UAL Tells Owners It Plans to Cancel Common Stock

United Airlines parent UAL Corp. told owners of its common stock Tuesday that they can expect their investments to be wiped out once the airline emerges from bankruptcy protection.

UAL shares lost more than half of their already depressed value after United said in a regulatory filing that it was “highly likely” the shares would be canceled under a bankruptcy reorganization plan.

Assets of the world’s second- largest carrier “will be insufficient to permit any meaningful distribution to its equity holders,” based on many factors, including the competing claims of various constituents, United said.

Despite similar warnings from other big corporations under bankruptcy protection, shareholders still get caught off-guard. Kmart Corp., for example, told investors repeatedly that their shares probably would be worthless after the company emerged from bankruptcy, yet hundreds of shareholders were angry last month over losing their money when it exited Chapter 11.

After hiring a new chief executive, UAL filed in December for Chapter 11 bankruptcy protection, the largest such filing in aviation history. It is working on a plan that would allow it to emerge from bankruptcy in the fourth quarter of this year or the first quarter of 2004.

Canceling current equity and issuing new shares is typical in bankruptcy cases when there are not enough assets to pay off current holders of common stock.

Common stockholders are at the bottom of the food chain after, among others, secured lenders, such as holders of debt securities backed by aircraft.

Those at the top of the food chain include providers of so-called debtor-in-possession financing. Four institutions loaned UAL a total of $1.5 billion to keep flying during its complicated bankruptcy proceedings.

This week, UAL is beginning to present its updated business plan to its board, a creditors’ committee and potential sources of additional financing.

Other than reducing costs, details of the business plan are not yet known. A spokesman this week declined to comment on what the plan contains, or whether it involves the possible launch of a low-cost, no-frills airline within the company. He also declined to say when the plan would be made public.

Analysts and union sources have told Reuters that a low-cost carrier has become less essential since United won huge hourly pay cuts from its workers. As part of the bankruptcy process, United also is cutting its aircraft lease payments.

UAL shares, which trade on the so-called pink sheets market after being delisted from the New York Stock Exchange, Tuesday fell $1.09, or 59%, to 76 cents. In the late 1990s, UAL shares traded at more than $100 each.