock sale cuts United employee percentage

The Associated Press

CHICAGO — United Airlines will allow the sale of a third of its remaining employee-held shares, setting the stage for the demise of its controversial employee stock ownership plan.

Citing IRS assurances that the sale would not jeopardize a huge tax write-off it needs to help in its recovery, the bankrupt carrier said State Street Bank & Trust could sell an additional 3.9 million shares of stock in United parent UAL Corp.

But United indicated the stock sales are likely to lower the employee ownership level below 20 percent, triggering “sunset” provisions that would eliminate key elements of the 9-year-old employee stock ownership plan.

Most notably, the three employee representatives on the UAL board of directors would lose certain voting powers, such as the ability to jointly vote down acquisitions, divestitures and CEO appointments. The employees would retain their votes but the board’s overall makeup could be altered, possibly putting the rest of the directors up for renomination.

The decision may have little immediate impact on United’s restructuring but should hasten the decline in value of its shares, which analysts have said are likely to become all but worthless in bankruptcy.

UAL shares, which were temporarily halted from trading on the New York Stock Exchange at the time of the afternoon announcement, promptly shed 10 percent. They closed Tuesday at 98 cents each.

The employee stock ownership plan, created in 1994 and now with 75,000 members, held about 55 percent of the company’s shares until September when State Street, the plan’s independent trustee, began selling them as the company plummeted toward bankruptcy. State Street has been seeking permission to sell the rest throughout United’s 3-month-old bankruptcy reorganization.

Bankruptcy Judge Eugene Wedoff barred State Street on Feb. 21 from selling any more shares, saying employees could benefit more from a revived United than from cashing in their remaining stock.

But the Internal Revenue Service has assured the company that tax benefits related to its net operating losses would not be jeopardized if 3.9 million more shares were sold, United said.

Separately, United said in a filing with the Securities and Exchange Commission on Tuesday that it had an unaudited net loss for January of $382.1 million. The airline lost a record $3.2 billion last year and is required by its lenders to show a positive cash flow by the end of October or risk losing its financing.

If United effectively loses its employee ownership status, which the company said could happen within weeks, it will end an experiment that its critics say was ill-fated almost from its inception in 1994.

The plan gave employees stock and board representation in exchange for pay cuts, and it was hoped that it would foster a sense of partnership between workers and management.

But after some promising early signs, labor-management relations soured and ultimately turned dismal when United’s stock began falling, shriveling the value of employees’ holdings.