Tue, Mar 23, 2004
Airline Relying On Government Backing To Exit Chapter 11
United Airlines has
made it clear, it needs federal money to stay afloat. A United
executive on Friday said the company is focused on winning
government approval for a big loan as the way to get out of
bankruptcy. Management would not disclose what their back-up plans
were. On two recent occasions, United Airlines executives were
asked if they have an alternate plan to exit Chapter 11 protection
if they do not get the U.S. government backing for $1.6 billion --
part of a $2.0 billion loan. Twice, different executives replied
they are totally focused on the government loan.
Peter McDonald, executive vice president of operations, told
reporters "that's the plan," referring to the loan guarantee
application, when asked if a "Plan B" existed. Similarly, Chief
Financial Officer Jake Brace said at a recent New York investment
banking airline conference that the government loan was the
airline's focus. However, Brace did add that United would get out
of Chapter 11 "one way or another."
In some ways, United is stuck in the proverbial "rock and a hard
place" with regard to commenting on the loan process underway at
the Air Transportation Stabilization Board. Among key requirements,
loan guarantees are only available if no private sector financing
is reasonably available. The loan program is considered a
last resort, so the government would not appreciate an applicant
seeking help but also saying that backup options — which
could include private financing, a major equity investor or deeper
cost cuts — might be available. The stabilization board was
established by Congress to help struggling carriers after the Sept.
11, 2001, attacks threw the U.S. airline industry into an
unprecedented financial downturn. The three-member board has been
stingy in granting guarantees, and is under no deadline to help
United.
The airline first
applied for a loan guarantee in 2002, but the board called its
business plan "flawed" and the request was denied. Shortly after,
the airline filed the largest aviation bankruptcy ever and has
since restructured a lot of its financial obligations, sharply
cutting expenses. United's amended loan guarantee application and
revised business plan have been before the agency for a few months,
but as some issues including pension funding relief and aircraft
litigation remain unresolved, no decision has been made. As a
result, United has delayed its timing for bankruptcy exit to some
time this summer, rather than by the end of the firs half of the
year.
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