Posted on: Friday, December 19, 2003
United seeks $1.6 billion in federal loan guarantees
By Melissa Allison
Chicago Tribune
CHICAGO — United Airlines is again asking for a massive loan guarantee, a year after the government told the carrier its business plan was too weak to sign off on.
Approval would help clear the way for the carrier to emerge from bankruptcy, which it hopes to do by the middle of 2004.
United's application asks the government to guarantee $1.6 billion, or 80 percent, of $2 billion in financing the airline has arranged with J.P. Morgan Chase & Co. and Citigroup Inc.
The overall loan package is $200 million less than United requested a year ago under the government's $10 billion loan guarantee program. The Air Transportation Stabilization Board was formed after the terrorist attacks of Sept. 11, 2001, sent the industry into a financial crisis.
United officials say their new business plan, which they did not make public, is far different from that of a year ago. It includes major cost cuts, including renegotiated contracts with workers and creditors. Those moves and others will trim costs by $5 billion a year by 2005, officials said.
United also relies more heavily on regional carriers and is launching a low-cost carrier called Ted next year to fly routes that are too expensive for its mainline jets.
United officials say they do not think they will have to wait long for an answer from the stabilization board. "We and they would both like to get it behind us as soon as we can," said Jake Brace, United's chief financial officer.
Experts say United's chances of winning a guarantee have improved.
"They have a more realistic business plan, because they have substantially reduced labor costs and they will reduce their debt burden somewhat in bankruptcy," said Philip Baggaley, an airline bond analyst for Standard & Poor's.
But United's biggest hurdle to receiving the guarantee and emerging from bankruptcy is its underfinanced employee pension plans. Current rules require the company to come up with $4.8 billion for the plans over five years.
United and other airlines are seeking congressional relief for their pension burdens, and United has requested waivers from the Internal Revenue Service that would spread some of the payments out.
United also is touting the fact that major banks are willing to provide financing, including $400 million that would not be backed by the government.
Last year, United had $200 million in financing commitments from suppliers and partners.
Still, Ray Neidl, an airline analyst at Blaylock & Partners, and others doubt the board will be greatly swayed by United's bank financing commitments, finalized earlier this week.
"It will probably be a very small factor in their decision. They're doing their own credit analysis," Neidl said.
