Atsb Denies Loan

[Bigsky]

Reuters
US denies United Airlines $1.6 bln loan guarantee
Thursday June 17, 7:21 pm ET


WASHINGTON, June 17 (Reuters) - United Airlines lost its bid for a $1.6 billion federal loan guarantee on Thursday, prompting new uncertainty about its prospects for emerging from bankruptcy this fall.
The Air Transportation Stabilization Board voted to reject United for a second time, but said it may reconsider the matter if the airline chooses to submit another application in the coming days.

United, the No. 2 U.S. airline and a unit of UAL Corp. (OTC BB:UALAQ.OB - News), has been operating under Chapter 11 protection since December 2002. The airline said it needed the loan guarantee to back $2 billion in private financing that is crucial to its restructuring.

 

[herkav8r]

US denies United Airlines $1.6 bln loan guarantee
Thursday June 17, 7:21 pm ET


WASHINGTON, June 17 (Reuters) - United Airlines lost its bid for a $1.6 billion federal loan guarantee on Thursday, prompting new uncertainty about its prospects for emerging from bankruptcy this fall.
The Air Transportation Stabilization Board voted to reject United for a second time, but said it may reconsider the matter if the airline chooses to submit another application in the coming days.

United, the No. 2 U.S. airline and a unit of UAL Corp. (OTC BB:UALAQ.OB - News), has been operating under Chapter 11 protection since December 2002. The airline said it needed the loan guarantee to back $2 billion in private financing that is crucial to its restructuring.

 

[herkav8r]

United Airlines Denied U.S. Loan Guarantee Request (Update1)
June 17 (Bloomberg) -- UAL Corp.'s United Airlines failed to win U.S. backing for a $1.6 billion government loan guarantee to finance its exit from bankruptcy, the carrier's second rejection by a U.S. board in 18 months.

A majority of the Air Transportation Stabilization Board found that a loan guarantee ``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 board rejected United's request for a $1.8 billion guarantee in December 2002. The airline filed bankruptcy five days later.

``Should United submit an improved application in the coming days, Treasury is open to reconsidering it,'' the Treasury Department said in a separate statement.

Treasury Undersecretary Brian Roseboro and Federal Reserve Governor Edward Gramlich opposed the request, the board's statement said. Transportation Department Undersecretary Jeff Shane voted to defer a decision one week pending further board discussions with United pending its most recent proposals, the statement said.
The U.S. government made $10 billion in guarantees available to U.S. carriers after the Sept. 11 attacks to help them recover from a drop in air travel.

Under terms of the United request, the U.S. would have repaid 80 percent of the loan if the airline defaulted. J.P. Morgan Chase & Co. and Citigroup Inc. tentatively agreed to provide UAL with a $2 billion loan, including a collective $400 million that wouldn't be backed by the U.S. guarantee, contingent on board approval.


Interesting. Any bets on when pensions will ask to be cut?

 

[WorldTraveler]

While there are undoubtedly some very distraught UA employees tonite, this is in the best interest of the country and that is what the government is here to protect.

Yes, there will be more cuts at UAL but that has always been the way it works when a company enters bankruptcy. UAL still has a huge franchise that is very valuable but the pension liability is a huge obstacle to attracting any investment. Perhaps UAL's thinking is that the government will have to take over the pension plans since they refused to give UAL the loan they wanted. Pensions at every other airline just got a lot less secure.

I see the Delta pilots are saying they are ready to come back to the table. Coincidence?

 

[SVQLBA]

This report from Reuters gives an even more interesting twist:

Reuters
US Denies United Airlines Loan Guarantee
Thursday June 17, 8:05 pm ET


WASHINGTON (Reuters) - United Airlines lost its bid for a $1.6 billion federal loan guarantee on Thursday, prompting new uncertainty about its prospects for emerging from bankruptcy this fall.

The Air Transportation Stabilization Board voted to reject United for a second time, but said it might reconsider the matter if the airline chooses to submit another application in the coming days.

United, the No. 2 U.S. airline and a unit of UAL Corp. (OTC BB:UALAQ.OB - News), has been operating under Chapter 11 protection since December 2002. The airline said it needed the loan guarantee to back $2 billion in private financing that is crucial to its restructuring.

But the stabilization board, created after the September 2001 hijack attacks to help struggling airlines, disagreed that United's situation is dire. It credited the airline's cost-cutting moves over the past 18 months and said it believes the company's access to credit markets is improving.

"Given these circumstances, 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 said in a letter to United Chief Financial Officer Frederic Brace.

Federal Reserve Board Governor Edward Gramlich, chairman of the stabilization board, and Brian Roseboro, undersecretary of Treasury for domestic finance, voted to deny United's application. The board's third member, Transportation Department Undersecretary Jeffrey Shane, deferred his decision for one week, pending further discussions with United regarding its most recent proposals to the board.


