United still trying for $1.6B loan
By Melissa Allison
Chicago Tribune
CHICAGO — United Airlines scrambled yesterday to prove that it deserves another shot at a $1.6 billion loan guarantee that the government said the carrier did not need to emerge from bankruptcy.
United parent UAL Corp. was turned down for the guarantee on Thursday by the Air Transportation Stabilization Board.
But the airline asked for one more chance to present its case, according to sources in Washington. Agencies for two of the board's three voting members issued written statements on Thursday saying they would reconsider the application if United came forward with more information.
The nation's second-largest airline expects a final decision on the loan guarantee from the board in "a matter of days, not weeks," United attorney James Sprayregen told a bankruptcy court judge yesterday.
Industry observers said United's chances of receiving government backing have dropped.
"The probability of a successful application has diminished" with the board's announcement, Merrill Lynch analyst Michael Linenberg wrote in a report.
The board's third voting member said United's application had already been analyzed for months.
"I do not feel that it is necessary to reconsider the application; however, if UAL submits additional information and other members of the ATSB are inclined to reconsider, the ATSB staff will evaluate the additional information according to its usual procedures for reconsiderations," Federal Reserve Governor Edward Gramlich said in a statement.
It is unclear what changes United might make to change the board's decision. The carrier already has promised $5 billion a year in cost cuts and revamped its airline to provide better customer service and more efficient operations. It even launched a carrier called Ted to compete with low-cost rivals for flights to some leisure destinations.
"It's important for United to act quickly to cut more on the cost side, including attacking what may be very sensitive issues, and then maybe consider reducing some capacity or possibly selling some of its assets," said Hyuk Park, an analyst at Unisys R2A Transportation Management Consultants in San Francisco.
Perhaps the most sensitive issue for United is its underfunded pension plans, which many say the airline would need to pare to make itself attractive to an equity investor if it does not receive the government guarantee.
John Pincavage, a Westport, Conn.-based financial advisor to airlines, said it is unlikely that the government would tell United exactly where it needed to make cuts. "They might ask for a cut, period, of some size and let United figure out where they get it," he said.
United balances on a tightrope in making changes to please the government, however.
"Ideally, you'd make yourself attractive enough to get the loan guarantee, but not so attractive that you get turned down, and I don't know where that line is," Pincavage said.
The board already acknowledged in its letter of denial Thursday that United is in better shape than it was when the board turned it away for a similar guarantee in December 2002, saying the airline's business plan was not viable.
Indeed, the board — formed to aid airlines after the Sept. 11, 2001, terrorist attacks — denied the second request because it believes "the likelihood of United succeeding without a loan guarantee is sufficiently high so as to make a loan guarantee unnecessary," its letter to United said.
For its part, United remains tight-lipped about what changes it plans to make to change the board's mind.
"We believe there are enhancements to our application that the board was not aware of when they made their decision," United Chief Financial Officer Jake Brace said Friday.
