FROM WOODEN WINGS
VII. ALLEGIS... (GESUNDHEIT!)
In February, 1987 Ferris announced that UAL Inc. would now be called Allegis Corp., and would become a worldwide travel services company with United Airlines as only one part. UAL said it paid $7.3 million for the name that would soon become the butt of Wall Street jokes. Real estate tycoon Donald Trump said it sounded like a "world-class disease." Wall Street was skeptical of Ferris' plan. The pilots saw it as the death knell for the once greatest airline in the country.
During the next few months Dubinsky began assuring the pilots-and putting the company on notice-that if they reduced the seniority of the 570, he would take whatever legal course he could to eventually restore their rightful seniority. Ferg advised Ferris, Hartigan and Barry that unless they wanted years of labor strife over this issue the only recourse was to fire them all. The company took the position that they would indeed fire the 570--unless the MEC agreed to their seniority being reduced and promised never to raise the subject in negotiations again. The company had a loaded gun pointed to the heads of the MEC. Dubinsky called a special MEC meeting for Friday, April 3, 1987 in Chicago.
By that evening the MEC had no choice but to agree to the company's demand. Dubinsky told the MEC that the company had what they called "Operation Flight Plan" in place-a plan they claimed would terminate and replace all the 570 by May 1. Dubinsky privately reassured the MEC by saying, "Things will become much clearer tomorrow."
Early the next morning the MEC was rousted out of bed and secretly bussed to a hotel several miles away. By the end of the next day the MEC had been briefed by the officers, ALPA President Hank Duffy, Vice President Roger Hall, F. Lee Bailey and almost two dozen other lawyers. The plan to buy the company was ready-but it required MEC approval. By agreeing to wage investments and certain concessions, the employees could afford to purchase United from Allegis-but the pilots would have to raise millions of dollars in seed money from among themselves to get the ball rolling. It was not an easy decision. One MEC member confided to another that it was the hardest decision he would have to make-thoughts of the effect of this on his friends and their families kept occupying his mind. There was strong debate on both sides, but the MEC voted unanimously to go for it. They felt the risks of inaction were greater than the risks in going ahead.
The corporation initially dismissed news of the effort as a publicity stunt by the disgruntled pilots. But by the next day it was clear that Wall Street had taken it seriously. UAL stock was soaring, and Ferris would have a difficult time stopping it.
The next month Coniston Partners acquired a large block of stock and announced they would attempt a consent solicitation to remove the board of directors and sell off the various companies.
The board and Ferris frantically searched for a way out. Every attempt to establish a poison pill defense infuriated the shareholders. Then Ferris and the board decided to recapitalize the corporation and pay the shareholders $3 billion. But to do it they would not sell off non-airline assets. Instead they would borrow it. The plan would result in a negative net worth for Allegis and would place the company under a staggering debt load. Curiously, the board's argument against selling United to the employees was that it would have placed the company under too great a debt. The brazenly self- serving nature of their plan to place an even greater debt on the airline simply to preserve their own positions on the board was not lost on the public, the shareholders, the press or the employees.
In early June, Dubinsky called the MEC into session again in Chicago. The financial advisors presented a revised plan that would top Ferris' and, hopefully, thwart the recapitalization. The MEC approved it and after its announcement on Thursday, June 4, UAL stock reacted favorably. Ferris was in trouble.
The next evening Ferris called Dubinsky at his home. Ferris needed to talk to him right away. Dubinsky agreed to meet him at a remote airport near Dubinsky's home in northern Ohio later that night. Shortly after 9 p.m. Ferris climbed out of his Lear jet, greeted Dubinsky and they walked over to the pilots' lounge. Ferris told Dubinsky that because of the pilots' latest offer, the banks were squeezing him and he was having difficulty getting financing for his recapitalization.
Dubinsky commented later about the conversation, "He won the Oscar, the Emmy, the Tony and every other acting award. Ferris said he was our friend and he couldn't understand why our relationship had deteriorated. He blamed a great deal of that on Roger Hall. He also said he didn't understand the strike, he didn't understand the emotions during or after the strike, and if we'd just give him a chance and trust him, he would make everything right." Ferris insisted that an employee- owned airline could be worked out under terms that would be satisfactory to both the pilots and himself. They agreed to meet at that airport the next day, Saturday, and fly to New York.
For the next two days Ferris, Dubinsky, Isherwood and their financial advisors negotiated inside Morgan Stanley's New York offices. However, by Sunday afternoon it became clear to Dubinsky and his advisors that, notwithstanding his promises, Ferris would not agree to anything that required him to give up control of the airline. That evening Dubinsky and Isherwood returned to Chicago. Ferris' frantic search for an agreement apparently indicated that he knew what was about to happen. On Tuesday evening, June 9 the Allegis board asked Ferris to resign.
The Allegis board recognized, that in order to avoid a take-over and the loss of their positions on the board, they had to pay a large amount of money to the shareholders by recapitalizing. They also realized that the only way they could get the money was by selling assets. Their decision was to sell all the non-airline assets, give the money to the shareholders and return to their core business as only an airline. Allegis was dead, and the corporation would soon be renamed, of all things, UAL Corp.
The board appointed Frank Olson as interim Chairman. Olson was the CEO of Hertz, an Allegis subsidiary, and also an Allegis director. Olson made some initial moves to stop the growing labor unrest that was clearly responsible for the current corporate upheaval. President Jim Hartigan was named to the largely ceremonial position of United Airlines Chairman. Olson removed Sr. V. P. of Human Resources Dave Pringle from all duties involving collective bargaining and he retained the services of Steven Tallent, a noted labor lawyer, to start mending fences with the unions and employees. Olson clearly wanted to diffuse the need for an Employee Stock Ownership Plan (ESOP), but he also knew that he had to have labor peace, ESOP or not. Unfortunately, Flight Operations wasn't touched. Lloyd Barry said the next day in a recorded telephone message to all pilots, "You may know of my personal admiration and respect for Dick...we have lost a very talented visionary as our leader."