CCAGW Celebrate $1.1 Billion United Loan Denial

29th Jun 2004

The Council for Citizens Against
Government Waste (CCAGW) today celebrated a victory as the Air
Transportation Stabilization Board (ATSB) announced it will stick with its
June 17 decision to refuse a federal loan guarantee to United Airlines.
United lowered its guarantee request from $1.6 billion to $1.1 billion
last week in a third and final bid to secure federal backing for private
loans. All board members joined in the decision, reaffirming that the
company could probably obtain the private financing without a federal loan
guarantee, and that the company’s struggle to emerge from bankruptcy did
not threaten the nation’s aviation system. A federal guarantee would have
made taxpayers responsible to cover the costs of the loan if the company
defaulted. “With all three federal agencies represented on the ATSB agreeing to the
decision, the board paid heed to expert testimony, adhered to its
fiduciary responsibility to taxpayers, and ensured discipline in the
airline industry,” CCAGW President Tom Schatz said. “A loan guarantee
would have diminished the urgency in correcting the problems that caused
United’s bankruptcy in the first place.”

As reported by the Associated Press on June 18, Henry H. Harteveldt, vice
president for travel research at Forrester Research, blamed United’s
problems on “broader business issues” not related to Sept. 11. According
to the New York Times, United Airlines’ operating costs are the second
highest in the industry at 10.8 cents per seat per mile. Although the
company reduced costs by 7 percent from 2001 to 2003, it still lags behind
its competitors. Over the course of the last three years, United has lost
almost $10 billion, including more than $3 billion while under bankruptcy
protection during the last 16 months.

“United Airlines is clearly not ready for prime-time flying,” Schatz
continued. “If the application had won approval, and a sound business plan
never materialized, taxpayers would be left holding an oversized carry-on

In a May 19 report to the United States Bankruptcy Court for the Northern
District of Illinois Eastern Division, economist Daniel Kasper stated,
“Notwithstanding the progress the Company has made over the past 18
months, United still needs to reduce its costs wherever possible—
including its retiree health costs—if it hopes to compete successfully
against both low cost and other full service airlines for the long term.”

In December 2002, ATSB denied United’s first request for a loan guarantee
because its business plan was found to be financially unsound and
seriously flawed. The Board cited its responsibility to taxpayers as a
major concern in deciding not to grant the loan.


“By denying United’s application, the ATSB recognized concern for
taxpayers in a time of record federal budget deficits,” Schatz concluded.
“It is time for United to leave the taxpayers’ nest and fly on its own. A
loan guarantee is not a safety net—it’s a safety hammock subsidized by
taxpayers. It would have granted the airline an unfair business advantage
and might have encouraged more risk-taking by the airline industry.
Taxpayers and the airlines are better off as a result of the ATSB’s

The Council for Citizens Against Government Waste is the lobbying arm of
Citizens Against Government Waste, the nation’s largest nonpartisan,
nonprofit organization dedicated to eliminating waste, fraud, abuse, and
mismanagement in government.



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