United Loan Guarantee Denied!
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United Loan Guarantee Denied!
United Airlines Denied $1.6 Bln U.S. Loan Guarantee (Update3)
June 17 (Bloomberg) -- UAL Corp.'s United Airlines failed to win a $1.6 billion U.S. government loan guarantee to finance an exit from bankruptcy, which may force the world's second-largest carrier to seek other financing or more cost reductions.
United failed to meet requirements of an airline aid law and can succeed without a guarantee as credit markets have improved, the board of three U.S. agencies said in a statement. Two of the agencies said they would reconsider the application, and the Chicago-based airline requested a review.
UAL is seeking to reduce annual expenses by $5 billion, about half through worker pay and benefit concessions, to stem losses, and requested U.S. backing for a $2 billion loan from J.P. Morgan Chase & Co. and Citigroup Inc. UAL has had $8.6 billion in net losses since 2000, it's last profitable year. The company has said it had an operating profit in March and May.
``It's a substantial setback but it's not the end of the story for them,'' said Standard & Poor's analyst Philip Baggaley. ``They have been at least thinking about alternatives and now they'll have to pursue those, probably seeking some form of equity investment, a secured credit facility and possibly some other forms of long-term capital.''
The Air Transportation Stabilization Board rejected United's request for a $1.8 billion guarantee in December 2002, and the airline filed the industry's largest bankruptcy five days later. The board has rejected applications from nine carriers and awarded six loan guarantees. A law enacted after the Sept. 11 attacks made $10 billion in guarantees available to help carriers recover from a drop in air travel.
United `Perplexed'
United said in a statement it was ``perplexed'' about a ``premature'' decision, saying the carrier was in the midst of a process to make its application acceptable.
``We do not believe that the board was made fully aware of the important modifications United was willing to bring to the table,'' United said. ``We are respectfully petitioning the ATSB for reconsideration.''
Treasury Undersecretary Brian Roseboro and Federal Reserve Governor Edward Gramlich opposed the request, and Transportation Department Undersecretary Jeff Shane voted to defer a decision one week, the board's statement said.
``Should United submit an improved application in the coming days, Treasury is open to reconsidering it,'' the Treasury Department said in a statement. The Transportation Department is willing to consider the application ``in the event that United submits a request for reconsideration,'' the agency's statement said.
Loan `Unnecessary'
``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,'' Executive Director Michael Kestenbaum said in a letter to United's Chief Financial Officer Frederic Brace.
U.S. House Speaker Dennis Hastert, a Republican from Illinois, the home state of United, said he ``hoped'' the board would reconsider the decision.
The decision won't result in United's liquidation, said Dorothy Robyn, a Brattle Group consultant in Washington and a former adviser on aviation issues during the Clinton administration.
``This will force United Airlines to go back to labor and go back to creditors and get deeper concessions, which is exactly what should happen,'' Robyn said. ``Despite having been through bankruptcy, United Airlines labor costs and other costs are still substantially higher than those of low-fare airlines that are their major competitors.
``The board may well have thought that United hadn't used this crisis to get their costs as low as they need to be,'' Robyn said.
Pilots
The decision surprised United's Airlines Pilots Association, said spokesman Steve Derebey. He didn't comment on whether pilots, the highest paid employees at any airline, would be willing to offer additional concessions.
``We'll be working, obviously, with the company in the coming weeks to find out what their plan is,'' Derebey said. The pilots union said in a statement that the rejection is ``slap in the face to each United pilot.'' The union will be ``more determined to ensure'' United exits the bankruptcy process.
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 and Citigroup 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.
United probably will remain in bankruptcy court proceedings longer, redouble its efforts to reduce costs to attract new market capital, and, perhaps, shrink a bit, said UBS Securities analyst Samuel Buttrick in a June 10 report.
Opponents
Rivals opposed the application. The loan program wasn't meant to boost business plans likely to fail, AirTran Holdings Inc. Chief Executive Joe Leonard told a congressional panel June 3. Airlines with a reasonable chance of repaying loans can get them from private markets, America West Holdings Corp. Chief Executive Douglas Parker told the panel the same day.
United expects fuel costs to be $750 million higher than forecast for this year on rising fuel prices. UAL is aiming to cut $300 million in costs other than labor expense and boost revenue by $300 million. The airline recently cut $300 million in costs over six years by reducing retiree benefits.
