United Airlines Inc., the nation's largest employee-owned corporation, yesterday announced plans to resume common-stock dividend payments, a move that could signal the start of a management effort to entice employees to renew their stock-ownership plan when it expires next year.
The board of directors of UAL Corp., the airline's parent company, also voted to buy back $300 million of its stock in an effort to bolster its price. UAL has authorized more than $1 billion in stock repurchases in the past three years.
United management has been searching for more than a year for ways to put money directly into the pockets of employee-owners, who normally cannot cash in on their holdings under the employee stock-ownership plan until they retire.
The ESOP expires in April for United's pilots and nonunion employees and in July for its members of the machinists union. If the ESOP agreement is not renewed, employees currently participating in it would continue to hold their stock until they resigned or retired, but the company would not buy new shares to distribute to new employees. Employee representatives would continue to hold seats on UAL's board, which gives them veto power over major decisions, until the employee share of United's outstanding stock falls below 20 percent, which is projected to happen in 2016 if the ESOP is not renewed.
The ESOP was negotiated in 1994 when all but the flight attendants voted to give back $4.9 billion in wage, benefit and work-rule concessions in exchange for a majority stake in the company. Employees currently own 55 percent of United, the world's largest airline.
United Chairman James E. Goodwin, in a statement announcing the dividend payments and the stock repurchase, said: "The proposed dividend marks a significant turning point for UAL Corporation. We have worked hard to attain our position of earnings stability and we are confident in our ability to return cash to our stockholders on a regular basis."
Goodwin said the board's action "also represents an important step in our commitment to return cash to all UAL stockholders, both the public and ESOP participants."
United has not paid a dividend on its common stock since 1987. Under the plan approved yesterday, the new dividend program is expected to total $1.25 a share of common stock a year. This means an employee with 3,000 shares of stock in the ESOP would receive $3,750 a year in dividends.
Current shareholders will vote on the dividend proposal at the company's annual meeting next May.
The members of United's board who represent both the Air Line Pilots Association and the International Association of Machinists approved changes to the ESOP agreement that would allow the dividend money to pass through to individual ESOP participants.
United's stock closed yesterday at $64.81 1/4, down $3.25, in line with the drop in other airline stocks. Brian Harris, an analyst at Salomon Smith Barney Inc., said, "Stocks don't usually go up on good or expected news, and this was both good and expected."