State Street Selling UAL Stock

October 29, 2002 ( - With a bankruptcy filing looming, an independent fiduciary for United Airlines employee stock ownership plan has (ESOP) started dumping stock in United's parent company UAL.

According to a Reuters news report, State Street Bank and Trust revealed in a filing with the US Securities and Exchange Commission (SEC) that it may unload as much as 20% of the ESOP’s UAL shares.

State Street said in the SEC filing that it may sell up to 10.9 million UAL common shares over the next three months. The common stock is issuable when the ESOP shares are converted and issued to State Street on a private placement basis, Reuters said.

UAL is the third largest employee-owned company in the United States, according to the National Center for Employee Ownership (NCEO). The No. 2 US carrier is 55% owned by pilots, machinists, and salaried and management workers. Each of those groups has a seat on the board of directors.

The ownership vehicle comes through retirement plans that hold preferred stock for workers who participated in a 1994 buyout, according to Reuters. Although by many accounts a dismal failure, the ESOP was adopted with the idea that employee ownership would foster harmony between labor and management at the huge airline, the news report said.

According to Corey Rosen, NCEO executive director, labor saw the ESOP as a way to prevent the company from being broken up under then CEO Stephen Wolf. Management saw it as a way to extract wage concessions.

In a letter sent to ESOP members, the ESOP committee said it recently appointed the plan’s longtime independent trustee, State Street Bank and Trust, as investment manager with authority to make decisions about the ESOP holdings.

UAL common stock now trades under $3 after reaching more than $100 on a post-split basis in the late 1990s.

ESOP shares are preferred but convertible to common stock, the value of which has fallen sharply since the September 11 attacks. UAL common shares have lost about 85% of their value this year, sinking to $1.90 when the airline warned this summer it might file for bankruptcy, according to Reuters.

As of October 24, State Street had converted 2.1 million shares of ESOP preferred stock to an equivalent of 8.4 million common shares and has begun selling some of it on the open market, Reuters said.

Although unlikely, Rosen noted that the independent trustee could decide to sell all of the ESOP shares to a third party, potentially leading to a change in control at UAL, Reuters said.

The situation at United is similar to one at US Airways, which hired its own company stock independent fiduciary, Aon Fiduciary Counselors.