- The Washington Times - Monday, June 28, 2004

United Airlines lost any opportunity for another government loan guarantee yesterday as it struggles to emerge from bankruptcy.

The rejection of its $1.1 billion loan-guarantee application by a federal panel also prohibits the airline from trying again to win government support.

The nation’s second-biggest airline filed for bankruptcy in December 2002 after the September 11 attacks, recession and competition from low-fare airlines wreaked havoc on its finances.

United officials and industry analysts describe the loan guarantee rejection yesterday as a setback, not a death sentence by the Air Transportation Stabilization Board (ATSB).

Congress established the ATSB to manage a $10 billion loan program intended to stabilize the airline industry after the September 11 attacks.

“While we disagree with their decision, we are gratified by the ATSB’s public recognition of our progress and are already moving forward to secure the exit financing we need to take United out of bankruptcy,” the airline said in a statement. “The message from the ATSB is that we can get the exit financing we need on our own.”

The ATSB decision marks the third time United’s application for a federal loan guarantee was rejected. After the board rejected an earlier application June 17 for $1.6 billion, the airline submitted the $1.1 billion request.

“All members of the board join in the decision to deny United’s request for reconsideration, and the board’s June 17 decision stands,” the board said in a letter to United Airlines’ chief financial officer, Frederic Brace.

Just like the June 17 rejection, the board said the loan guarantee was not necessary to ensure the viability of the U.S. aviation system, a requirement for receiving federal assistance.

The board again said United already has cut its costs and improved its competitive position. In addition, credit markets have improved since the September 11 terrorist attacks, meaning United has less need for federal assistance, the board said.

Industry analysts agreed the ATSB’s decision would not doom United to business failure.

“We certainly don’t see that outcome and, in fact, view the board rejection as increasing United’s probability of long-term success because it would force them to take actions that a government subsidy might have precluded,” said Sam Buttrick, an airline industry analyst for the Wall Street financial firm UBS.

“I think the loan denial will force United to redouble its cost-cutting efforts and perhaps take another swing at labor costs,” he said.

High pension obligations would be a top priority for reducing expenses, he said.

United has said it needs about $2 billion to repay creditors who funded its bankruptcy restructuring.

The two largest U.S. banks, Citigroup and J.P. Morgan Chase, agreed last year to provide loans for United’s exit from bankruptcy if the government would guarantee repayment.

After yesterday’s loan rejection, United’s options are to ask banks for more funds or seek equity from elsewhere.

“We’ve already been in discussions with the investment community,” said Jean Medina, United spokeswoman.

The ATSB has issued six loan guarantees totaling $1.56 billion. US Airways received a $900 million guarantee and America West was awarded a $380 million guarantee.

The ATSB is scheduled to review Arlington-based US Airways’ progress tomorrow in fulfilling its loan-guarantee commitments. The airline emerged from bankruptcy last year but never has made a profit since then.

Chicago-based UAL, United’s parent company,is trying to reduce annual expenses by $5 billion. It has lost $8.6 billion since 2000, its last profitable year.

The ATSB rejected United’s request for a $1.8 billion guarantee in December 2002, which prompted its Chapter 11 bankruptcy filing.

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