Source: Chicago Tribune
Author: Mark Skertic
Deal with creditors aids bankruptcy exit
United Airlines has agreed to scale back a management stock-ownership plan and make other changes to its bankruptcy reorganization plan.
The moves have won the support of the committee representing unsecured creditors, who Thursday withdrew their opposition to the strategy.
The carrier originally proposed to give about 400 top executives and managers 15 percent of United's new stock when it emerges from Chapter 11, then scaled that back to 11 percent before finally agreeing to 8 percent.
"Stock grabs of this type do nothing but represent a sharp stick in the eye to the very people who saved United Airlines from the tall scrap heap of failed airlines: the pilots and employees..."
The management compensation proposal was among the issues that threatened to delay United's exit from bankruptcy protection.
The committee unanimously backed the revised plan, said Fruman Jacobson, the unsecured creditors' attorney.
"This is a good settlement from the creditors' standpoint, and a good settlement from the company's standpoint," Jacobson said.
"It clears away a hurdle that otherwise was there to the confirmation of the plan. This was the right time to resolve this, without any further bruising going on in court."
The airline hopes to be out of bankruptcy by Feb. 1, nearly 38 months after it sought federal bankruptcy court protection from creditors.
The plan sets aside 10 million shares of stock and stock options for the management incentive program out of 125 million shares United expects to issue post-bankruptcy. The value for individual managers is not known because a revised plan for distributing stock has not been released.
A bankruptcy court hearing on Elk-Grove Township-based UAL Corp.'s reorganization plan is scheduled for Wednesday. .
Talks with creditors had been under way for months, and a tentative agreement was reached early Wednesday.
"The creditor committee is acting on behalf of a global creditor constituency," said Jake Brace, the airline's executive vice president and chief financial officer.
"They've said this puts United in a place where it can compete with its strongest competitors going forward."
The new agreement also resolves claims made by the Pension Benefit Guaranty Corp., the government-run pension insurance program that took over United's pension obligations.
In addition, the deal determines how stock and notes in the company will be distributed to salaried employees.
United's board post-bankruptcy will consist of two people designated by the union and five each from the company and unsecured creditors committee, according to the agreement.
Some opposition to the reorganization plan remains. Labor groups, which have gone through two rounds of wage and benefit cuts and had their pension benefits terminated, have called the stock plan a betrayal.
Although labor representatives on the unsecured creditors committee supported the agreement with United, individual groups can continue to oppose the plan.
"Stock grabs of this type do nothing but represent a sharp stick in the eye to the very people who saved United Airlines from the tall scrap heap of failed airlines: the pilots and employees," Capt. Mark Bathurst of the Air Line Pilots Association said in a message to members Thursday.
"The entitlement mentality and the feeding frenzy that appears to permeate the executive offices of United Airlines is an affront to the hard-working and dedicated employees who have sacrificed much."
United has defended the stock programs as a competitive necessity. Plans that reward executives with some ownership in their company are common, the airline argued.