UAL to give shareholders $250 million special payout

NEW YORK Fri Dec 7, 2007 1:36pm EST

Customers wait to check-in at the United Airlines terminal at the O'Hare International Airport in Chicago May 8, 2006. United Airlines said on Friday that parent UAL Corp will pay shareholders $2.15 per share in a special payout totaling $250 million, marking a rare move by an airline to reward investors. REUTERS/Joshua Lott

Customers wait to check-in at the United Airlines terminal at the O'Hare International Airport in Chicago May 8, 2006. United Airlines said on Friday that parent UAL Corp will pay shareholders $2.15 per share in a special payout totaling $250 million, marking a rare move by an airline to reward investors.

Credit: Reuters/Joshua Lott

NEW YORK (Reuters) - UAL Corp UAUA.O will give shareholders a special payout of $2.15 per share, totaling about $250 million, United Airlines' parent said on Friday, marking a rare move by an airline to reward investors.

The U.S. airline industry is still recovering from a five-year slump in which it racked up $35 billion in losses. During that time, several airlines went into bankruptcy, including United, wiping out shareholders' investments.

"This shareholder distribution underscores our commitment to creating value for our investors," UAL Chief Executive Glenn Tilton said in a statement.

UAL's shares, which are essentially flat from where the company exited bankruptcy in early 2006, jumped 2.5 percent to $41.66 on Nasdaq early Friday afternoon.

UAL's move is a sign of the industry's financial recovery as well as the pressure faced by airline managers to reward investors. The payout could put pressure on other carriers in the highly competitive industry to follow suit.

"Anything that one airline does puts pressure on other airlines," said Calyon Securities analyst Ray Neidl.

Delta Air Lines Inc (DAL.N) said it had not made any similar announcements. Other carriers were not immediately available for comment.

The payout to holders of its common stock will thin UAL's cash reserves at an uncertain time for U.S. airlines, as soaring fuel prices and a softening U.S. economy threaten to cripple their hard-fought recovery.

The move also risks upsetting the company's employees, who endured harsh wage cuts to help the airline restructure. For its part, the union representing 17,000 United flight attendants reacted angrily to the plan.

"The executives at United Airlines are nothing more than charlatans, sweetening the pot to flip our airline like an unscrupulous real estate agent," said Greg Davidowitch, president of the Association of Flight Attendants at United. "Workers are fed up."

"Our commitment to our shareholders, which includes many of you, is just as strong as our commitment to our customers and our employees," CEO Tilton said in a statement to employees.

The company said that employees, which hold more than 9 million UAL shares through their retirement accounts, will receive about $20 million of the payout.

UAL spokeswoman Jean Medina said that rating agencies had reviewed the plan and affirmed the company's ratings.

The company also noted that it had generated more than $2 billion in operating cash flow in the first nine months of 2007 and has $4.2 billion in unrestricted cash.

The special cash distribution was made possible after United's lenders approved an amendment to the company's credit agreement. Under the amendment, the company said it can undertake an additional $250 million in shareholder initiatives without any additional prepayment.

United also said that it can carry out further shareholder initiatives, which could also include stock buybacks, in an amount equal to future term loan prepayments.

United Airlines said it paid down $500 million of a term loan under its existing credit agreement.

The special payout, equivalent to about 5.3 percent of UAL's closing stock price on Thursday, will be made on January 23 to holders of UAL Corp stock on January 9.

(Editing by Brian Moss, Richard Chang)

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