UAL had expected to exit Chapter 11 protection by the middle of this year. Now, the company has said it's planning to emerge sometime in the second half of the year.
To contact the reporter of this story:
John Hughes in Washington at [email protected]
To contact the editor responsible for this story:
Steve Geimann at [email protected]
Last Updated: June 17, 2004 20:49 EDT
June 17 (Bloomberg) -- UAL Corp.'s United Airlines failed to win a $1.6 billion U.S. government loan guarantee to finance an exit from bankruptcy, which may force the world's second-largest carrier to seek other financing or more cost reductions.
United failed to meet requirements of an airline aid law and can succeed without a guarantee as credit markets have improved, the board of three U.S. agencies said in a statement. Two of the agencies said they would reconsider the application, and the Chicago-based airline requested a review.
UAL is seeking to reduce annual expenses by $5 billion, about half through worker pay and benefit concessions, to stem losses, and requested U.S. backing for a $2 billion loan from J.P. Morgan Chase & Co. and Citigroup Inc. UAL has had $8.6 billion in net losses since 2000, it's last profitable year. The company has said it had an operating profit in March and May.
``It's a substantial setback but it's not the end of the story for them,'' said Standard & Poor's analyst Philip Baggaley. ``They have been at least thinking about alternatives and now they'll have to pursue those, probably seeking some form of equity investment, a secured credit facility and possibly some other forms of long-term capital.''
The Air Transportation Stabilization Board rejected United's request for a $1.8 billion guarantee in December 2002, and the airline filed the industry's largest bankruptcy five days later. The board has rejected applications from nine carriers and awarded six loan guarantees. A law enacted after the Sept. 11 attacks made $10 billion in guarantees available to help carriers recover from a drop in air travel.
United `Perplexed'
United said in a statement it was ``perplexed'' about a ``premature'' decision, saying the carrier was in the midst of a process to make its application acceptable.
``We do not believe that the board was made fully aware of the important modifications United was willing to bring to the table,'' United said. ``We are respectfully petitioning the ATSB for reconsideration.''
Treasury Undersecretary Brian Roseboro and Federal Reserve Governor Edward Gramlich opposed the request, and Transportation Department Undersecretary Jeff Shane voted to defer a decision one week, the board's statement said.
``Should United submit an improved application in the coming days, Treasury is open to reconsidering it,'' the Treasury Department said in a statement. The Transportation Department is willing to consider the application ``in the event that United submits a request for reconsideration,'' the agency's statement said.
Loan `Unnecessary'
``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,'' Executive Director Michael Kestenbaum said in a letter to United's Chief Financial Officer Frederic Brace.
U.S. House Speaker Dennis Hastert, a Republican from Illinois, the home state of United, said he ``hoped'' the board would reconsider the decision.
The decision won't result in United's liquidation, said Dorothy Robyn, a Brattle Group consultant in Washington and a former adviser on aviation issues during the Clinton administration.
``This will force United Airlines to go back to labor and go back to creditors and get deeper concessions, which is exactly what should happen,'' Robyn said. ``Despite having been through bankruptcy, United Airlines labor costs and other costs are still substantially higher than those of low-fare airlines that are their major competitors.
``The board may well have thought that United hadn't used this crisis to get their costs as low as they need to be,'' Robyn said.
Pilots
The decision surprised United's Airlines Pilots Association, said spokesman Steve Derebey. He didn't comment on whether pilots, the highest paid employees at any airline, would be willing to offer additional concessions.
``We'll be working, obviously, with the company in the coming weeks to find out what their plan is,'' Derebey said. The pilots union said in a statement that the rejection is ``slap in the face to each United pilot.'' The union will be ``more determined to ensure'' United exits the bankruptcy process.
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 and Citigroup 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.
United probably will remain in bankruptcy court proceedings longer, redouble its efforts to reduce costs to attract new market capital, and, perhaps, shrink a bit, said UBS Securities analyst Samuel Buttrick in a June 10 report.
Opponents
Rivals opposed the application. The loan program wasn't meant to boost business plans likely to fail, AirTran Holdings Inc. Chief Executive Joe Leonard told a congressional panel June 3. Airlines with a reasonable chance of repaying loans can get them from private markets, America West Holdings Corp. Chief Executive Douglas Parker told the panel the same day.
