- The Washington Times - Thursday, December 5, 2002

United Airlines lost its bid for $1.8 billion in federal loan guarantees yesterday, a major setback to the nation's second-largest air carrier in its effort to avoid bankruptcy.
The Air Transportation Stabilization Board said that despite attempts to pare costs, "the business plan submitted by the company is not financially sound."
Illinois-based United had asked that the government guarantee $1.8 billion of a $2 billion private loan package. Without the guarantees and the loan, the airline said it probably would have to file for Chapter 11 bankruptcy protection.
The denial is not final, because the airline is still allowed to submit changes to its business plan and ask for reconsideration, a federal official said last night.
If United chooses to file for Chapter 11 bankruptcy protection, the federal board would consider giving the airline exit financing upon its emergence, Daniel Montgomery, executive director of the board, said in a conference call with reporters.
"The action today is not a final denial of the board," he said. "It would be open for United airlines to request that the board consider a new business plan, whether developed under court supervision or otherwise."
But Mr. Montgomery said the federal board members had considered all proposed cuts by United's labor unions in its assessment of the plan, including a $700 million package by mechanics up for a vote today.
The $1.8 billion is the largest request received by the board, double the amount that Arlington-based US Airways was granted conditionally earlier this year.
The board was established by Congress last year to oversee a $10 billion loan program, part of an airline industry bailout package after the September 11 attacks.
The board, in its statement, said United's plan "does not support the conclusion that there is a reasonable assurance of repayment and would pose an unacceptably high risk to U.S. taxpayers."
Two of the three board members Treasury Undersecretary for Domestic Finance Peter Fisher and Federal Reserve Board member Edward Gramlich rejected United's request. The third member, Kirk Van Tine, the general counsel of the Transportation Department, voted to defer a decision until Dec. 9 to allow United to submit additional financial information.
"These are hard decisions, and I certainly feel for the affected employees," Mr. Gramlich said. "At the same time, the loan board has a responsibility to taxpayers and to fostering the long-term health of the airline industry."
Mr. Fisher said: "This is not just about costs; it's about a business plan that is fundamentally flawed."
There was no immediate comment from United on the board's decision.
The head of United's pilots union held out hope of avoiding a bankruptcy filing, although he did not specify how that might be accomplished.
"We are extremely disappointed by the decision of the ATSB and do not agree with the board's analysis of United's business plan," said Paul Whiteford "We believe the purpose of the ATSB is to stabilize, not restructure the airline industry."
After losing an industry-record $2.1 billion in 2001, United is on course to exceed that loss this year as it struggles amid a weak economy and a decline in business travel.
A bankruptcy would be unlikely to have any immediate effect on passengers. United has said that it would continue flying its normal schedule, as US Airways has been doing since its Chapter 11 filing in August.
But United is trying to avoid a filing because its stock probably would become virtually worthless and it would lose control of its restructuring to a judge. The airline is 55 percent owned by its employees.
United shares had risen 7 cents in regular trading yesterday to close at $3.12 on the New York Stock Exchange, before the board's announcement.
Only two major airlines and some smaller airlines have received help from the board.

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