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The Honolulu Advertiser
Posted on: Thursday, November 7, 2002

United must detail repayment plan

By Lynne Marek
Bloomberg News Service

WASHINGTON — UAL Corp.'s United Airlines needs to give the U.S. board reviewing its $1.8 billion loan guarantee application more detail about its business plan, including its revenue forecast and labor savings estimates.

The Air Transportation Stabilization Board made the request in a letter to the world's second-largest airline, saying it must have the information to decide whether UAL qualifies for a guarantee that the government would repay a loan if UAL defaults.

UAL has said the guarantee would help it raise $2 billion from banks or other lenders and stave off a filing for bankruptcy protection. The carrier got some help earlier this week when a German bank granted an extension on repayment of a $500 million loan.

"It's clear that United still faces an uphill climb with the ATSB in establishing that they have sufficient savings for a viable business plan," said UBS Warburg analyst Sam Buttrick, who rates the company a "sell" and does not own shares.

The board told UAL Chief Financial Officer Jake Brace in the letter it wants information on "the assumptions underlying the revenue forecasts" and on the "timing of proposed labor cost savings."

The government also is seeking information on what United has said would be $1.4 billion in expected profit from increasing revenue and reducing nonlabor costs; pension and post-retirement obligations; and capital spending for improving airports.

"We expect to develop specific questions based on the materials submitted," said the board's executive director, Daniel Montgomery, in the letter.

United spokesman Joe Hopkins did not have immediate comment. A phone message left for a spokeswoman at the Treasury Department, which includes the board, was not immediately returned.

United has sought $5.8 billion in concessions from its workers over 5 1/2 years and wants to couple that with savings sought from lenders, suppliers and manufacturers to reduce annual costs by $2.5 billion annually. The company has lost almost $4 billion over the last two years as air travel and fares declined.

UAL's application is under review by the board's staff and outside consultants. United management made presentations to the board yesterday and on Oct. 28, according to the letter.