(Archived Content)
The Air Transportation Stabilization Board (Board) announced today that it cannot approve the proposal submitted by United Air Lines, Inc. for a $1.8 billion federal guarantee of a $2.0 billion loan.
The Board believes that the business plan submitted by the company is not financially sound. This plan does not support the conclusion that there is a reasonable assurance of repayment and would pose an unacceptably high risk to U.S. taxpayers.
The Board believes that United’s business plan does not position the company to meet the challenges of the current airline industry environment and to achieve long-term financial stability. Specifically, the plan is based on unreasonably optimistic revenue projections. 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. 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.
Two members of the Board also believe that the suggested revisions that United proposed by e-mail and fax the evening of December 3 are highly unlikely to change their assessment of United’s proposal. Considering all of the foregoing factors, Governor Gramlich and Under Secretary Fisher voted not to approve this proposal. Mr. Van Tine, General Counsel of the Department of Transportation, voted to defer a decision on the Application until December 9, 2002, to allow United to submit additional financial information.
The Board conducted its review pursuant to the standards set out by the Air Transportation Safety and System Stabilization Act and by the implementing regulations promulgated by the Office of Management and Budget. The Board considered all relevant information, including information obtained during numerous meetings between United, Board staff, and agency representatives beginning in April 2002, throughout the summer and fall.
The Board’s letter to United is attached.
Additional information about the ATSB is available on its web site, http://www.ustreas.gov/offices/domestic-finance/atsb/.
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