As chairman of Allegis Corp., Richard J. Ferris sought to transform what had been essentially an airline company into something broader and with greater potential. But the company's pilots and investors, apparently unconvinced that the expected synergy would become a reality, grounded Ferris' dream in an hours-long board meeting Tuesday evening.
The board's decision to pare back the travel services conglomerate to United Air Lines, and to sell such subsidiaries as the Hertz Corp. and the Westin and Hilton International hotel chains, brought the immediate resignation of Ferris. However, under the terms of his employment contract, he will continue to receive compensation worth $578,981 a year through April 30, 1992.
The decision also means the company Ferris built into a travel-services conglomerate will be reduced again simply to United Air Lines, with a likely restructuring of the company to provide for broad employe ownership.
Allegis should find a ready market for its nonairline subsidiaries, industry analysts said yesterday.
They noted that even before the board decided to break it up, Allegis had drawn the attention of investors, including Donald Trump of New York and the Pritzker family of Chicago, who appeared to be attracted to its hotel properties. In addition, the pilots union has said that it has a prospective buyer for the Hilton chain -- British investors David and Frederick Barclay.
Analysts also speculated that the management of Hertz might be interested in acquiring the rental car company.
United's pilots union, which put the company "into play" in April when it proposed to buy United for $4.5 billion, said yesterday that it will continue its pursuit of employe ownership for the airline.
A New York investment group, Coniston Partners, which had been seeking to dump the Allegis board, said yesterday that the current board had adopted Coniston's plan to sell off assets and maximize value. As a result, Coniston said, it is dropping its proposal to unseat the directors.
The resignation of Ferris was a triumph for both the pilots, who said they believed that the company had been diversified at the expense of the airline, and for investors, who believed there were greater returns in breaking up the conglomerate and selling off the pieces.
Ferris tendered his resignation voluntarily when it became clear that his strategy was being abandoned by the board, an Allegis spokesman said.
The strategy "just is something that people did not see the value in," said Edward Starkman, an industry analyst with Paine Webber Inc.
The company's new chairman, Hertz Corp. Chairman Frank A. Olson, went to work yesterday at Allegis headquarters in Elk Grove Township, Ill. In announcing the transition Tuesday night after the board meeting at the offices of Allegis' financial adviser, Morgan Stanley & Co. in New York, senior board member Charles F. Luce said Olson is expected to recommend that the corporation's name be changed to United Air Lines Inc. after it sheds its other subsidiaries. The corporation, which changed its name from UAL Inc. to Allegis April 30, spent $7.3 million to develop and promote the new name.
Allegis had tried several times to ward off shareholder unrest and growing threats of a takeover. Among other things, the company adopted a package that provided generous severance benefits to 37 key executives and provided five-year employment contracts for eight others, including Ferris. A United spokesman said it was possible that other executives would also be entitled to their severance if they left, but that they were all remaining on the job.
One key executive, David L. Pringle, senior vice president for human resources, who represented management during bitter negotiations with the pilots union in 1985, however, was reassigned.
"We are pleased by the company's decision to abandon its Allegis diversification strategy and reconsider our proposal," said F.C. Dubinsky, chairman of the Master Executive Council of the United Airlines Pilots. The Allegis board contacted the pilots and other employe groups Tuesday night to inform them of the decision to shed the corporation's nonairline subsidiares. The unions are expected to enter into talks with representatives of the board about plans for employe ownership.
The International Association of Machinists and Aerospace Workers, which warned last week of unspecified job actions or other actions, is waiting for more information about Allegis' future course before deciding what to do, said a source close to that union.
The market reacted favorably to the Allegis announcement. The stock closed at $92.75 yesterday, up $2.
The seeds of Ferris' downfall were sown during a 29-day strike by 5,000 United pilots in 1985, Louis Marckesano, an airline analyst with Janney Montgomery Scott Inc. in Philadelphia, told the Associated Press.
Ferris, known for his tough management style, won a short-term victory when the pilots' union agreed to adopt a two-tier wage scale under which new pilots would be paid less than experienced ones. But the long-term effects were more serious.
Training programs had to be suspended during the strike, causing a pilot shortage, and the airline's earnings fell.
"It wasn't so much what the company lost, but the amount it didn't make, while other companies did," Marckesano told AP. "The strike was not all Ferris' fault, but even after it was over, the company and the pilots never did resolve their differences."