The Dogfight for Control of United

Labor is trying to line up financing--and outmaneuver the CEO

Can beleaguered UAL Corp.'s United Airlines Inc. (UAL ) be saved from going out of business altogether? Ever since the carrier entered bankruptcy in December, CEO Glenn F. Tilton has been under attack by skeptics who say his recovery strategy isn't viable. As the airline burns through $10 million a day, United needs a new flight plan fast.

Now United's unions are taking matters into their own hands. BusinessWeek has learned that Tom Buffenbarger, president of the International Association of Machinists, and Paul Whiteford, head of the Air Line Pilots Assn. at United, have been talking to former United CEO Gerald Greenwald and other potential investors in a desperate attempt to get the bankruptcy judge to replace Tilton's team with a new crew. Labor is also talking to David Bonderman and his Texas Pacific Group, George Soros, Marvin Davis, the Blackstone Group, and several state pension funds. The unions' strategy: find a partner and go jointly to Judge Eugene R. Wedoff in the next few weeks with a competing workout plan, say union officials and potential investors. They're hoping that the judge, who has criticized UAL management for not having a workable recovery plan, will agree.

If Judge Wedoff sides with the unions, they intend to quickly return to the federal Air Transportation Stabilization Board to ask for a bailout loan. In December, the board rejected United's application after concluding that Tilton's plan wasn't credible. "We're looking for the right group that can assure a future for United Airlines," says Gregory E. Davidowitch, president of the Association of Flight Attendants' United chapter. With his job on the line, Tilton will no doubt try to head off such an alliance. Says a United spokeswoman: "We're working hard with our unions to allow United to emerge from bankruptcy." Failing that, however, Tilton could ask Wedoff to abrogate the unions' labor contracts and force $2.5 billion in concessions on them.

Still, a new chief wouldn't save the unions from large cuts. The board rejected Tilton's loan request partly because his cutbacks didn't seem drastic enough. What most irks unions is Tilton's plan to launch a discount airline to take over many United routes because it would be staffed with lower-paid workers. Union officials point out that most major carriers, including United itself, already have tried that idea unsuccessfully.

Greenwald is labor's favorite would-be savior. The unions brought him in as CEO in 1994, when employees bought 55% of the company. The carrier flourished for several years and many workers look back on those years as golden ones. Greenwald, who left on a high note, is currently managing partner of Greenbriar Equity Group LLC, a venture fund in Rye, N.Y., with $700 million in capital to invest in transportation.

Under recent talks with union officials, Greenwald, now 67, would take over as a nonexecutive chairman and bring in new capital and management. He and the unions floated a similar plan last summer. But UAL's board wanted a fresh face and went with Tilton instead. Now the unions want Greenwald to take control, though so far he hasn't agreed. "He doesn't want to roll up his sleeves and run the company day to day," says a union official.

That's why Bonderman's group may be more realistic. Labor likes his work in salvaging Continental Airlines Inc. (CAL ) and America West Airlines Inc. Bonderman, in this scenario, would head the equity investors and name a CEO. He is said to be assessing candidates in the industry and elsewhere, as he considers getting involved.

Any buyer who does emerge will need money by the planeload, which is where labor thinks public pension funds could play a role. A new investor may need $1.5 billion to buy out the banks that put up debtor-in-possession financing. Plus, the carrier could remain short of operating funds even after labor cuts.

So why would any financier want to dive into United now? Investors with big egos and deep pockets have in the past made money at airline turnarounds. At the right price--and with the right package of cuts--they believe United can again fly profitably. For now, though, insiders say none of the possible bidders has put forth a new strategy. Anybody out to save the day had better come up with a plan mighty quick.

By Aaron Bernstein in Washington and Michael Arndt in Chicago

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