This article from NYTimes.com has been sent to you by psa188@juno.com. United's Rivals Press a Struggle of Rare Ferocity December 4, 2002 By MICHELINE MAYNARD CHICAGO, Dec. 3 - The vitriolic campaign by major competitors of United Airlines to undermine its application for $1.8 billion in federal loan guarantees is only growing more brutal in its final days. Led by Northwest, Continental and American, the effort has included not just heated lobbying and the bandying about of financial analyses that cast doubts on United's business case, but also personal attacks by rival airline executives against United's top management. Such contentiousness harks back to the last great political battle over bailing out an American industrial icon - the Chrysler Corporation's struggle in 1979 to win Congressional backing for loan guarantees, at a time when Chrysler, the No. 3 automaker, was drowning in red ink. That debate, like the one raging now over United, raised fundamental questions about the government's role in saving a sick company. But General Motors and Ford laid low in the battle over a Chrysler bailout - a fight that seems benign in comparison with the nastiness prevailing now, as United's petition awaits a ruling by the federal Air Transportation Stabilization Board. "Lobbying as an instrument of competitive strategy is nothing new, but I don't think I've ever seen it be so close to a blood sport," said John D. Donahue, professor of public policy at the Kennedy School of Government at Harvard University. United's competitors - irritated for years at how United, an employee-owned airline, has been run - argue that Washington should do nothing to help the carrier avoid a Chapter 11 bankruptcy filing that they argue is just the medicine it needs. "This is survival for us," said Gordon M. Bethune, Continental's chief executive, who has led the rivals' charge. "This is not a game. This is not a boys' club. All of us are dying." Earlier this week, Mr. Bethune, calling United's management "clueless," circulated a financial analysis by Continental saying that United, even with taxpayer backing, would run out of cash by early 2004. United executives quickly denied that, accusing Continental of making faulty assumptions about its finances. But Mr. Bethune, whose airline went into bankruptcy protection twice before finally emerging in 1993, said that loan guarantees for United would reward a badly managed company that had not sold off valuable routes or made deep cuts like other struggling airlines. "Look at Eastern, T.W.A., Braniff, Pan Am and what they tried to do" to stay in business, he said in an interview. "United isn't too big to fail. They'll just make a bigger hole when they hit the ground." Uniquely among the major airlines, employees own 55 percent of the UAL Corporation, United's parent, and have three seats on its board. Competitors say that arrangement, born of an earlier financial crisis, has made United soft, prone to granting generous contracts to its workers and otherwise allowing its operations to grow bloated. United officials, and leaders of its unions, say the other airlines hope to benefit from the chaos that might surround United if it seeks bankruptcy protection. They may also press their unions to match any lower pay rates or work rule changes forced upon United by a bankruptcy court. "I can see why they would want to defeat us," said Frederic F. Brace III, United's chief financial officer, in an interview. "We are the airline that has the best set of assets in the industry, and our operating performance has been truly outstanding. They would clearly hate to compete with an airline that has the assets, the performance and much lower costs." Still, the leading airlines - caught in the worst industry downturn ever, with the industry's losses in the billions since the September 2001 attacks - could end up ruing their success if the government turns away United's request for help. If air travel shrinks further amid a war with Iraq, "these very airlines may find themselves pleading to resurrect a loan guarantee program before an angered and recalcitrant Congress," said Kevin P. Mitchell, president of the Business Travel Coalition, which represents corporate travel departments and travelers. While the Chrysler bailout was ultimately approved by Congress, a decision on assisting United falls to the more obscure air stabilization board, created by Congress after Sept. 11, 2001. Its three voting members - top officials of the Treasury and Transportation Departments and the Federal Reserve - have deliberated in private, and up to now over much smaller guarantee packages for much smaller airlines. As a result, experts say, neither United nor its competitors can be sure just what will sway the board. And that may be why rivals have been so hard nosed in their attacks. "Because this is a new system and a secret system," Professor Donahue said, "nobody knows what the rules are and even if there are any rules." The competitors' bitter campaign has startled some people in the airline industry, who remember the days before deregulation, when an almost familylike atmosphere prevailed among the carriers even as they competed for customers. The only family that the campaign against United brings to mind these days is the Sopranos, with Mr. Bethune in the unlikely role of don. Mr. Bethune said he would have preferred to simply send a letter to the loan board opposing United's application and then let the process take care of itself. But, he maintained, seeing the lobbying campaign waged by United and its competitors, he decided to weigh in. "If it's just facts and data, we would just shut up and they would never get the loan," Mr. Bethune said. But once the process became political, he said, he thought it was important to speak up, because "our government is not always run on logic." Mr. Brace, the United executive, sees a quite different impetus: Mr. Bethune, he said, would be eager to snap up United routes and other assets in a bankruptcy court fire sale. "Obviously, Gordon has expressed his motive very directly," he said. "I can understand why they clearly would love to get their hands on some of our assets." Analysts said that American, which last year displaced United as the world's largest airline, would also benefit from a hobbling of its competitor. It could compete aggressively for passengers in Chicago, a major hub for both carriers. And American - struggling to beat back the industry's profit leader, Southwest, with which it competes on many of its domestic routes - would be likely to seize any opening to cut labor costs. Tim Doke, a spokesman for American, acknowledged there would be advantages for competitors in a bankruptcy filing by United. But there is a case to be made, he said, that United would benefit more. "I think you can equally draw the scenario that it immediately gives them relief from paying their bills, such a significantly lower cost structure, and the ability to implement distress pricing," Mr. Doke said. "They would be able to use their lower costs as a pricing lever." Although American, too, lost planes in the September 2001 attacks, it did not apply for loan guarantees because of indications that the loan board "would not look favorably on applications from people like us, Delta, Continental and United" that had assets they could easily sell or use as leverage in financing, Mr. Doke said. But when United applied, he said, "we were a little surprised." Both Mr. Bethune and Mr. Doke argue that granting loan guarantees to United on the basis of the concessions it has secured from its employees would deal an unfair blow to the survival efforts of another struggling carrier, US Airways. Already operating under bankruptcy protection, US Airways in recent days has cut more jobs, closed some maintenance operations and sought further concessions from its unions, which are beginning to dig in their heels. "They'll never get another nickel," Mr. Bethune said of management at US Airways, if United gets its loan guarantees after obtaining just one round of concessions from its unions. A US Airways spokesman declined to comment on whether it is lobbying against United's application. http://www.nytimes.com/2002/12/04/business/04AIR.html?ex=1040012763&ei=1&en=d9f9eb2d4f72918b HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company