===================

In other words -- you convinced us so well that you can recover that now we don't think you even need the loan guarantee. Come back and convince us things aren't going so well, and then maybe we'll reconsider. Huh?????

Talk about Catch 22

 

[CALno.1]

Now what? Time to sell the toys boys. Sorry UAL, NO love loss from me. I remember when Continental was in trouble back in the late 80's. What did you pompous ass UAL guys have on your flight bags? 'Stickers that said "ONE LESS AIRLINE CAN MAKE A DIFFERENCE" Wish I had one now to put on MY flight case.

 

[avek00]

Kudos to the ATSB for making clear that a loan guarantee is no substitute for a viable business plan.

 

[SVQLBA]

And to add to the confusion, this from United PR just moved across the wires:

==============

Press Release Source: United Airlines


Statement From United Airlines
Thursday June 17, 8:21 pm ET


CHICAGO, June 17 /PRNewswire-FirstCall/-- We are perplexed by the announcement made by the Air Transportation Stabilization Board (ATSB) this afternoon.
We have reason to believe we are in the midst of a process with the ATSB to make our application acceptable and that a decision was premature.

We do not believe that the Board was made fully aware of the important modifications United was willing to bring to the table. We are respectfully petitioning the ATSB for reconsideration of our pending loan application.

Worldwide Communications:
Media Relations Office: 847.700.5538
Evenings/Weekends: 847.700.4088




--------------------------------------------------------------------------------
Source: United Airlines

I wonder what "modifications" would make the board think that UAL can't make it on its own?

 

[funguy2]

In another thread, there is an article stating that UAL execs were "negotiating" with the ATSB on Wed (and probably Thursday... today). The ATSB must have thought that the negotiations were going nowhere, or that UAL would not promise on what they delivered.

I am personally shocked... I really thought UAL would get an approval with a lot of IF's and AND's.

But, it looks like UAL has another week to re-apply... which brings up the question, how many "re-applications" can one carrier make? Does UAL get to continue reapply after every denial until 2025? Is there some kind of limit here?

 

[GuppyPup]

I wonder what "modifications" would make the board think that UAL can't make it on its own?

More paycuts, less pensions, smaller domestic network (more RJs). Objects in the rear view mirror are closer than they may appear.

Just continue to do what can be controlled, start to operate in a manner which is different from how "we've always done it". Cause in todays new market reality, the way we've always done it, equals inevitable extinction.

 

[Dizel8]

"We do not believe that the Board was made fully aware of the important modifications United was willing to bring to the table."

Was UAL trying to lowball the ATSB and when that failed, they will come back with another plan, new numbers, better outlook?

They either have a going forward plan or they do not, which is it? This continual shooting in the dark must be driving the employees at UAL nuts.

The ATSB needs to say enough with the games and call it quits.

 

[whlinder]

Kudos to the ATSB for making clear that a loan guarantee is no substitute for a viable business plan.

So then explain why US got a loan guarantee.

 

[ClueByFour]

Kudos to the ATSB for making clear that a loan guarantee is no substitute for a viable business plan.

Uhh, they did not say that.

Maybe UA can emerge from Chapter 11 anyway and then proceed to try it again, so they can be as cool as some other airlines.

Or, to put it another way, US did not have a viable business plan (just cost cuts) upon emergence. CO, after the second bankruptcy, did not really change the status quo, just lowered costs.

 

[JungleClone]

While I'm clearly disappointed, I've felt all along that we would probably be denied the loan. Some may take this the wrong way, but I just don't think we have done enough to deserve it. Yes, we have made major strides in numerous areas. But there is still no clear, credible business plan for sustained profits. We're definately a stronger company than we were 18 months ago and clearly are pointed in the right direction. But more work remains to be done. And unfortunately, I think that "more work" will encompass the Plan B that we know exists. I think it's quite possible that things could get a bit uglier pretty quickly in terms of more concessions, more layoffs, pension termination, network retrenchment, etc.

I'm not ready to push the panic button yet, but we have no alternative but to look at other options. Other options may include the bankruptcy judge allowing any potentially interested parties to submit a different turnaround/equity plan for United. That could then entail a change in leadership yet again. I think now we're in for a very difficult period of determing what our next move is and how many of us will be adversely affected by that move.

 

[JungleClone]

I forgot to include this in the previous post...


I also think that this decision by the ATSB is the final justification to fire Jake Brace. He has precided over our two failed applications before the ATSB. He carries practically zero credibility with employees and no credibility with Wall Street. And it is quite clear that he is not up to the task. It's time for Glenn Tilton to wake up and smell the failure and give Brace his walking papers. Bring in someone who can actually do the job that he has emphatically failed to do!