The Telegraph
Since 1st March, 1999
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Loan refusal pushes UAL towards bankruptcy

Chicago, Dec. 5 (Reuters): United Airlines failed on Wednesday to secure a $ 1.8 billion US government loan guarantee, pushing the world's No. 2 airline to the brink of filing for bankruptcy.

United was prepared to file for Chapter 11 bankruptcy protection as soon as it can line up about $1.5 billion in financing needed to keep flying in Chapter 11, sources familiar with the matter said on Wednesday.

United officials were said to have met with bankers in New York on Wednesday to line up the so-called debtor-in-possession financing. The amount United needs is not yet final.

The Air Transportation Stabilization Board, voted 2 to 1 to reject United's loan guarantee bid despite a huge lobbying campaign by employees, Wall Street advisors and high-ranking politicians.

“The board believes that the business plan submitted by the company is not financially sound,” the federal board said in a statement.”This plan does not support the conclusion that there is a reasonable assurance of repayment and would pose an unacceptably high risk to US taxpayers.”

Meanwhile, shares of United Airlines’ parent, UAL Corp, today plunged more than 64 per cent before trading in the stock was halted on NYSE.

United's chairman Glenn Tilton said in a statement the airline would continue to fly as he consults with union leaders and other parties on what to do next. He stopped short of saying United would file for bankruptcy, but he also did not say the airline would amend its application again, as the government said it could.

The late afternoon decision in Washington pushed the airline's stock price down 50 per cent in after-hours trading. Union leaders denounced the decision by the federal board set up to help airlines struggling financially after the September 11, 2001, attacks.

”We are extremely disappointed ... and do not agree with the Board's analysis of United's business plan nor the timing of its announcement,” Capt. Paul Whiteford, head of the United's pilots union, said in a statement.

But the board's vote drew praise from rival Continental Airlines, which is also struggling to cope with a severe business travel slump.

Industry crisis ongoing

The US airline industry has been stuck in its worst financial crisis ever since the September 11, 2001, hijack attacks on New York and Washington. Carriers lost an estimated $10 billion in 2001 and are on track for another round of massive losses this year. US Airways Group based in Arlington, Virginia, filed for bankruptcy in August.

United, a unit of UAL Corp., had counted on the federal guarantee to support 90 per cent of $2 billion in loans it hoped to get from its banks. The company planned to use some of that money to repay debt and avoid filing for bankruptcy protection.

United can still change its business plan and ask the board to reconsider a loan, a federal official said. But the plan that was rejected had been hammered out after months of negotiations with United's labour unions.

The board concluded that United's revenue projections were unreasonably optimistic and its costs, still too high. It also expressed “substantial concern” with underfunded pensions and how much assets were worth.

The board would consider giving United exit financing upon its emergence from bankruptcy, Daniel Montgomery, executive director of the board, told reporters in a conference call.

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