United Airlines failed to win approval for a US$1.8 billion loan guarantee designed to keep the world's second-biggest carrier out of bankruptcy.
The Air Transportation Stabilization Board said the request was "not financially sound." The UAL Corp. unit can submit a new plan or seek a guarantee as part of a Chapter 11 restructuring, said Daniel Montgomery, the board's executive director.
United has arranged to borrow as much as US$2 billion from banks including Citigroup Inc. and J.P. Morgan Chase & Co. should it seek court protection, people familiar with the matter said. A United Airlines bankruptcy would be the industry's biggest.
"This is the final nail in the coffin -- United will have to file for bankruptcy and probably very quickly," said Philip Baggaley, an analyst at Standard & Poor's, which cut the company's debt rating last month to three steps from default.
Chief Executive Officer Glenn Tilton said in a statement that United appreciated "the possibility expressed to consider an improved proposal at a later date" and would consult with employees and stakeholders to determine its next step.
"Whatever course we chart, it should be emphatically clear that United will continue to fly," Tilton said.
United's Air Line Pilots Association said it will work with the company and other unions to "respond as quickly as possible to achieve an out of court recovery." UAL shares fell 69 percent to US$0.95 in New York yesterday. The stock was worth US$13.70 at the start of the year.
Many analysts said United's plan didn't go far enough in reducing costs to adjust to the drop in airline industry revenue caused by the Sept. 11 attacks and a US economic slowdown.
The company wanted the US guarantee to help it raise US$2 billion in new loans and repay almost US$1 billion of debt due this month.
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