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Machinists File Lawsuit To Halt To Restructuring Of Allegis, Company Says

January 15, 1988

CHICAGO (AP) _ United Airlines machinists are waging a court battle to try to block the restructuring of parent Allegis Corp. and the distribution to stockholders of proceeds from sales of non-airline subsidiaries, Allegis says.

The International Association of Machinists and Aerospace Workers filed a lawsuit in California Superior Court in San Francisco City-County contending the planned distribution is illegal, a company statement said Thursday.

Among the union’s objections to the restructuring is the incurrence of a higher debt ratio by Allegis’ core business, Chicago-based United Airlines, the statement said. Court records indicate the lawsuit was filed last Friday.

The restructuring of Allegis, which involves sale of its Hertz rental car and Westin and Hilton hotel subsidiaries, will push its debt-to-equity ratio from about 55 percent to 80 percent, said company spokesman Matt Gonring.

″Its’ not that we’re incurring new debt, but when you sell off assets you’re selling off equity,″ Gonring said.

″We believe the lawsuit is totally without merit, and we will certainly defend it vigorously,″ Gonring added.

A spokesman for the Washington-based machinists’ union was not available for comment after business hours Thursday afternoon, said Linda Ross, who answered the telephone at the union’s communications office.

Allegis has sold its Hertz rental car and Hilton hotel subsidiaries and is near completion of a deal to sell its Westin hotel chain, Gonring said.

The company has promised its 58 million stockholders that it will give them a $50 dividend to distribute proceeds of the sales or will buy the equivalent amount of shareholders’ stock, which would have tax advantages over the dividend, Gonring said.

The lawsuit alleges that both the distribution of the proceeds and the incurrence of a higher debt ratio by United Airlines ″would constitute fraudulent conveyances under the Uniform Fraudulent Conveyance Act and involve an illegal dividend under Delaware law,″ the statement said.

Allegis is incorporated in Delaware.

As part of the lawsuit, the machinists are seeking an injunction to stop the restructuring and distribution of proceeds, Gonring said.

The lawsuit was filed in San Francisco County because that is where the largest proportion of the United’s 21,000 employees in the machinists’ union are based, Gonring said.

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