UAL gets a 3rd Try @$1.1M

[lowecur]

I still have my doubts this will go through. Sen. Fitzgerald wants a Treasury investigation, but none has been ordered at this point. If it does go through, you can bet there will be one.


United Airlines renews, reduces loan-guarantee bid

Tue Jun 22, 2004 08:27 PM ET
By John Crawley and Susan Cornwell



WASHINGTON, June 22 (Reuters) - Bankrupt United Airlines filed a scaled-back federal loan guarantee application on Tuesday, less than a week after a government board rejected a request for $1.6 billion in taxpayer financial backing.

An industry source with knowledge of United's new application said the figure was slightly over $1 billion.

United, a unit of UAL Corp., confirmed that it resubmitted its application with the Air Transportation Stabilization Board but declined to disclose an amount.

Separately, a Republican senator asked the Treasury Department to investigate whether a senior Treasury official has been inappropriately pressured, as a member of the board overseeing the loan guarantee program, to reverse his opposition to granting the No. 2 airline credit assistance.

United says it needs the guarantee -- under a program established after the 2001 hijack attacks to help struggling airlines -- to secure private loans needed to pay for its bankruptcy emergence later this year.

United initially applied for a $1.8 billion guarantee but that was rejected in 2002, prompting a bankruptcy filing.

The carrier was invited to reapply a third time even though two members of the three-member stabilization board said the airline's prospects of getting private financing had improved to the point a guarantee was not needed.

The new application came as Republican Sen. Peter Fitzgerald of Illinois, who opposes a United loan, sought a Treasury Department investigation into the board's handling of the last application.

Fitzgerald, a Republican and chairman of the Governmental Affairs subcommittee on financial management, said he is troubled that the Treasury Department's representative on the board, Undersecretary Brian Roseboro, cleared a path for United to file a new application after voting against the carrier.

The action was "at best perplexing and at worst suspect," Fitzgerald said in a letter to Dennis Schindel, acting inspector general of the Treasury Department.

He suggested in an interview with Reuters that U.S. House of Representatives Speaker Dennis Hastert, a fellow Illinois Republican, was a source of pressure on the Treasury Department.

Hastert is a supporter of a guarantee for United, based in Elk Grove, Illinois.

Roseboro and Federal Reserve Board Governor Edward Gramlich voted to reject United's guarantee request, but Roseboro said at the time he was open to reconsideration.

Hastert had contacted Snow after the decision.

"It may be something just innocuous, but there also could be more in the way of intimidation," Fitzgerald told Reuters in reference to Hastert's contact.

A spokesman for Hastert, John Feehery, said the speaker has not acted inappropriately. "There's not any undue political pressure. The speaker simply asked that they (the guarantee board) take a look at the entire loan application, and that's what they agreed to do," Feehery said.

The Treasury Department said there are no plans to remove Roseboro from the board and a spokesman turned aside suggestions Snow was pressured.

A spokesman for Treasury's Schindel said there has been no decision on whether to launch a preliminary inquiry.

 

[FlyDouglasJets]

rounding error?
It's for 1.1B as in Billion. That's alot of 6 packs.

 

[General Lee]

Lowecur,


You always seem to know all the important "stats"---except I am puzzled by the title of your thread. If they really need a $1.1 MILLION loan---I have an uncle Vito in the Bronx that could give them REAL GOOD (not really good---REAL GOOD) terms.....

Bye Bye--General Lee

 

[MLBWINGBORN]

Its just sickening to see the political powers at work!!

 

[lowecur]

Lowecur,


You always seem to know all the important "stats"---except I am puzzled by the title of your thread. If they really need a $1.1 MILLION loan---I have an uncle Vito in the Bronx that could give them REAL GOOD (not really good---REAL GOOD) terms.....

Bye Bye--General Lee

As the New Yourkers say: Oh my Gord!!!!! Correction - should be $1.1B.

 

[skykid]

MLBWINGBORN, by saying you are sickened by the political powers at work, are you referring to the lobbying Sen Fitzgerald did against the loan before the the decision last week, and the hypocrisy he shows now by pretending he didn't also engage in politics? The ATSB announced their decision right in the middle of negotiations to make the application acceptable. The only reason United isn't complaining about that more than just pointing it out is they don't want to rock the boat with this slim chance still out there.

 

[DLslug]

UAL Help:


I hope United gets some help in some way. I hate to see things like they are and it must be even harder to be in front of a United jet right now.

There are alot of jobs at stake and whatever the outcome, I hope the best for them all.

IT'S TIME TO FLY!

All for now,

DLslug

 

[Mugs]

One thing is clear now. Every United jet is destined to be operated much more cheaply in the near future. It will happen one way or another, and the aircraft may or may not be operated by a company named UAL. Everyone else gets to compete with whatever it is too. The new reality is completely unavoidable, ATSB loan or not. Our profession and the value of our service to the customers simply is not worth (in dollar terms) what it once was and never will be again. So, time to figure out the future and not get wrapped up in the way things used to be. Hopefully, as things settle down everyone that wants to come back will be able to.

