United $1.6 Billion Bailout Takes Blow Federal Panel Refuses Request for Loan Guarantee, but Airline Leaders Say There's Still Hope for Deal
Kane, James, Daily Herald (Arlington Heights, IL)
Byline: James Kane Daily Herald Business Editor
United Airlines, forced into bankruptcy 18 months ago when its request for a $1.8 billion federal loan guarantee was rejected, faced renewed questions about its future Thursday after a new $1.6 billion guarantee request was shot down.
After cutting about $5 billion from its annual operating costs, United had arranged financing with banks to get out of bankruptcy, but it was contingent on the loan guarantee.
Elk Grove Township-based United, the nation's second largest airline and the largest carrier at O'Hare International Airport, has lost more than $8.6 billion since 2000.
The airline, already struggling with a $750 million increase in its fuel bill this year and increased competition from discount airlines, now may be forced to seek further concessions from workers, shrink in size or sell assets, analysts said.
But first, company officials said in a statement, they will ask the Airline Transportation Stabilization Board to reconsider the loan request. Calling the rejection premature, the carrier said it was in the midst of a process to make its application acceptable.
"We do not believe that the board was made fully aware of the important modifications United was willing to bring to the table," the statement said.
House Speaker Dennis Hastert expressed disappointment over the board's decision.
"It is my hope that the ATSB reconsider its decision, based on those enhancements," he said in a statement.
The board did leave the door open to a different outcome.
Two members - the Treasury Department's undersecretary for domestic finance, Brian Roseboro, and Federal Reserve member Edward Gramlich - voted to deny the request. The third member, Jeffrey Shane, an undersecretary at the Transportation Department, voted to defer a decision.
"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.
But the Treasury Department added in its own statement that the airline has an opportunity to resubmit an application. "Should United submit an improved application in the coming days, Treasury is open to reconsidering it."
The board was established by Congress to oversee a $10 billion loan program, part of an airline industry bailout after the Sept. 11, 2001, terrorist attacks.
The board has rejected nine requests and issued six loan guarantees totaling $1.56 billion. Carriers that have received help from the board include US Airways, which was given a $900 million loan guarantee, and America West, which got a $380 million loan guarantee. …