CHICAGO, Nov. 18, 2002å—UAL Corporation (NYSE: UAL), the holding company whose primary subsidiary is United Airlines, today announced it has established a labor cost savings plan for its salaried and management employees. In addition, the company announced that in connection with and upon implementation of the financial recovery program, it plans to issue stock options to all employees participating in that program.
Company Adopts Recommendation of Salaried and Management Employees:
Under the recommendation presented by the System Roundtable and adopted by the company, salaried and management (SAM) employees will contribute approximately $1.3 billion in wage reductions and productivity improvements to United’s recovery over the five-and-one-half years of the program. Included in the program are a reduction of actual wages for employees, excluding officers, of between 2.8 and 10.7 percent, as well as forgone 2002 planned merit salary increases. If forgone 2002 merit raises were included, the reductions would range from 5.2 and 15.3 percent. Employees at the low end of the salary range will contribute the least.
These changes are scheduled to take effect on the same date for all other employee groups participating in the financial recovery program, currently expected to be December 1, 2002.
While SAM employees are not part of the United Airlines Union Coalition, this plan is consistent with the framework agreed upon by the coalition and the company.
Commenting on the plan, UAL chairman, president and chief executive officer Glenn F. Tilton said, “I want to thank salaried and management employees for their contribution to our recovery and their loyalty to our company. With their help, we move one step closer to reaching our $5.8 billion labor-cost reduction target.”
The company also announced that it is finalizing the terms of an officer contribution to the financial recovery program, which is subject to review and approval by the compensation committee of the board of directors. In a message to employees today, Tilton said that “officer participation will be appropriately significant.”
Negotiations on labor cost savings with the International Association of Machinists (IAM) are continuing. The company hopes to reach a tentative agreement with the IAM soon. With today’s announcement, all other employee groups have reached tentative agreements with the company.
Additional Stock Options to be Issued in Connection with Financial Recovery Program:
As part of its financial recovery program and in connection with planned employee wage reductions, UAL plans to issue stock options to all employees participating in the financial recovery program representing 30 percent of UAL’s fully diluted common stock post-issuance (assuming all employee groups participate in the financial recovery program and disregarding stock options with an exercise price in excess of $20). Based on the number of shares currently outstanding and commitments to issue shares, this amounts to approximately 52 million shares.
The company said that the proposal to issue stock options to employees participating in the recovery program has enabled United to achieve the tentative labor cost savings needed to put the company on more stable financial footing and decrease the prospects of a court-supervised restructuring. If the company is able to avoid Chapter 11, the issuance will have preserved equity value for all shareholders.
Normally, the issuance of these stock options would require shareholder approval under the Shareholder Approval Policy of the New York Stock Exchange (NYSE). An exception to that policy provides that a company may forgo shareholder approval if the delay associated with obtaining it would seriously jeopardize the financial viability of the company. The Audit Committee of the UAL board of directors has determined that the delay resulting from the process of securing shareholder approval for the issuance of the stock options would seriously jeopardize United’s financial viability.
As a result, the Audit Committee, in accordance with the exception to the NYSE’s policy, approved the company’s request not to seek the shareholder approval for the issuance of the stock options that otherwise would have been required. The NYSE has accepted the company’s reliance on the exception to issue approximately 52 million shares. United will be mailing a letter to all shareholders notifying them of its intention to issue these options without seeking their approval.
Implementation of United’s financial recovery program is conditioned upon the closing of a loan facility for the company guaranteed in part by the Air Transportation Stabilization Board, satisfactory participation by employee groups in the recovery program and respective union membership ratification.
United operates nearly 1,800 flights a day on a route network that spans the globe. News releases and other information about United may be found at the company’s website at www.united.com.