Me thinketh someone out there does not like United!----Capt Bob Burns
The New York Times
 
June 22, 2004

The United Bailout, Act III

 

Last Thursday the federal government wisely turned down United Airlines' second application for a loan guarantee, this time for $1.6 billion. The bankrupt carrier's problems are unrelated to the Sept. 11 terror attacks, so there is no reason for it to benefit from an emergency program that was meant to ensure the viability of commercial aviation, not stack the deck against competition.

Unfortunately, United's attempts to force a taxpayer bailout didn't end there. Within hours of the decision taken by the Air Transportation Stabilization Board, the Treasury Department invited the airline to try again this week. This inappropriate move raises questions about the integrity of the entire process. The Treasury's representative on the three-man board, Brian Roseboro, has already voted against the loan application, along with the Federal Reserve Board's representative.

Other airlines, wary about competing against a federally subsidized carrier, are now left to wonder whether the government will reverse itself under election-year pressures. House Speaker Dennis Hastert of Illinois has reportedly been lobbying Treasury Secretary John Snow on behalf of United, which is based in Chicago.

Although United is still tinkering with the financial details of its application, there is no plausible reason for the board to reverse itself. The board's June 17 letter to the airline stated that "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," one of the program's criteria. That was well put. There is no legitimate reason for taxpayers to bail out the nation's second-largest airline. A political decision to intervene would wreak havoc on the entire industry, which is being reshaped by market forces. Republicans, of all people, should know that.

The New York Times
 
June 22, 2004

Federal Help for United Appears to Be Less Likely

By MICHELINE MAYNARD
 
 

The chances of United Airlines being able to reverse the rejection of its request for $1.6 billion in federal loan guarantees dimmed yesterday, though the airline has yet to submit a third version of its application.

The likelihood of another defeat grew after the Treasury Department came out in support of its representative on the Air Transportation Stabilization Board, Under Secretary Brian C. Roseboro.

Last Thursday, Mr. Roseboro and Federal Reserve Governor Edward M. Gramlich voted against United's application. The board's third member, Jeffrey N. Shane of the Transportation Department, abstained, saying that United, a unit of the UAL Corporation, should be allowed to provide additional information in support of its request.

After the vote, the Treasury and Transportation departments said the airline would be given time to try again despite the "no" votes of its representatives.

Other airlines have also been given the opportunity to re-apply after a rejection, notably Spirit Airlines, which did not ultimately receive a loan guarantee. But United is the only carrier to be given three chances. The original deadline for new applications passed two years ago.

The offer of another opportunity came after an appeal to John W. Snow, the Treasury Secretary, by House Speaker J. Dennis Hastert, Republican of Illinois, United's home state.

A senior White House aide also called Mr. Snow to express concern at the rejection, a department official said on Friday.

Over the weekend there was speculation that Mr. Roseboro might be replaced on the board by another official who would agree to vote in United's favor. The issue was discussed at a meeting of Treasury officials yesterday, people with knowledge of the discussions said, but no decision was made.

The department's chief spokesman, Robert Nichols, said afterward, "There is no change in our A.T.S.B. representation." He added, "There are no plans for any change."

United said on Friday that it would resubmit its application within days, but it did not do so yesterday. A United spokeswoman declined to comment.

The airline was said to be planning to reduce the amount of the loan guarantees it requests, and to ask for a shorter guarantee than the usual seven years, while seeking more private financing to supplement the federally backed loans.

Even so, officials at the Treasury and the air board said that United was down to its last chance, and that in order to win approval, it would have to "seriously address" its plan for paying back any loans it receives as well as other requirements.

In rejecting United's application last week, the board said the airline had not shown that it was a "necessary part" of the nation's commercial aviation system. Neither had it shown, the board said, that it could not get the capital it needs on its own.

United filed for Chapter 11 bankruptcy in December 2002 after the loan board rejected its first application, which requested $1.8 billion in guarantees. The revised application it submitted last December was for a $1.6 billion package. Since then, United has arranged a total of $2 billion in exit financing from J. P. Morgan and Citibank, including $400 million from the two banks, but that financing is contingent on winning approval from the air board. The Wall Street Journal reported yesterday that United might ask for as little as $1 billion in guarantees in a revised application.

Still, United executives have maintained that the airline could emerge from bankruptcy protection with or without loan guarantees. Indeed, the air board's executive director, Michael Kestenbaum, told the airline last week that the board believed that "the likelihood of United succeeding without a loan guarantee is sufficiently high so as to make a loan guarantee unnecessary."

The vote alarmed United's political supporters in Washington, particularly Mr. Hastert, who has lobbied heavily on the airline's behalf.

Mr. Nichols at the Treasury Department said Mr. Hastert's participation was not unusual and that members of Congress lobby federal agencies and the White House all the time.

Mr. Hastert himself has repeatedly defended his role, saying that lobbying for United was the right thing to do.

But Senator Peter Fitzgerald, also an Illinois Republican, said he would seek an investigation into Mr. Hastert's actions. Speaking in Chicago, Mr. Fitzgerald said he would write to the inspector general of the Treasury asking whether "any undue political muscle is being applied to members of the board from anyone in the Treasury Department or in Congress" to reverse the rejection.

Mr. Fitzgerald said he also was considering asking the General Accounting Office to investigate.

"The statute and the regulations have very specific loan criteria, and they do not include what the speaker of the House thinks about the matter," Mr. Fitzgerald said in a telephone interview.

Mr. Fitzgerald was the only member of Congress to oppose the legislation that originally created the air board in the aftermath of the Sept. 11 terrorist attacks.

Mr. Fitzgerald said loan guarantees would only hinder the company's ultimate recovery. "The problem with a federal subsidy," he said, "is that it could delay the sorts of pruning and cutbacks that United may continue to need to make."

Illinois' other senator, Richard J. Durbin, a Democrat, encouraged the board to "look favorably" on a new application by United.

"It's important for this major Illinois employer to get it, so it can move out of bankruptcy," Mr. Durbin said.

 

Edmund L. Andrews in Washington and Jo Napolitano in Chicago contributed reporting for this article.


 

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