 

[MLBWINGBORN]

Skykid..

My statment stands..

Dont try to turn it into some sort of partisan argument...

United shouldnt get the money in my opinion and the politicians actions on both sides of the issue have been suspect and embarassing..

Mike

 

[skykid]

No MLBWINGBORN, all I'm doing is showing there are two sides to this, and from what I see you are the one with the more partisan posts on this thread.

 

[F9 Driver]

http://www.nytimes.com/2004/06/23/business/23air.html

http://www.nytimes.com/2004/06/23/business/23air.html

ive days after its last bid was rejected, United Airlines filed a revised application with a federal loan board yesterday, its third attempt to win assistance that would help it emerge from bankruptcy.

In a letter to the Air Transportation Stabilization Board, the airline reduced its loan guarantee request to $1.1 billion from the $1.6 billion it had sought until last week, according to someone who saw the revised application. In addition to the loans guaranteed by the government, United pledged to find $500 million from a lender willing to extend credit without a government promise to repay the money if United fails.

United also offered to cut its loan term to five years from seven years, the usual length of a guaranteed loan, and promised to keep about $1.5 billion in cash on hand during the term of the loan. It now has about $1.9 billion in cash, but that will fall precipitously by year's end, because it has large pension payments due this fall.

United, which has reduced spending by $5 billion a year under bankruptcy protection, estimated it would cut an additional $600 million over the coming two years, but did not provide details of how that would happen, said the person who saw the application. The estimated reductions are less than the $750 million in additional jet fuel costs that United, owned by the UAL Corporation, expects to pay this year.

A board spokeswoman confirmed United had sent "new information," but declined to give details. A United spokeswoman, Jean Medina, said the airline would work directly with the board and would not comment more specifically.

Even as United sent its revised application, the airline's prospects were dealt a blow. Treasury Secretary John W. Snow turned down an offer by Under Secretary Brian C. Roseboro - one of two board members who voted against United's previous application last Thursday - to resign from the panel, a department official said. Mr. Snow and Mr. Roseboro met yesterday afternoon.

The transportation stabilization board's chairman, Edward M. Gramlich, a Federal Reserve governor, also voted no last week. The Transportation Department's representative, Jeffrey N. Shane, abstained.

After the vote was announced last week, the Treasury Department and the Transportation Department offered to give United a third chance to revise its application, an opportunity no other airline has received.

The Treasury's move followed a call to Mr. Snow from House Speaker J. Dennis Hastert, Republican of Illinois, where United is based. Mr. Snow also received a call from a senior Bush administration official, expressing White House concern over the situation, a Treasury Department official said last week.

The Treasury Department played down Mr. Hastert's call, saying that it was normal for members of Congress to voice opinions to cabinet secretaries. But the matter set off a political storm, given Mr. Snow's intervention, Mr. Hastert's political power and the fact that the White House had not previously played a role in any airline's application.

Over the weekend, there was speculation that Mr. Snow, whose department includes the loan board, might remove Mr. Roseboro from the board and replace him with someone who would vote in favor of United's next application. On Monday, the Treasury Department came out firmly in support of Mr. Roseboro, saying it had no plans to change its representative to the board. Robert Nichols, a department spokesman, added that the department's representative would decide United's revised application on its merits.

United's new bid for a loan guarantee is the second instance of its reducing its request for federal assistance. The airline sought $1.8 billion in loan guarantees when it filed its original application two years ago next week. The air board rejected that application in December 2002, also on a 2-to-0 vote, after which the airline sought Chapter 11 bankruptcy protection. United subsequently reduced its bid last December, when it filed an amended application for $1.6 billion in loan guarantees.

The airline had already arranged $2 billion in exit financing from Citibank and J. P. Morgan, including $400 million in financing that would not be secured by federal loans.

The revised plan would call for $1.1 billion in secured loans and $900 million in other financing. That is still the most any airline has sought from the loan board. The next-biggest loan guarantee, covering $900 million, was granted to US Airways in 2003; it used the guarantees to emerge from Chapter 11 protection.

US Airways, however, technically defaulted on its government assistance this year, and renegotiated the terms. It is threatening to seek another round in Chapter 11, unless its unions provide more wage and benefit concessions, their third round of cutbacks.

​

Industry analysts are skeptical that even an amended request will be successful for United.

In rejecting the application last week, the loan board said that United had failed two tests required to be awarded a loan guarantee. The airline had not proved that it was a "necessary part" of the federal aviation system, nor had it shown that it was shut out of the capital markets. Both of those issues are separate from the business case that the airline revised in its latest application.

Without a federal loan guarantee, United would be required to find at least $2 billion in financing to move out of bankruptcy; it has been operating in bankruptcy since December 2002.

But United does not face an immediate shortage of financing. The airline recently extended its bankruptcy financing through the end of the year, and the reapplication presumably will buy it some time to look for lenders, analysts said.

