United Airlines lost its bid for US$1.6 billion in federal loan guarantees, a blow to America's second-largest airline as it tries to emerge from bankruptcy.
It was the second time that the federal Air Transportation Stabilization Board (ASTB) has turned down the cash-strapped company.
Two members of the board -- Treasury Department's undersecretary for domestic finance, Brian Roseboro, and Federal Reserve member Edward Gramlich, voted on Thursday to deny the company's request. The third member, Jeffrey Shane, an undersecretary at the Transportation Department, voted to defer a decision for one week.
"A majority of the board determined that a guaranteed loan to United 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 Treasury Department did say, however, that the airline has an opportunity to resubmit an application. United said it was perplexed by the board's decision and was working to improve its application and would refile it.
"We do not believe that the board was made fully aware of the important modifications United was willing to bring to the table," the company said in a statement. "We are respectfully petitioning the ATSB for reconsideration of our pending loan application."
Five days after the being turned down by the board the first time, on Dec. 4, 2002, for US$1.8 billion in federal loan guarantees, the airline filed for bankruptcy protection.
United Airlines chief executive Glenn Tilton, in an interview last week, said subsequent restructuring has left the company on sufficient financial footing to be able to emerge from bankruptcy by year's end, even if its request for federal loan backing was rejected.
Darryl Jenkins, head of the Embry Riddle Aeronautical University in Daytona Beach, said United probably will be forced to ask its unions for more concessions.
"The ones I feel bad for are the employees who thought all these concessions were over," he said. "It's just beginning for them and that really is unfortunate."
But Jenkins said he thinks United eventually will emerge from bankruptcy.
The company's restructuring steps have included US$2.5 million in annual labor cost reductions and aircraft refinancing.
Last week, the airline reached agreement with its unions on reductions to retirees' medical and life insurance benefits.
The carrier said the modified cuts, combined with a similar agreement reached with its mechanics' union last month, will save it more than US$300 million through 2010.
The Elk Grove Village, Illinois-based airline has been operating under bankruptcy protection for 18 months. Soaring jet fuel costs have kept it unprofitable longer than expected. Rising fuel costs will cost the company US$750 million than it expected.
The US$1.6 billion loan guarantee was being sought to back a US$2 billion private loan package.
The board was established by Congress to oversee a US$10 billion loan program, part of an airline industry bailout after the Sept. 11 terrorist attacks.
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