UAL to Keep Profit Made on Sale of Its Covia Stake

UAL Corp., parent of United Airlines, said Friday that it will retain the $500 million gained from the sale of a 50% interest in Covia Corp., which operates the airlines’ computer reservation system.

The announcement disappointed some investors who were expecting the company to distribute the proceeds to shareholders, and the price of UAL shares fell $2.375 to $95 on the New York Stock Exchange.

“After careful consideration, the board concluded that retaining the proceeds was in the best interest of our shareholders,” Stephen Wolf, UAL chairman and president, said. “These funds will provide needed flexibility to enable United Airlines to compete more aggressively and, thus, continue to increase shareholder value.”

UAL announced in May the sale of 50% of Covia to five airlines: Alitalia, British Airways, KLM Royal Dutch Airlines, Swissair and USAir Group. The sale was approved by the Transportation Department on July 29, UAL said.

The decision to retain the earnings was “not a major surprise, but some people felt they were going to spin off the proceeds to shareholders, after the last spinoff,” one trader said Friday.

Earlier this year, UAL bought back about 60% of its stock with proceeds from selling hotel and car rental subsidiaries.

At least one major shareholder supported management’s decision to retain the $500 million. Keith Gollust of Coniston Partners, which owns 8% of UAL, said he approved of the decision.

“If they decide not to pay out the proceeds, I’m going to give them the benefit of the doubt and assume they’ll be able to invest that capital in the business profitably,” Gollust said. Analysts have said the proceeds will probably be used to reduce UAL’s debt.

Covia operates United’s computer reservations system and its telecommunications network and provides data-processing services.