United Declares Bankruptcy; Trustees Sell ESOP and 401(k) Shares

United's bankruptcy won't have quite the impact on the company's ESOP and 401(k) plans that might be expected. That's because trustees of both plans have been selling off shares held by employees in both plans. The ESOP sell-off started in October with about 20% of the shares sold before the bankruptcy announcement. The remaining shares in the two plans will be sold in coming weeks, assuming there are buyers. The price obviously will be minimal, but, in bankruptcy, the employee shareholders would likely get nothing for the shares. Employees may still ask for equity in exchange for the inevitably large concessions they will be required to make. In the contract talks prior to bankruptcy, the pilots and flight attendants had already agreed to get options for concessions. The creditors' committee and bankruptcy courts, however, will now have the final say on the issue. (Note: As of today, a court has issued a temporary injuction that could prevent further sales of the ESOP-held stock.)

The press reaction to the bankruptcy has been more positive for ESOPs than many had feared. Syndicated articles in The Chicago Tribune, LA Times (by columnist Jim Flanagan), and the AP newswire all highlighted the benefits ESOPs can provide, as well as some of the pitfalls when poorly run. Stories in The Wall Street Journal, Washington Post, San Francisco Chronicle, CBS Market Watch, NPR, and other media also looked at what makes ESOPs work. The NCEO played an active role in the talking to the media, pointing to research on the critical relationship between creating an ownership culture and ESOP success. All the stories pointed to the lack of that connection at United as a key problem.