United's Bid For Backing Gets a Final Rejection

Airline Must Secure Loans on Its Own

United Airlines yesterday was turned down for a third and final time in its bid to win a federal loan guarantee, forcing the airline to try to persuade investors to lend it nearly $2 billion without the government's backing.

The financing is needed to allow the world's second-largest airline to emerge from bankruptcy proceedings. United may be forced to seek further cost cuts to obtain the funding.

All three members of the Air Transportation Stabilization Board voted against approving a $1.1 billion loan guarantee for United's parent, UAL Corp.

The ATSB rejected a United bid for a $1.6 billion loan guarantee on June 17 but allowed the carrier to reapply. The airline reduced its request to $1.1 billion, hoping the lowered amount would sway board members.

But the ATSB yesterday reiterated its earlier decision, saying it believed United had reduced its costs to a level low enough that would allow the airline to secure financing from private lenders without government support.

"The Board believes that airline credit markets have been improving since late 2001 and 2002, . . . increasing the likelihood of United succeeding without a loan guarantee," wrote Michael Kestenbaum, executive director of the ATSB.

Kestenbaum added that the ATSB would not accept any further submissions from the airline. The agency rejected United's first application for a loan guarantee of $1.8 billion in December 2002. Within days of its denial, United filed for bankruptcy, becoming the world's largest carrier to seek Chapter 11 protection from its creditors.

United spokeswoman Jean Medina said the airline has approached potential borrowers about securing financing to exit bankruptcy.

"We expect the exit financing process will take some time," Medina said. "We are moving forward quickly and decisively."

United's new financing will most likely have to be a combination of a new equity investor, secured bank lending and other forms of debt, said Standard & Poor's analyst Philip Baggaley.