Saying it needs help with short-term financing, United Airlines on Monday filed an application for a $2 billion loan, of which $1.8 billion would be federally guaranteed.
United, the world’s second-largest airline, became the fourth major domestic carrier to file for a government guaranteed loan through the Air Transportation Stabilization Board, which was created last fall by Congress as part of the $15 billion bailout of the U.S. airline industry.
United joins US Airways, which applied for a $900 million guaranteed loan two weeks ago; American Trans Air, which filed for $165 million; and America West, which received a $380 million guaranteed loan in January.
“This is going to test who should be eligible for the loan guarantee,” said Philip Baggaley, airline analyst for Standard & Poor’s Inc.
He noted that United had $2.9 billion in cash at the end of the first quarter, unlike US Airways, which has said it may file for federal bankruptcy protection.
United officials say the airline’s problems stem almost entirely from the terrorist attacks of Sept. 11, when two of its planes were hijacked and turned into weapons of mass destruction.
One was crashed into the south tower of the World Trade Center in New York City, while the other crashed in Pennsylvania after passengers attempted to retake the jet from its hijackers.
Last year, United lost $2.1 billion as business travel dried up while its costs soared.
“We are exactly the type of airline that the ATSB program was designed to assist,” said Jake Brace, senior vice president and chief financial officer of United. “We had very good access to capital before Sept. 11 and now we don’t.”
United’s application could prompt Ft. Worth-based American Airlines and Atlanta-based Delta Air Lines to also file applications by Friday’s deadline, observers said.
Brace, noting that United is paying as much as 20 percent interest on some of its loans, said the airline needs the government loan to pay off debt and buy spare parts.
He said nearly $1 billion in debt will mature by the end of next year.
He added that United has buttressed its application with $950 million in wage concessions from its pilots, white collar workers and management, something the loan board stressed in its negotiations with America West.
However, the airline’s pilots said their agreement with the airline, which they say would save it $530 million over three years, is not guaranteed.
“The offer is off the table if they don’t procure the ATSB loan,” said Paul Whiteford, chairman of the union representing United’s 9,500 pilots.
Pilots must still approve the tentative agreement, which calls for a 10 percent pay cut.
“We start over if United doesn’t get the loan,” Whiteford said.
And the expected $430 million in savings from the airline’s white collar and management employees, which requires them to accept a 5 percent pay cut, likely would evaporate because it is tied to the pay concession by the pilots.
In addition, pilots have said their participation is contingent upon the airline’s 37,000 mechanics, ramp and public contact workers, and its 24,000 flight attendants also participating in the concession program.
That is by no means a sure thing. The union representing the flight attendants on Friday rejected United’s pay cut plan, saying it did not address their concerns.
Should the airline board turn down United’s request, Brace said, the airline is prepared to work with its lenders. A loan is not assured: Two small airlines already have been turned down, and the undersecretary for domestic finance, Peter Fisher, opposes the loan program.
“Can United find a way to survive without the loan?” Joel Denney, airline analyst for US Bancorp Piper Jaffrey, asked rhetorically. “Yes, they could. But a lot of the cost-cutting is tied into the guaranteed loan.”
In addition to wage cuts, United’s financial recovery plan also requires the use of more regional jets and, if approved by federal regulators, a code-sharing agreement with US Airways.
Gregory Taylor, senior vice president for planning, said the airline could earn more than $200 million annually from the agreement, which would allow United and US Airways to sell tickets on each other’s flights.
Currently, only one code-sharing arrangement between two major airlines is permitted by the government. Northwest and Continental Airlines were allowed to keep their code share as part of a settlement of a lawsuit filed by the Justice Department to force Northwest to sell its controlling stake in Continental.
