This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ IN AMERICA - NOMINATED FOR 6 INDEPENDENT SPIRIT AWARDS IN AMERICA has audiences across the country moved by its emotional power. This Holiday season, share the experience of this extraordinary film with everyone you are thankful to have in your life. Ebert & Roeper give IN AMERICA "Two Thumbs Way Up!" Watch the trailer at: http://www.foxsearchlight.com/inamerica \----------------------------------------------------------/ U.S. Begins Investigation of United Airlines December 19, 2003 By MICHELINE MAYNARD As United Airlines went back to a federal loan board for a second time yesterday, seeking approval for $1.6 billion in loan guarantees, the Justice Department opened an antitrust investigation into United's role in encouraging a hostile takeover bid for a regional carrier it uses on the East Coast. The investigation, disclosed late yesterday, cast a cloud over United's application for the federal aid. The Air Transportation Stabilization Board's decision last year to reject United's first request for assistance forced the airline to file for bankruptcy protection. The Justice Department inquiry focuses on a spat that has created yet another hurdle for United, the nation's second-biggest air carrier, after American Airlines, as it attempts to restructure. Last summer, Atlantic Coast Airlines, which operates as United Express and Delta Connection, announced that it would form a low-fare carrier, to be called Independence Air, which would fly out of Dulles International Airport near Washington. Atlantic Coast Airlines has a contract to carry United passengers until 2010 but decided to start a separate operation to take advantage of the mushrooming demand by passengers for low-fare flights, and out of fear that a bankruptcy judge would order it to renegotiate its contracts with United at much lower fees, or void the contracts altogether. Mesa Airlines, meanwhile, made a hostile takeover bid for Atlantic Coast and signed an deal with United to operate its United Express flights if the bid succeeded. In its notice of the action, the Justice Department asked Atlantic Coast to turn over all documents related to Mesa and United by Jan. 9, the airline said. A spokeswoman for the department would not comment. Mesa and United also did not comment. United executives have said that resolving the battle between Atlantic Coast and Mesa is one hurdle they must clear to emerge from bankruptcy protection. Getting the federal loan guarantees is an even bigger hurdle. United executives expressed confidence yesterday that their second bid for loan guarantees would be approved, based on a business plan that was much more conservative than the rosy forecast they presented to the government last year. But competing airline executives and industry analysts predicted that United's reapplication would be the subject of an intense political battle.United submitted its revised application to the Air Transportation Stabilization Board, which was formed after the September 2001 terrorist attacks. Since its formation, the board has guaranteed loans to American Trans Air, America West Airlines and US Airways. United, which made its first request in June 2002, was by far the biggest airline to seek its help, and the only one among the six major United States carriers to do so. But last December, the loan board rejected United's initial application, saying that its business plan was unrealistic given the sharp decline in air travel after the stock market peaked, the economy slumped and the terrorist attacks discouraged many travelers. The board's decision to reject United's first application came after aggressive lobbying against United by a number of competitors, led by Continental Airlines. United filed for Chapter 11 protection shortly after the board rejected its request. Since then, United has moved to become more competitive. Notably, it obtained $2.56 billion a year in wage and benefit concessions from its labor unions, after asking a bankruptcy court judge to void their contracts. It has identified $5 billion in cost savings through 2005, and it has announced plans for a low-fare carrier, called Ted, which will begin service on a few routes in February. Glenn F. Tilton, chief executive of United's parent, the UAL Corporation, has also worked to build relationships with his own employees and with officials in Washington, where he has enlisted House Speaker J. Dennis Hastert as his main ally. Mr. Hastert, Republican of Illinois, has used his influence in recent months to promote United's case. United is based in Elk Grove Village, Ill., near Chicago. Earlier this week, United won commitments from J. P. Morgan Chase and Citigroup for $2 billion in financing, which it would get once it secures the federal loan guarantees and emerges from bankruptcy protection. The banks would provide $400 million in loans, on top of the $1.6 billion in guarantees sought from the government. "United's restructuring plan was designed to create a competitive, profitable company and to address the concerns raised by the A.T.S.B. last year," Mr. Tilton said. He said the new business plan that the company presented to the loan board "reflects a substantially stronger company." United has not made the details public. The airline said, however, that its assumptions, the same given to its lenders, were conservative. Unlike last year's plan, which forecast a quick rebound, for example, the new plan predicts that the slumping airline industry will grow only as fast as the broader economy and will not return to peaks seen in the late 1990's, according to a person who was briefed on it. In the industry's boom years, the airline industry accounted for nine-tenths of a percentage point of gross domestic product. That level has since slipped to about six-tenths of a point, because of the decline in revenues that has taken place as business travel has fallen and low-fare carriers have grabbed more market share. Robert W. Mann Jr., an industry analyst based in Port Washington, N.Y., said the onus was on United to portray its prospects accurately, and to realistically anticipate the competitive pressures it will face in the future. "They had an incomplete last time," Mr. Mann said, using a report-card metaphor. "They're going back to submit for a grade now. You're either going to fail the course this time, or you're going to have to pass it." United, which initially predicted it could emerge from bankruptcy protection by now, has since said it plans to emerge during the first half of 2004. However, lawyers for the company said recently that the timetable might be pushed back further into 2004. Some in the industry say United may need longer than that to emerge from bankruptcy protection. The airline faces a series of problems that must be solved before it can develop a restructuring plan and exit Chapter 11 protection. The most pressing, aside from the Atlantic Coast Airlines situation, is to find a solution to its underfunded pension plans. Because it fell behind on pension payments before it filed for bankruptcy protection, United must make hundreds of millions of dollars in catch-up payments over the next 18 months, in addition to its normal funding payments. The airline said that it did not have the cash to make the payments and run its operations. United has sought both Congressional legislation and waivers from the Internal Revenue Service that would allow it to stretch out those payments. But Congress adjourned for the year without acting and the I.R.S. has yet to rule on its request. The pension issue was cited as a reason the loan board rejected United's request last year. In a letter to the company, the board said even if United obtained an I.R.S. waiver, United's required payments would remain "substantial." But United has reduced its future pension obligations by $1.2 billion through labor contract concessions, said Frederic F. Brace III, its chief financial officer. Mr. Brace said he was confident the situation could be resolved. "We've reduced our funding," he said, "improved our business plan, and improved cash flow. Coupled with some modest legislative relief in pension reform, that makes it work." Should United fail to get that relief, or the I.R.S. waivers, it could petition the bankruptcy court for permission to void its union pension plans. Executives at competing airlines, who asked not to be identified, said United's case to the A.T.S.B. may be made more difficult by the deteriorating fortunes at US Airways. It obtained $900 million in loan guarantees when it emerged from bankruptcy protection earlier this year, but has encountered rocky financial times since then. Management recently told unions it must revise the business plan on which it based its emergence, citing competition from low-fare carriers. Executives at several carriers predicted United would face opposition to its application. Mr. Mann agreed debate would be lively. "I don't see this as a slam dunk at all. I see it as just the opposite," he said. Because United is asking for almost twice as much as US Airways, the loan board could say, " 'We have to take a very circumspect view with regard to this big nut in front of us,' " Mr. Mann said. Mary Williams Walsh contributed reporting for this article. http://www.nytimes.com/2003/12/19/business/19air.html?ex=1072842020&ei=1&en=0ffc3fba1a554a84 --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! 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