"Loan plan would keep United aloft"

Friday, November 1, 2002

Loan plan would keep United aloft
BY TAMMY WILLIAMSON
The Chicago (IL) Sun-Times


United Airlines parent UAL Corp. needs one thing to avoid bankruptcy: a $1.8
billion loan guarantee from a government group created after the Sept. 11
terrorist attacks.

The Air Transportation Stabilization Board, part of the U.S. Treasury, was
created by Congress a month after the attacks, giving major airlines a
quick, free cash injection, and the chance to apply for loan guarantees to
keep airlines from sinking.

The board has proved to be a tough audience.

Sixteen airlines have applied for federal loan guarantees, which means
taxpayers will make good on airlines' loans in the event of a default. Only
three have received the nod.

To win approval, the airlines have to show three things:

*They suffered losses since Sept.11.

*They are having trouble raising money.

*They can pay back their loans so taxpayers aren't on the hook.

Two of the three approvals are considered "conditional," meaning the airline
has to meet several requirements before the government puts tax money on the
line. America West Airlines in January closed on a $429 million loan backed
by a federal guarantee, the furthest any airline has advanced.

US Airways Inc., which filed for Chapter 11 reorganization in August, has
conditional approval for loan backing, and American Trans Air Inc., known as
ATA, received conditional approval in late September.

"Primarily, they want to make sure the airline can pay back the loan, which
is as it should be," said airline analyst Ray Neidl of Blaylock & Partners
in New York.

Airlines receiving rejection letters include Spirit Airlines Inc., National
Airlines Inc. and Vanguard Airlines. National has been in bankruptcy
reorganization since December 2000, and Vanguard Airlines filed for Chapter
11 reorganization in July, the day after its application was rejected.

A number of smaller carriers also have been rejected.

UAL, the world's second-largest airline after American, needs the $1.8
billion to back $2 billion of financing to get its financial act together,
and meet debt payments coming up in November and December. The government
will only back 90 percent of a loan, which is why it would only provide $1.8
billion of backing for $2 billion of borrowing.

UAL probably would opt for Chapter 11 reorganization if the board rejected
its application.

The airline has already had to scramble to meet the board's rigorous
demands.

After UAL filed its application in June, the board said it "wasn't broad
enough, wasn't deep enough and didn't extend over a long period of time,"
UAL spokesman Joe Hopkins said.

Last week, UAL amended its business plan--which shows how UAL will cut
costs, and make enough money to repay its loans--and filed the new plan with
the board.

A spokeswoman for the stabilization board declined to comment on when UAL
might hear something.

"There is not a time frame" for approval or denial, spokeswoman Betsy
Hallihan said.

Some analysts have predicted it may be too difficult for UAL to win the
board's backing, given the intensity of its financial distress. After losing
$2.1 billion last year, UAL has lost $889 million through the first nine
months of this year, and is burning through $7 million a day.

UAL executives and employees aren't giving up. Last week, under the amended
business plan, the airline said it had reached a general agreement with
unions representing most of its workers to $5.8 billion of cost cuts over
51/2 years.

Now, UAL and individual unions are hashing out how the cuts will be made,
whether through wage reductions or other expense trimming. UAL has recently
said it will switch to smaller planes on some routes and shed routes that
aren't profitable.

Airline analyst Neidl says he's "more optimistic than most other people"
that UAL can get loan approval, if only because of its size and the clout of
Illinois politicians in Washington.

And it could be just what UAL needs to be a profitable airline again.

"It could be what keeps them going for a while. You have to look at whether
the cost cuts are real," he said. "If all those cost savings are real, I
have them returning to modest profitability next year."

WHO'S CALLING THE SHOTS?

Whether UAL Corp. has to file for U.S. bankruptcy protection lies in the
hands of these men, all of whom have extensive financial or transportation
backgrounds.

Edward Gramlich, chairman

Gramlich is a governor with the Federal Reserve System.

Peter Fisher, board member

Fisher is under secretary for domestic finance for the U.S. Treasury. Fisher
was previously a key research member for the New York Federal Reserve,
instrumental in helping the Fed develop monetary policy.

Kirk Van Tine, board member

Van Tine is general counsel for the U.S. Department of Transportation.

David Walker, non-voting board member

Walker is comptroller general of the General Accounting Office

 Do you have an opinion about this story?
Share it with other readers in our CAA Discussion Forums

http://www.californiaaviation.org/cgi-bin/dcforum/dcboard.cgi?conf=DCConfID8

*****************************************