December 6, 2002	Friday	Shawwal 1,1423

WASHINGTON, Dec 5: A US government panel has rejected a 1.8 billion dollar loan application by United Airlines, in a move that was widely expected to push the troubled carrier into bankruptcy.

“The board believes that the business plan submitted by the company is not financially sound,” the Air Transportation Stabilization Board said on Wednesday in a statement.

Without that lifeline, the world’s number two carrier might have to file for Chapter 11 protection from its creditors, a company spokesman said late Wednesday.

“Chapter 11 remains a possibility for United,” the spokesman stressed.

The troubled carrier, which has been pummelled by the sharp drop-off in US air travel since the September 11 attacks, had submitted a financial recovery plan that promised to return it to profitability by 2004.

But with almost one billion dollars in debt repayments due in the next eight days, and regular sources of credit closed to it, the carrier’s recovery was dependent on loan guarantees from the federal government.

The ATSB, the panel set up to handle the federal government’s bailout of the US airline industry, said United Airline’s revival plan was “fundamentally flawed,” and posed an unacceptably high risk to taxpayers.

“Specifically, the plan is based on unreasonably optimistic revenue projections,” it said.

“The Board believes that with a more reasonable revenue forecast, United’s revenues and costs still would not be aligned, even with the benefit of all proposed cost reduction initiatives,” it added.

“Thus, even with the proceeds of the proposed guaranteed loan, United would face a high probability of another liquidity crisis within the next few years.”

The panel, which voted two to three against bailing out United, has only approved two loans since it was created — for America West and America Trans Air.

But it has denied loan applications for a host of small carriers, some of which, like National Airlines and Vanguard Airlines, have subsequently gone out of business.

“I certainly feel for the affected employees,” said ATSB chairman Edward Gramlich in a statement, but “at the same time, the Loan Board has a responsibility to taxpayers, and to fostering the long-term health of the airline industry.”

In a statement, Glenn Tilton, chief executive of United Airline’s parent company UAL Corp. said he was “disappointed” by the decision, but would consider acting on the ATSB’s offer of submitting “an improved proposal at a later date.”

“We will consult with our union leaders and other stakeholders and quickly determine what step to take next.”

The company had already embarked on a broad restructuring plan which called for 26,000 layoffs and a 23 per cent cut in capacity from pre-September 11, 2002 levels by the end of 2003.

In recent weeks, it had scrambled furiously to nail down the remaining elements of a recovery plan, promising 14.1 billion dollars in savings over five and a half years, with the goal of returning the company to profitability by 2004.—AFP