UAL loan-guarantee bid rejected
By James F. Peltz
Los Angeles Times
Uncle Sam won't be handing a parachute to troubled United Airlines.
The U.S. government yesterday rejected the final plea by United and its parent, UAL Corp., for a $1.1 billion loan guarantee to help it emerge from bankruptcy.
United's employees made sizable wage and benefit concessions in the past two years, and now further job reductions could be in the offing.
"Employees are probably going to be hit up again," said Ron Kuhlmann, an analyst at Unisys R2A Transportation Management Consultants in Oakland, Calif.
Darren Shiroma of Torrance, Calif., a United flight attendant for nine years, said he was in "shock" yesterday in light of "all the hard work and dedication that employees put into bringing United back," including a six-year contract that, among other things, trimmed flight-attendant wages 9 percent, saving United about $314 million a year.
UAL, based in suburban Chicago, said it was disappointed by the decision and would "take the actions necessary to further reduce costs and improve revenue." But it didn't provide details, and its executives declined to elaborate.
Still, the airline said it was undeterred by the government's action, and was holding talks with lenders to secure the financing it needs to emerge from bankruptcy.
Some analysts also have speculated that UAL might reduce its schedule, sell some routes or divest other assets to bolster its financial health. But the company said the ruling would not immediately affect United's service or flight schedule.
UAL's stock, traded on the OTC Bulletin Board, fell 7 cents yesterday to $1.33 a share.
The airline's request for loan backing was rebuffed twice before — most recently June 17 — by the Air Transportation Stabilization Board, which was formed to help the industry after the Sept. 11 attacks caused air travel to plummet and saddled airlines with massive losses.
The federal panel does not loan money, but provides loan guarantees to help airlines get more favorable credit terms from the financial markets. U.S. taxpayers would be on the hook, however, if the airline defaulted on the U.S.-backed loans.
UAL, the nation's second-largest carrier after AMR Corp.'s American Airlines, has lost more than $8 billion since 2000. UAL first sought a loan guarantee of $1.8 billion.
After it was rejected in December 2002, the airline quickly filed for Chapter 11 bankruptcy reorganization.
The second failed request was for $1.6 billion in backing. Last week, the carrier pared its proposal again, to $1.1 billion, and offered to raise about $500 million on its own to bolster its application.
But the three-member ATSB waited less than a week to unanimously reject it again. The panel reiterated its belief that federal aid for UAL "is not a necessary part of maintaining a safe, efficient and viable commercial aviation system" as required by the ATSB's mandate.
The board also said it would not accept any future requests from UAL, which had revenue last year of $13.7 billion.
United's labor unions and some Illinois politicians have criticized the ATSB, contending the panel is exacerbating the airline's tenuous position, threatening jobs and lowering wages.
