United bid for loan guarantee rejected
By Jeannine Aversa
Associated Press
WASHINGTON — United Airlines lost its request for $1.6 billion in federal loan guarantees yesterday, a blow to the nation's second-largest airline as it tries to emerge from bankruptcy.
It was the second time that the federal Air Transportation Stabilization Board has turned down the cash-strapped company.
Two members of the board — Treasury Department undersecretary for domestic finance Brian Roseboro and Federal Reserve member Edward Gramlich — voted to deny the company's request. The third member, Jeffrey Shane, an undersecretary at the Transportation Department, voted to defer a decision for a week.
"A majority of the board determined that a guaranteed loan to United is not a necessary part of maintaining a safe, efficient and viable commercial aviation system in the United States," the board said in a statement.
The Treasury did say, however, the airline has an opportunity to resubmit an application.
United said it was perplexed by the board's decision and was working to improve its application and would refile it.
"We do not believe that the board was made fully aware of the important modifications United was willing to bring to the table," United said in a statement. "We are respectfully petitioning the ATSB for reconsideration of our pending loan application."
The airline filed for Chapter 11 bankruptcy protection in December 2002. Soaring jet fuel costs have kept the airline unprofitable longer than expected.
United Airlines chief executive Glenn Tilton last week said restructuring has left the company on sufficient financial footing to be able to emerge from bankruptcy by year's end, even if the loan backing was rejected.
Darryl Jenkins, head of the Embry Riddle Aeronautical University in Daytona Beach, Fla., said United probably will be forced to ask unions for more concessions.
But he said he thinks United will emerge from bankruptcy.
"This is not the end of United Airlines," Jenkins said. "It will survive and be a perfectly good airline, but they have a tough quarter ahead of them."
The board's denial drew harsh criticism from United's unions.
"The ATSB failed to stabilize the industry they were created to protect," said Robert Roach Jr., a vice president for the International Association of Machinists & Aerospace Workers.
Restructuring has included $2.5 billion in annual labor cost reductions and aircraft refinancing.
"A majority of the board believes that the likelihood of United succeeding without a loan guarantee is sufficiently high so as to make a loan guarantee unnecessary," the board statement said.
The $1.6 billion loan guarantee was being sought to back a $2 billion private loan package.
The board was established by Congress to oversee a $10 billion loan program, part of an airline industry bailout after the Sept. 11 terrorist attacks. It has issued six loan guarantees for $1.56 billion.
