Air Pockets Around United

By Gordon Bock

At first the plan seemed like pie in the sky: the 7,000 pilots of United Airlines, the country's wobbly No. 2 carrier, proposed that United's 60,000 employees buy the carrier for $4.5 billion. But with that as an invitation, more seasoned corporate gate-crashers quickly stepped in. By week's end the skies around United were far from friendly, as the possibility of a substantial if confusing takeover play developed around the carrier's parent company, which is changing its name later this month from UAL Inc. to Allegis. Whatever happens next, there is no doubt that a passel of problems lies ahead for UAL Chairman Richard Ferris, 54, and his controversial long-term plan to make the company (1986 revenues: $9.2 billion) an integrated travel-and- tourism enterprise.

The pilots' ploy obviously intrigued Wall Street. The price of the Elk Grove, Ill.-based company's stock rose from 59 on Monday to close out the week at 72 3/8. One of the main beneficiaries was New York City Developer Donald Trump, who had amassed just under 5% of the firm's shares, which may make him UAL's largest individual stockholder. Trump, 40, helped set the takeover rumors racing when he joined the pilots in criticizing Ferris' management approach. He also scorned the company's name change, which is expected to cost UAL about $7.3 million. Allegis, Trump said, was "better suited to the next world-class disease." Along with the boyish billionaire, the Wall Street rumor mill named as possible UAL takeover partners the New York investment firm of Coniston Partners and the Chicago-based Pritzker family, which controls Braniff and owns 1% of UAL's shares.

The employee buyout offer that kicked off the rumpus gestated for two years. It emerged from a bitter 29-day pilots' strike against United over a ^ two-tier wage scale that provided lower pay for new hires. After the dispute, F.C. ("Rick") Dubinsky and other leaders of United's branch of the Air Line Pilots Association began nurturing the buyout notion, which the union members code-named "Operation Stealthco."

As described by Dubinsky before about 3,000 United employees at a suburban Chicago sports center, the plan calls for employees to buy the airline by raising $2.3 billion and assuming $2.2 billion worth of the airline's debt. United pilots, who earn as much as $156,000 a year, have volunteered to give up anywhere from 5% to 25% of their salaries to help make the buyout work. A representative of Lazard Freres, the investment banking firm that employees have enlisted to help raise cash for the takeover bid, pronounced the venture "viable." One notable believer in the scheme was Defense Attorney F. Lee Bailey, who anted up a $1.5 million loan at the Chicago rally, where many of the attendees sported red-and-white BE UNITED, BUY UNITED buttons. Bailey's wife Patricia is a United flight attendant.

Chairman Ferris was less enthusiastic, however, and UAL officials would say only that the buyout matter is "under study." One major problem: the buyout would mean dividing up the highly diversified company that Ferris has built up, much to the airline employees' chagrin, since 1985. In that year Ferris got into the car-rental business by buying Hertz for more than $587 million. This month he spent $982 million more to add 90 Hilton International hotels to UAL's 60-hotel Westin chain. He spent $750 million last year to buy out ailing Pan Am's Pacific air routes. United employees complain that Ferris' diversification has drained capital from the corporation that could have gone for pay increases and expansion at the airline, which lost $80.6 million in 1986. Other divisions helped the holding company turn a profit of $11.6 million, still a pittance.

What happens next may depend on Trump, who has closely followed the employee-takeover scheme. Indeed, he lunched with Felix Rohatyn, a senior partner at Lazard, only four days before the pilots' takeover offer was made public. Trump called it a coincidence, but conceded that the two "very lightly" discussed the possibility that the developer and the disgruntled airline pilots might join forces. Trump later told TIME that he thought Ferris' management strategy was "crazy." But the real estate mogul showed particular interest in UAL's hotel properties; they include midtown Manhattan's famed Plaza Hotel, which Trump termed "one of the great diamonds of the world." So far, though, the developer says he has "not decided what to do." While he makes up his mind, the air pockets of doubt that surround UAL's future can only cause more turbulence.

With reporting by Lee Griggs/Chicago and Jeanne McDowell/New York