Published January 14, 2015
United Airlines (UAL) has filed a scaled-down request for government assistance in a last-ditch try to tap into a loan guarantee program created to help the airline industry after the 2001 terrorist attacks.
The No. 2 U.S. carrier filed changes to its application on Tuesday that include reducing the amount of the federal loan guarantee it seeks to $1.1 billion from the previous $1.6 billion, a source familiar with the process said, speaking on condition of anonymity.
United, which says it needs $2 billion in loans in order to pay off its bankruptcy financing and emerge from Chapter 11, is counting on private equity to make up the $500 million it sliced from its proposal.
The nation's two largest banks, Citigroup (C) and J.P. Morgan Chase (JPM), agreed last year to provide United's exit loan package if the government would guarantee much of it. While neither United nor the two banks have divulged the new terms, the banks' willingness to put more of their own money at risk was necessary for the airline to submit its reduced request.
United spokeswoman Jean Medina declined to discuss the changes to the request on Wednesday and said the carrier doesn't know how long the Air Transportation Stabilization Board (search) will take to rule on the modified request.
ATSB spokeswoman Anne Womack Kolton confirmed the new filing but did not provide details.
The revised application marks the third attempt by the Elk Grove Village, Ill.-based airline to secure federal assistance dating to December 2002, the month it filed for bankruptcy.
The ATSB last Thursday rejected United's request for a $1.6 billion loan guarantee, which was reduced from the $1.8 billion request it made in 2002. But two of three agencies involved with the panel signaled a willingness to consider revisions.
Unless the board reverses course, United will have to seek investors willing to sink far more than that into the airline, which hasn't turned a profit in four years.
Airline credit analyst Philip Baggaley of Standard and Poor's said a scaled-down request, while potentially addressing the board's concern about the risk of not being repaid, won't necessarily change its mind about another key point.
"It is not clear how the revised bid would address one of the grounds on which the Air Transportation Stabilization Board rejected United's previous application — that United could access capital markets on its own, without government assistance," he said in a research note. "Indeed, the revised application would seem to confirm the board's objection."
The new filing comes amid further speculation that Treasury's representative to the board, Brian Roseboro, an undersecretary at the department, had resigned. He was one of two board members who voted against United's request for the loan guarantee last week.
Treasury spokesman Rob Nichols repeated Tuesday that there were no changes taking place or planned for the ATSB board.
Sen. Peter Fitzgerald, R-Ill., who opposes the United subsidy, released a letter Tuesday asking the Treasury Department to investigate whether Roseboro was pressured "to change his vote" on United's application.
Nichols, addressing Fitzgerald's request, defended the integrity of the process.
"Every judgment we have made on every application has been made on the merits and the merits alone," Nichols said.
Richard Delmar, counsel in Treasury's Office of Inspector General, said "we are evaluating" Fitzgerald's request. No decision has yet been on whether to launch such an investigation.