Last week, Mr. Gramlich said any revised proposal would be given to members of the transportation stabilization board 's staff for review and a recommendation to the board. Airlines meet only with the board's staff members, never with the board itself, which does not have any timetable for dealing with applications. It is up to Mr. Gramlich, as chairman, to convene the full board once a staff report is complete.

In United's case, there was no word on how long the board's staff members might deliberate. It took them seven months to reach a decision on United's previous application, which the airline filed in December. With that application and with its original bid, United approached some of the board's staff members the night before the votes with new information, only to have its proposals rejected both times.

Even as United made one more try, Senator Peter G. Fitzgerald, an Illinois Republican, called for an investigation into the circumstances of last week's vote. Mr. Fitzgerald asked the Treasury Department's acting inspector general to look into whether Mr. Roseboro had faced "inappropriate political pressure or intimidation."

Mr. Fitzgerald was the only senator to oppose legislation that created the loan board in 2001. He has consistently criticized United's efforts, even though the airline is based in his state.

 

[buzzer]

Mugs,

I agree with you and I think that was well said. There are those of us on the forum who don't want United to get the loan thinking that will help the position of the airline we work for. This thinking may be flawed though because it doesn't look like UAL is going to sink.
If they don't get the loan, they will have to drive costs down even more. Like you said, this just drives down our pay and benefits. If UAL becomes lean and mean they will be a big problem for other airlines. They have about the best route structure out there and with international feed and a large frequent flyer program they may be able to make just as much profit on higher cost than the "low cost" airlines. If true, then the "low cost" airlines that they compete with will be put on the deffensive instead of the offensive. But what do I know. I don't even have an opinion on if UAL should get the loan...too much politics and information I don't have.

 

[MW44]

Question for you guys. Assuming ual does not get the loan and the pilot pension plan is terminated do you think any of the legacy carriers will offer a pension plan 10 years from now? I can't imagine Delta, Amr, or NWA being able to compete with ual's new cost structure if they have to shoulder the burden of a pension fund. Eliminating the pension plan would save ual 4 billion dollars over the next five years. Effectively they would become a LCC with a global network. I would think that the pilots of all the majors are praying right now that Ual does not terminate their plan and create a domino effect throughout the industry. Without trying to start a political debate I wouldn't be surprised if the adminstration had that in mind when they denied the loan. Pilots have always been considered overpaid and now is a golden opportunity to create a permanent shift in pilot compensation.

 

[delivery100]

MW44 - Very well said!

 

[buzzer]

MW44,

I think the shift has already happened. Like Mugs said, it's time to decide if you really want to stay in this job.

 

[G4G5]

Pilots have always been experts at pulling up the ladder.

I would look for mgt to grandfather the current pilots on the real estate a reduced rate pension. Anyone hired in the future will most likly get a retirement similar to JB and SWA, 401k. Mgt fully realizes that any elimination of the current retirement will all but tank any legacy carrier that tries.

Just look at USAir. Their latest offer is another 12.5% with their retirement staying as is

 

[Mugs]

Thanks Buzzer:

UAL is about to get thrown to the wolves (not Stephen I am talking about here). UAL is going to need private investment, how much we just don't know yet. Regardless, look at the facts. After $8 billion in recorded losses over the last 3 years and a pension underfunding of $6 billion, what else could possibly happen? Unless Santa Claus is now a ventrue capitalist, it is pretty obvious that outside investment will not come without the pension burdens being wiped away. I read an interesting article that I can't find at the moment that said if SWA had UAL's pension burden, it would have recorded a loss of about $245 million last year instead of a $450 million profit. The pensions at UAL are doomed --- and that is just the first thing the outsiders will bite into. Fuel, terrorism, and LCC competition are risk enough, let alone massive pension obligations.

 

[MW44]

I would think that the ual guys/gals would rather negotiate more cuts in pay and workrules than give up their pension. Obviously an invester can and probably will demand a termination of the pension funds but I would think that would result in terrible labor relations and morale. Tilton has done a very good job of keeping morale up during the BK process. Also the PBGC would have to agree to terminate the fund and with the rebound in the stock market it might not be as underfunded as the news states.

 

[Boeingman]

I have been saying this for a long time, UAL is in very serious trouble and I think the ATSB knows it. I wasn't surprised for a second they got turned down for the loan.

What is even more concerning is UAL's projected cash on hand by the end of this year. Some are saying it may be as low as $800 million. Gentleman, this is not a good sign no matter what spin Tilton puts on it.

 

[Chappysan]

Silly Bethoon.

How is $2B+ going to become 800 mil when over the last year of "losses" UAL has added over 1 B in cash? Is the A Plan going away? Probably. Is UAL? No. Period. Full Stop. Despite the loss of 2 aircraft, a recession, a war, SARS, a huge increase in fuel, and locusts. You better hope NWA, or the LBC, saves you from oblivion. Prattle elsewhere.