NYTimes.com Article: United Submits Third Request for Assistance to Loan Board

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United Submits Third Request for Assistance to Loan Board

June 23, 2004
 By MICHELINE MAYNARD





Five days after its last bid was rejected, United Airlines
filed a revised application with a federal loan board
yesterday, its third attempt to win assistance that would
help it emerge from bankruptcy.

In a letter to the Air Transportation Stabilization Board,
the airline reduced its loan guarantee request to $1.1
billion from the $1.6 billion it had sought until last
week, according to someone who saw the revised application.
In addition to the loans guaranteed by the government,
United pledged to find $500 million from a lender willing
to extend credit without a government promise to repay the
money if United fails.

United also offered to cut its loan term to five years from
seven years, the usual length of a guaranteed loan, and
promised to keep about $1.5 billion in cash on hand during
the term of the loan. It now has about $1.9 billion in
cash, but that will fall precipitously by year's end,
because it has large pension payments due this fall.

United, which has reduced spending by $5 billion a year
under bankruptcy protection, estimated it would cut an
additional $600 million over the coming two years, but did
not provide details of how that would happen, said the
person who saw the application. The estimated reductions
are less than the $750 million in additional jet fuel costs
that United, owned by the UAL Corporation, expects to pay
this year.

A board spokeswoman confirmed United had sent "new
information," but declined to give details. A United
spokeswoman, Jean Medina, said the airline would work
directly with the board and would not comment more
specifically.

Even as United sent its revised application, the airline's
prospects were dealt a blow. Treasury Secretary John W.
Snow turned down an offer by Under Secretary Brian C.
Roseboro - one of two board members who voted against
United's previous application last Thursday - to resign
from the panel, a department official said. Mr. Snow and
Mr. Roseboro met yesterday afternoon.

The transportation stabilization board's chairman, Edward
M. Gramlich, a Federal Reserve governor, also voted no last
week. The Transportation Department's representative,
Jeffrey N. Shane, abstained.

After the vote was announced last week, the Treasury
Department and the Transportation Department offered to
give United a third chance to revise its application, an
opportunity no other airline has received.

The Treasury's move followed a call to Mr. Snow from House
Speaker J. Dennis Hastert, Republican of Illinois, where
United is based. Mr. Snow also received a call from a
senior Bush administration official, expressing White House
concern over the situation, a Treasury Department official
said last week.

The Treasury Department played down Mr. Hastert's call,
saying that it was normal for members of Congress to voice
opinions to cabinet secretaries. But the matter set off a
political storm, given Mr. Snow's intervention, Mr.
Hastert's political power and the fact that the White House
had not previously played a role in any airline's
application.

Over the weekend, there was speculation that Mr. Snow,
whose department includes the loan board, might remove Mr.
Roseboro from the board and replace him with someone who
would vote in favor of United's next application. On
Monday, the Treasury Department came out firmly in support
of Mr. Roseboro, saying it had no plans to change its
representative to the board. Robert Nichols, a department
spokesman, added that the department's representative would
decide United's revised application on its merits.

United's new bid for a loan guarantee is the second
instance of its reducing its request for federal
assistance. The airline sought $1.8 billion in loan
guarantees when it filed its original application two years
ago next week. The air board rejected that application in
December 2002, also on a 2-to-0 vote, after which the
airline sought Chapter 11 bankruptcy protection. United
subsequently reduced its bid last December, when it filed
an amended application for $1.6 billion in loan guarantees.


The airline had already arranged $2 billion in exit
financing from Citibank and J. P. Morgan, including $400
million in financing that would not be secured by federal
loans.

The revised plan would call for $1.1 billion in secured
loans and $900 million in other financing. That is still
the most any airline has sought from the loan board. The
next-biggest loan guarantee, covering $900 million, was
granted to US Airways in 2003; it used the guarantees to
emerge from Chapter 11 protection.

US Airways, however, technically defaulted on its
government assistance this year, and renegotiated the
terms. It is threatening to seek another round in Chapter
11, unless its unions provide more wage and benefit
concessions, their third round of cutbacks.

Industry analysts are skeptical that even an amended
request will be successful for United.

In rejecting the application last week, the loan board said
that United had failed two tests required to be awarded a
loan guarantee. The airline had not proved that it was a
"necessary part" of the federal aviation system, nor had it
shown that it was shut out of the capital markets. Both of
those issues are separate from the business case that the
airline revised in its latest application.

Without a federal loan guarantee, United would be required
to find at least $2 billion in financing to move out of
bankruptcy; it has been operating in bankruptcy since
December 2002.

But United does not face an immediate shortage of
financing. The airline recently extended its bankruptcy
financing through the end of the year, and the
reapplication presumably will buy it some time to look for
lenders, analysts said.

Last week, Mr. Gramlich said any revised proposal would be
given to members of the transportation stabilization board
's staff for review and a recommendation to the board.
Airlines meet only with the board's staff members, never
with the board itself, which does not have any timetable
for dealing with applications. It is up to Mr. Gramlich, as
chairman, to convene the full board once a staff report is
complete.

In United's case, there was no word on how long the board's
staff members might deliberate. It took them seven months
to reach a decision on United's previous application, which
the airline filed in December. With that application and
with its original bid, United approached some of the
board's staff members the night before the votes with new
information, only to have its proposals rejected both
times.

Even as United made one more try, Senator Peter G.
Fitzgerald, an Illinois Republican, called for an
investigation into the circumstances of last week's vote.
Mr. Fitzgerald asked the Treasury Department's acting
inspector general to look into whether Mr. Roseboro had
faced "inappropriate political pressure or intimidation."

Mr. Fitzgerald was the only senator to oppose legislation
that created the loan board in 2001. He has consistently
criticized United's efforts, even though the airline is
based in his state.

http://www.nytimes.com/2004/06/23/business/23air.html?ex=1089015042&ei=1&en=d94d7e5e76d31baf


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