UAL Calls in Independent Company Stock Fiduciary

UAL, parent company of the ailing United Airlines, appointed Aon an independent fiduciary to manage UAL stock funds, which are investment options in the 401(k) plans offered to United ground workers, management and administrative employees, flight attendants and the United Airlines Pilot Directed Account Plan, according to several news reports.

Chicago-based Aon, the world’s No. 2 insurance broker, and its unit, Aon Fiduciary Counselors Inc., now control more than 12.7 million shares – or 22.3% – of United, according to a US Securities and Exchange Commission (SEC) filing.

Struggling like all domestic carriers with a post-9/11 traffic slowdown, United has said it might have to turn to US Bankruptcy Court if it was unable to cut its operating costs enough through negotiations with its unions and in other ways.

The carrier has also applied to the federal Air Transportation Stabilization Board for guarantees on $1.8 billion of a $2 billion loan.

US Airways Move Pays Off

United’s decision follows a similar move in August by US Airways Group, which hired Aon to manage company shares in its 401(k) plan about a month and a half before it filed for bankruptcy.

It’s already begun to pay off in that case, according to news reports earlier this year. That’s because Aon Fiduciary Counselors dumped $8 million to $9 million in US Airways stock just before the markets shut down trading in US Airways shares because of its bankruptcy filing.

That reduced the amount of US Airways shares being managed to 19.8 million shares and doubled the cash reserve to $16.8 million, Aon Fiduciary Counselors said in August. (See  Aon Move Cushions Bankruptcy Impact on USAir Workers ).

A United spokesman denied that the hiring of Aon did not signal it’s impending bankruptcy filing.

Nell Hennessy, president of Aon Fiduciary Counselors Inc. told interviewiers that Aon will have responsibility for:

• determining the ratio of cash to stock in the plan’s UAL Stock Fund
• the authority to close the fund to future investments
• the discretion to leave the fund open without buying any more UAL stock.

She said United was trying to prevent potential problems down the road in the event that company insiders who have obligations to shareholders have knowledge of non-public information.

“There are a lot of either real conflicts of interest or potentials for conflicts of interest or perceived conflicts of interest if the insiders who are working on the restructuring also have responsibility for making these decisions for the 401(k) plan,” Hennessy told interviewers.

Aon filed a separate statement with the SEC on Friday that authorizes Aon to sell up to 10.6 million UAL shares, worth about $31 million. But Hennessy said the filing did not indicate Aon had specific plans to sell the shares at this time.