"Federal Help for United Appears to Be Less Likely"

Tuesday, June 22, 2004

Federal Help for United Appears to Be Less Likely
By MICHELINE MAYNARD
The New York (NY) Times

 
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.


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