United stock buyback plan raises controversy

photo courtesy albspotter

Executives at United Airlines have been talking about the possibility of the airline buying back stock or paying dividends to shareholders. “We realize the importance of doing something for shareholders," said CFO Jake Brace.

But the idea has not gone over well with the unions, who claim that the airline should be doing more for its employees, who had to sacrifice a lot during the airline's extensive stint in Chapter 11 bankruptcy. To be fair, United might want to consider setting up a fund for employees that have faced personal crises - rather like jetBlue and Delta have. The bankruptcy process adversely affected employee morale (and pay) - if United has a little cash left over, at least some of it should go back to employee's pockets.

But personnel issues aside, there's another issue for United management to consider: fleet renewal. Crain's Chicago Business quoted a United spokesperson as saying, “We have one of the industry’s youngest fleets, and the likely availability of next-generation narrow-body aircraft fits well with our timing for replacement planes, giving us a competitive advantage.” United's average fleet age is 12 years, which is pretty average but still on the older end of the spectrum. And with its rivals buying newer planes - Northwest, for example, has ordered the 787 and there are rumors that American and Delta will do the same - United should tuck away some cash when this issue arises in a few years.

And last, but not least, there's the airline industry itself, which is notoriously cyclical. Right now might be a time of (relative) prosperity for the industry, but like it has always done in the past, it will eventually take a dive. United needs to make sure that it has enough cash on hand to weather any downturns.

This isn't to say that a stock buyback plan isn't a bad idea, but United's management needs to get its priorities straight first. Work on clearing away debt and do something to help out employees. This doesn't mean to necessarily cave in to every demand, but if the airline is making a little extra cash, maybe give some of it back to employees - after all, they're the ones that have the potential to satisfy customers, who will then (hopefully) reward with repeat business.


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