United expects fuel costs to be $750 million higher than forecast for this year on rising fuel prices. UAL is aiming to cut $300 million in costs other than labor expense and boost revenue by $300 million. The airline recently cut $300 million in costs over six years by reducing retiree benefits.
UAL had expected to exit Chapter 11 protection by the middle of this year. Now, the company has said it's planning to emerge sometime in the second half of the year.
To contact the reporter of this story:
John Hughes in Washington at [email protected]
To contact the editor responsible for this story:
Steve Geimann at [email protected]
Last Updated: June 17, 2004 20:49 EDT
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A brief analysis from earlier in the day:
United Airlines CEO coaxing carrier back from brink
June 17, 2004 — When Glenn Tilton took over at United Airlines in 2002, skepticism abounded that a career oilman could learn the airline business fast enough to pull United out of its dangerous dive.
Industry experts questioned how Tilton could persuade employees to agree to drastic wage and benefit cuts and improve United's performance to reshape it into a cost-competitive airline.
United's emergence from bankruptcy still isn't assured after a more than 18-month stay in Chapter Eleven.
Whether Tilton ultimately succeeds as United's chief executive officer may hinge on an imminent government decision on its application for a federal loan guarantee. If it's rejected, United would likely need a cash infusion and may switch leadership.
Tilton is in Washington today for eleventh-hour talks about United's application. A decision could come this week.
http://abclocal.go.com/wls/news/0617...ns_united.html
United Airlines CEO coaxing carrier back from brink
June 17, 2004 — When Glenn Tilton took over at United Airlines in 2002, skepticism abounded that a career oilman could learn the airline business fast enough to pull United out of its dangerous dive.
Industry experts questioned how Tilton could persuade employees to agree to drastic wage and benefit cuts and improve United's performance to reshape it into a cost-competitive airline.
United's emergence from bankruptcy still isn't assured after a more than 18-month stay in Chapter Eleven.
Whether Tilton ultimately succeeds as United's chief executive officer may hinge on an imminent government decision on its application for a federal loan guarantee. If it's rejected, United would likely need a cash infusion and may switch leadership.
Tilton is in Washington today for eleventh-hour talks about United's application. A decision could come this week.
http://abclocal.go.com/wls/news/0617...ns_united.html
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"Airlines with a reasonable chance of repaying loans can get them from private markets, America West Holdings Corp. Chief Executive Douglas Parker told the panel"
Is there anything else to say?
Is there anything else to say?
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I hate to add to the misery in the US but it looks like Delta is in big trouble too if they can't cut costs significantly - article in the financial pages of yesterday's "Daily Telegraph".
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America West - corporate memory loss?
Quoted....
"Airlines with a reasonable chance of repaying loans can get them from private markets, America West Holdings Corp. Chief Executive Douglas Parker told the panel"
Now let's look at the US Treasury web site -
On December 7, 2001 America West Airlines submitted an amended application for Federal loan guarantees.
On December 28, 2001, the ATSB gave a conditional approval to America West Airlines for its application.
On January 18, 2002, America West Airlines closed on a $429 million loan supported by a Federal loan guarantee.....
"Airlines with a reasonable chance of repaying loans can get them from private markets, America West Holdings Corp. Chief Executive Douglas Parker told the panel"
Now let's look at the US Treasury web site -
On December 7, 2001 America West Airlines submitted an amended application for Federal loan guarantees.
On December 28, 2001, the ATSB gave a conditional approval to America West Airlines for its application.
On January 18, 2002, America West Airlines closed on a $429 million loan supported by a Federal loan guarantee.....
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I don't think anyone but the unions and the New York Times are surprised that United didn't get the bailout loan once again.
After the failed experiment with employee ownership, it looks like the next phase is creditor ownership or liquidation.
Another Once Great Airline has gone through the transformation from "the world can't do without us" to "buddy can you spare a dime". It is a humbling experience and a personal one for many of us.
I can remember the heady days of 2000 when the planes were full and the UAL employees could care less if you rode with them or not. Pac Rim cabin service was delivered with a sneer if you were lucky enough to get any. I've avoided United for personal travel since then but I am told things are somewhat better after the reality check of bankruptcy.
