United Bailout Hits Turbulence

United Airlines on Monday lost a bid to secure a federal loan guarantee, a fresh setback to the carrier's efforts to emerge from bankruptcy. The decision by a federal panel appeared to bar the airline from making any other attempts to secure federal backing.

The Air Transportation Stabilization Boardsaid that after studying the airline's latest application, submitted last week, it would not change the panel's June 17 decision to reject United's request for a $1.6 billion federal loan guarantee.

"All members of the board join in the decision to deny United's request for reconsideration, and the board's June 17 decision stands," the board said in a letter Monday to United Airlines' chief financial officer, Frederic Brace.

United — the second-largest U.S. carrier — was making its third attempt to secure federal backing as it tries to emerge from bankruptcy.

The airline had filed a request for $1.1 billion in federal backing, down from the request for $1.6 billion, which was rejected by the board in a 2-1 decision.

In Monday's letter, the board said it "carefully considered the additional financial information provided by United." But in the end, the board concluded — as it did in its June 17th rejection — that granting the loan guarantee was not a necessary part of maintaining a safe, efficient and viable commercial aviation system in the United States, a requirement for receiving a federal loan guarantee.

The board again noted that the airline had taken positive steps to pare costs and strengthen its competitive standing. But the panel once again said that credit markets have improved since the Sept. 11, 2001, terror attacks, meaning the company has a chance of getting the financing it needs without federal assistance.

The board determined that the new information "does not alter in a material manner the rationales underlying the board's June 17th decision," said the letter, signed by Michael Kestenbaum, ATSB's executive director.

The decision appeared to close the door on allowing United to make a fourth request for federal backing. "The board will not accept any further submissions from United with respect to the application," the letter said.

The board was established by Congress to oversee a $10 billion loan program, part of an airline industry bailout after the Sept. 11 terrorist attacks.

The board has issued six loan guarantees totaling $1.56 billion. Carriers that have gotten help from the board include US Airways, which received a $900 million loan guarantee, and America West, which got a $380 million loan guarantee.

The decision comes as Treasury Department investigators are looking into whether any inappropriate political pressure was applied to a board as it considered United's request.

Sen. Peter Fitzgerald, R-Ill., has asked the department's inspector general to investigate whether board member Brian Roseboro, who voted against United's request on June 17, was pressured to change his vote. Roseboro is an undersecretary at Treasury and the department's representative on the board.

Fitzgerald, in his request, said media reports suggested that Treasury Secretary John Snow was being pressured to remove Roseboro from the board and replace him with someone who would vote in favor of the application by the Elk Grove Village, Ill.-based airline. Snow has rejected those allegations.

United's requests for federal backing have been the subject of intense lobbying by both sides. The airline's supporters, including House Speaker Dennis Hastert, R-Ill., pressing for the federal loan guarantees, while the airline's rivals are against them.

Hastert talked with Snow on June 17, the day the board rejected United's request. That same day, the Treasury Department issued a statement saying if United Airlines filed a revised request it would be open to considering it. The Transportation Department — whose representative on the board had voted to defer a decision for one week — issued a similar statement.

Five days after the being turned down by the board the first time, on Dec. 4, 2002, for $1.8 billion in federal loan guarantees, the airline filed for Chapter 11 bankruptcy protection.

The company's restructuring steps have included $2.5 billion in annual labor cost reductions and aircraft refinancing.

The airline, which hasn't turned a profit in four years, 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 $750 million than it expected.