United Airlines likely to lose employee ownership CHICAGO (Reuters) =97 Bankrupt United Airlines is on the verge of losing its= =20 status as one of the world's largest employee-owned companies, as sales by= =20 various employee stock plans trigger a loss of control for union owners,=20 sources familiar with the matter said. Employees at the world's second=20 largest airline won 55-percent control in 1994 when a landmark employee=20 stock ownership plan (ESOP), designed to foster labor harmony, was put into= =20 place, At the time, pilots bought 25% of the company, machinists, 20% and=20 salaried and management workers, about 10%. The impending ownership change,= =20 under which employees will no longer have 55-percent voting rites, would=20 have occurred anyway by the end of the bankruptcy process when stock is=20 typically left worthless. But it is now likely to happen much sooner than=20 expected =97 perhaps within the next several months, sources told Reuters.= =20 State Street Bank the investment manager for stock held in the ESOP plans,= =20 has resumed selling out of its large ESOP holdings in an attempt to=20 preserve some value for employee shareholders. On Friday, United sent State= =20 Street a letter authorizing the sale of another 12.9 million shares without= =20 jeapordizing tax benefits, known as net operating loss carryforwards.=20 United said if State Street had sold the 12.9 million shares as of end of=20 last year, it would not have triggered what is known as the "sunset"=20 provision in United's 1994 employee ownership charter. The provision says=20 employees must own more than 20% of common stock to have majority ownership. BIG RAMIFICATIONS But the sale of the 12.9 million shares, combined with the likely sales of= =20 other employee-owned stock in various company-sponsored plans, will=20 undoubtedly trigger the sunset provision soon, sources said. The change of= =20 ownership has big ramifications for unions, because the pilots and=20 machinists both have seats on the board of directors that give them special= =20 veto rights and let them sit on important board committees, particularly=20 the labor committee. "When the ESOP sunsets, it will represent a huge and=20 significant loss to the employees on this property," said Captain Paul=20 Whiteford, the head of the Air Line Pilots Association at United and member= =20 of the board. "There are some things that were never achieved under the=20 ESOP, but regardless of that, it is a huge loss to us. The biggest reason=20 is that we bought it (the majority ownership) for defensive reasons =97 so= =20 people couldn't come in and sell it off bit by bit." Ira Levy, who sits on= =20 the ESOP committee for the International Association of Machinists and=20 Aerospace Workers, said: "It's a sad end to a good experiment." For the=20 near future, unions will keep their board seats but will lose a host of=20 special powers that go with them under the 1994 corporate charter,=20 including the right to veto things like big asset purchases or sales, and=20 selection of executives. One source said there are about 5 million more=20 shares held in payroll-directed stock purchase funds and a pilot-directed=20 retirement fund. If just 2 million of those shares are also along with=20 State Street's initial 12.9 million shares, the sunset provision is=20 triggered, the source said. AWAITING IRS RULINGS United is seeking to preserve the net operating losses (NOLs) for tax=20 reasons upon exiting from bankruptcy, but a change of ownership can wipe=20 them out. The court must decide whether State Street can sell all 33=20 million shares and is waiting for clarification from the Internal Revenue= =20 Service as to what constitutes "beneficial ownership" of stock. Once worth= =20 more than $100 in the late 1990s, UAL common shares have plunged in value=20 to just $1.33 each. Shares held in the ESOP are preferred but convertible=20 into common stock. As of September, 2002, State Street had already sold 24= =20 million shares and wanted to sell all of its remaining 33 million shares.=20 But shortly after United and parent UAL Corp. filed for bankruptcy on Dec.= =20 9, Bankruptcy Judge Eugene Wedoff barred the firm from doing so while he=20 considered a complicated tax matter. Meanwhile, another firm =97 Aon=20 Fiduciary Counselors Inc., a unit of Chicago-based Aon Corp. =97 late last= =20 year said it had sold out of all shares held in separate 401 (k) retirement= =20 plan stock before United filed for bankruptcy =97 a total of 12.7 million= shares. A lawyer for State Street on Wednesday told Reuters the firm has already=20 begun selling the additional 12.9 million ESOP shares, but said the firm=20 did not intend to flood the market with them imminently. Only United has=20 access to the number of shares held and sold in those plans. Spokesman Jeff= =20 Green said so far, the sunset provision had not been triggered. As to when it will occur, "that's an opinion or speculation," Green said.=20 "It could be a possibility, yes." Certainly a clear Internal Revenue=20 Service decision on whether State Street is a "beneficial owner" of the=20 stock will result in the sales of the remaining 33 million shares, sources= =20 said, and the loss of employee-ownership will occur. UAL's bankruptcy=20 attorney James Sprayregen said at a court hearing Wednesday that a ruling=20 on State Street's status is expected some time in February. At the time of= =20 the ESOP, the chief executive of United was Stephen Wolf, who according to= =20 Whiteford was threatening to break up the company and sell it as he had in= =20 the past with other airlines. *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@escape.ca Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Site of the Week: http://www.atlanticlng.com TnT Webdirectory: http://search.co.tt *********************************************************