Oddly enough, the propective political saviour of UAL bailout "loan" guarantee (there is real doubt if they could ever pay it back, UAL's current debt would take 35 years to repay at projected revenue levels according to one analysis) is a Republican, Dennis Hastert, Speaker of the U.S. House of Representatives.
UAL has been given 30 days to come up with another plan to exit bankruptcy without the ATSB guarantee and Rep. Hastert has made calls today pressuring the ATSB to allow an unprecedented third application for the government bailout.
It ain't over till it's over...
After the failed experiment with employee ownership, it looks like the next phase is creditor ownership or liquidation.
Another Once Great Airline has gone through the transformation from "the world can't do without us" to "buddy can you spare a dime". It is a humbling experience and a personal one for many of us.
I can remember the heady days of 2000 when the planes were full and the UAL employees could care less if you rode with them or not. Pac Rim cabin service was delivered with a sneer if you were lucky enough to get any. I've avoided United for personal travel since then but I am told things are somewhat better after the reality check of bankruptcy.
Oddly enough, the propective political saviour of UAL bailout "loan" guarantee (there is real doubt if they could ever pay it back, UAL's current debt would take 35 years to repay at projected revenue levels according to one analysis) is a Republican, Dennis Hastert, Speaker of the U.S. House of Representatives.
UAL has been given 30 days to come up with another plan to exit bankruptcy without the ATSB guarantee and Rep. Hastert has made calls today pressuring the ATSB to allow an unprecedented third application for the government bailout.
It ain't over till it's over...
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I'd just like to remind the detractors (like srjumbo) that if either (or both) United and Delta go under, or their pilots unions are broken by this crisis, then the whole worldwide pilot body will suffer the consequences.
I don't work for either company, but both of their unions (in particular Uniteds) are shining lights in the battle to preserve pilot pay and conditions. Their example is one for evey pilots union to follow. To see other pilots gloating on their possible downfall is sickening.
Are you pilots or managers? If you want to improve your own situation, don't try dragging everone down to your level. Thats the job of management, not pilots. With attitudes like yours (srjumbo) we'll all be earning taxi drivers wages soon and managers (even wannabes) like 411A will be happy as Larry that you screwed yourself!!
I don't work for either company, but both of their unions (in particular Uniteds) are shining lights in the battle to preserve pilot pay and conditions. Their example is one for evey pilots union to follow. To see other pilots gloating on their possible downfall is sickening.
Are you pilots or managers? If you want to improve your own situation, don't try dragging everone down to your level. Thats the job of management, not pilots. With attitudes like yours (srjumbo) we'll all be earning taxi drivers wages soon and managers (even wannabes) like 411A will be happy as Larry that you screwed yourself!!
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Hey Oilhead - America West gave the US government warrants for stock in exchange for the ATSB loans. If the government cashed in right now they would make a profit of about 200%. Not bad for the taxpayers, is it?
What did AWA get in return? A government imposed cap on labor costs for the lowest paid, most productive major airline flight crew, a chance to implement some major business fare reductions that boosted yields, and a return to profitability within a year of gaining the loans.
UAL pilots gained perhaps the peak contract in aviation history (although I've heard that Cathay in the old days might have been the best as far as pay and perks) but no one forced management to sign the contract. The reality is that that contract was developed and signed when they were able to make great profits from their international routes. Times have changed and we have all paid the price. But United (and UsAir) pilots have stepped up to the plate and given back more than enough to restructure. The sad truth is that we pay the most when management screws up. UAL pilots could work for free and they would still lose money.
What did AWA get in return? A government imposed cap on labor costs for the lowest paid, most productive major airline flight crew, a chance to implement some major business fare reductions that boosted yields, and a return to profitability within a year of gaining the loans.
UAL pilots gained perhaps the peak contract in aviation history (although I've heard that Cathay in the old days might have been the best as far as pay and perks) but no one forced management to sign the contract. The reality is that that contract was developed and signed when they were able to make great profits from their international routes. Times have changed and we have all paid the price. But United (and UsAir) pilots have stepped up to the plate and given back more than enough to restructure. The sad truth is that we pay the most when management screws up. UAL pilots could work for free and they would still lose money.
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This sums up what is so wrong about American aviation.
Since 9/11 Assorted American Airlines have had huge level's of subsidies to enable them to stay in Business.
