Federal panel rejects United Airlines $1.6B loan guarantees

It was the second time that the federal Air Transportation Stabilization Board has turned down the cash-strapped company.

Two members of the board — Treasury Department's undersecretary for domestic finance, Brian Roseboro, and Federal Reserve member Edward Gramlich, voted to deny the company's request. The third member, Jeffrey Shane, an undersecretary at the Transportation Department, voted to defer a decision for one week.

"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.

The Treasury Department did say, however, that the airline has an opportunity to resubmit an application.

"Treasury could not support the application as presented," the department said in a separate statement. "Should United submit an improved application in the coming days, Treasury is open to reconsidering it."

Five days after the being turned down by the board the first time, on Dec. 4, 2002, for $1.8 billion in federal loan guarantees, the airline filed for Chapter 11 bankruptcy protection.

United Airlines chief executive Glenn Tilton, in an interview with The Associated Press last week, said subsequent restructuring has left the company on sufficient financial footing to be able to emerge from bankruptcy by year's end, even if its request for federal loan backing was rejected.

The company's restructuring steps have included $2.5 million in annual labor cost reductions and aircraft refinancing.

Last week, the airline reached agreement with its unions on reductions to retirees' medical and life insurance benefits. The carrier said the modified cuts, combined with a similar agreement reached with its mechanics' union last month, will save it more than $300 million through 2010.

Although the board noted positive steps the company has taken to lower costs, the majority said the loan guarantee wasn't warranted.

"A majority of the board believes that the likelihood of United succeeding without a loan guarantee is sufficiently high so as to make a loan guarantee unnecessary," the board statement said.

The Elk Grove Village, Ill.-based airline has been operating under bankruptcy protection for 18 months. Soaring jet fuel costs have kept it unprofitable longer than expected. Rising fuel costs will cost the company $750 million than it expected.

The $1.6 billion loan guarantee was being sought to back a $2 billion private loan package.

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 issued six loan guarantees totaling $1.56 billion. Carriers that have gotten help from the board include US Airways, which received a $900 million loan guarantee, and America West, which got a $380 million loan guarantee.