Tax Ruling in Hand, United ESOP Sales Set to Resume

March 4, 2003 ( - The financially ailing parent of United Airlines announced that a decade of employee control might fade into history within a few weeks following a special Internal Revenue Service (IRS) ruling.

The IRS assured the company that the trustee for United’s Employee Stock Ownership Plan (ESOP) can sell an additional 3.9 million shares and United can still keep tax benefits called net operating losses (NOLs), Reuters reported.

That gives ESOP trustee State Street Bank a green light to renew its sale of the ESOP’s holdings, while allowing United to preserve the tax benefits, regardless of the change in employee ownership. Change in ownership or “sunset” occurs when employees no longer own more than 20% of the company. Employees bought 55% of the company in 1994, but the move failed to bring about the labor harmony with management it was designed to foster.

Stock Stop

The NOL issue arose once it appeared United was heading for bankruptcy and State Street began unloading UAL shares until the company objected (See  Judge Puts Brakes on UAL’s ESOP Sell Off ). United officials feared the loss of the NOLs, which they say are required for the giant air carrier to successfully bring itself out of bankruptcy court.

According to Reuters, the pending ownership change means that the major United unions who hold seats on the board of directors will keep their seats but lose special voting rights including the power to choose the chief executive, among other things.

Separately, the number two US airline reported a $382-million loss for January. In a filing with the US Securities and Exchange Commission, United said that it had $1.18 billion in operating revenue and $1.51 billion in operating expenses before additional expenses were included.