British Airlines have had NO level of support and yet have to compete head to head with their American Competitors on Transatlantic routes. Even the installation of reinforced doors and video surveillance had to be paid for by the UK airlines themselves.
Level Playing Field......
Yeah...right
Since 9/11 Assorted American Airlines have had huge level's of subsidies to enable them to stay in Business.
British Airlines have had NO level of support and yet have to compete head to head with their American Competitors on Transatlantic routes. Even the installation of reinforced doors and video surveillance had to be paid for by the UK airlines themselves.
Level Playing Field......
Yeah...right
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British Airlines have had NO level of support and yet have to compete head to head with their American Competitors on Transatlantic routes.
Is that right? ...I don't see Continental Airlines flying into Heathrow, why is that?
BBB
Is that right? ...I don't see Continental Airlines flying into Heathrow, why is that?
BBB
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Continental may not fly into Heathrow but I think it's one of only a couple of airlines operating transatlantic from Edinburgh and Glasgow. Perhaps they see another possible market (we Scottish fools? 
)
)
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Continental do fly to Gatwick which is probably less remote than Newark...
and even if they didn't have landing rights in London at all what has that got to do with the subsidies/loans the US has given it's airlines?
and even if they didn't have landing rights in London at all what has that got to do with the subsidies/loans the US has given it's airlines?
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and even if they didn't have landing rights in London at all what has that got to do with the subsidies/loans the US has given it's airlines?
by not allowing other carriers to operate into and out of one of the busiest airports in the world, the British government is in fact subsidizing BA.
BBB
by not allowing other carriers to operate into and out of one of the busiest airports in the world, the British government is in fact subsidizing BA.
BBB
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by not allowing other carriers to operate into and out of one of the busiest airports in the world, the British government is in fact subsidizing BA.
Delta
Northwest
Continental
American
United
UK carriers operating from London to US:
BA
Virgin Atlantic
........ and BMI still aren't allowed to operate transatlantic from London.
Have a word with yourself BBB!
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BZZZZZZZZZT
try again.
Northwest
Delta
Continental
NOT allowed at Heathrow
Other UK airlines operating translatic services to the USA
JMC
Monarch
and a few others
BMI can operate translantic from LONDON EXACTLY the same as Northwest Delta and Continental can.
try again.
Northwest
Delta
Continental
NOT allowed at Heathrow
Other UK airlines operating translatic services to the USA
JMC
Monarch
and a few others
BMI can operate translantic from LONDON EXACTLY the same as Northwest Delta and Continental can.
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Have a word with yourself BBB!
I have no idea what that means, but I bet it isn't good. Can you supply some flight numbers to back up your post for Continental, Delta, Northwest to LHR? I know UAL and AA fly to LHR and that is politics.
BBB
I have no idea what that means, but I bet it isn't good. Can you supply some flight numbers to back up your post for Continental, Delta, Northwest to LHR? I know UAL and AA fly to LHR and that is politics.
BBB
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Maxalt says:
"I'd just like to remind the detractors (like srjumbo) that if either (or both) United and Delta go under, or their pilots unions are broken by this crisis, then the whole worldwide pilot body will suffer the consequences..."
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Pan Am, a former American "institution" went under, along with Braniff and Eastern Airlines...EAL in 1980 was the free world's largest pax carrier (35 million)....and "the whole worldwide pilot body" did not lose union representation and pilots' wages did not decline.
What are you saying maxalt? ...That outfits like UAL or DAL deserve taxpayer loan guarantees because they can't qualify for loans on Wall Street?
Give us a break, maxalt! I coudn't care less if a UAL captain or a DAL captain make $280,000 per year...as long as the American taxpayer isn't involved in guaranteeing the money.
-----------------------------------------------------------------------
Pan Am, a former American "institution" went under, along with Braniff and Eastern Airlines...EAL in 1980 was the free world's largest pax carrier (35 million)....and "the whole worldwide pilot body" did not lose union representation and pilots' wages did not decline.
What are you saying maxalt? ...That outfits like UAL or DAL deserve taxpayer loan guarantees because they can't qualify for loans on Wall Street?
Give us a break, maxalt! I coudn't care less if a UAL captain or a DAL captain make $280,000 per year...as long as the American taxpayer isn't involved in guaranteeing the money.