Us Denies United $1.6 Billion Loan Guarantee

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Hula Girl

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Aug 20, 2002
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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.

What does this mean for United? I feel so badly for the UAL employees.
 
From the United forum on USAviation-

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.
 
There are still options yet as UAIR employees have lived through the fear, no exit financing, no exit.

It will be quite interesting to see the turn of events now. You may directly apply this lesson as you see fit, it is my humble opinion (gee who asked) that one should avoid a 2nd bankrupcty at all costs for this very reason. observe the changes and the speed at which it occurs at UAL corp in the coming months.

i wish them the best during these trying times.
 
There was a Catch-22 from the very beginning. UAL's management was going around saying that they could still emerge from bankruptcy with financing even if the guarantee was not approved. The whole purpose of the ATSB loan guarantees was to provide a way for airlines to obtain financing if they could not otherwise get financing without the guarantee.

So, if you have a viable Plan B in case the loan is not approved, that proves you didn't need the loan in the first place.

The next few days should be very interesting. The creditor's committee must have faith in Plan B or they may petition the court to convert the Ch. 11 to a Ch. 7. I feel so awful for the UAL employees because the whole thing is almost totally out of their control now.
 
jimntx said:
There was a Catch-22 from the very beginning. UAL's management was going around saying that they could still emerge from bankruptcy with financing even if the guarantee was not approved. The whole purpose of the ATSB loan guarantees was to provide a way for airlines to obtain financing if they could not otherwise get financing without the guarantee.

So, if you have a viable Plan B in case the loan is not approved, that proves you didn't need the loan in the first place.

The next few days should be very interesting. The creditor's committee must have faith in Plan B or they may petition the court to convert the Ch. 11 to a Ch. 7. I feel so awful for the UAL employees because the whole thing is almost totally out of their control now.
While possible, I think this is HIGHLY unlikely. MORE likely would be sales of assets, further paycuts/reductions in benefits. Since UAL is still in ch 11 they can institute these things rather quickly. Sounds like UAL may actually be doing BETTER financially than UAIR, and may not really need the loan in the first place. Seems to me, from what I've seen of UAIR's experience, that the ATSB loan is really a HINDRANCE to an airline trying to get back on it's feet. :blink:
 
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