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Thursday, 5 December, 2002, 07:52 GMT
United Airlines faces bankruptcy
United Airline aircraft
United is on the brink of filing for bankruptcy
Bankruptcy is looking inescapable for America's number two airline, United Airlines, after the federal government threw out its request for loan guarantees.

United was hoping to line up government backing worth $1.8bn (1.15bn) in order to keep operating.

But despite massive lobbying by Wall Street, employees and politicians, the Air Transport Stabilisation Board said United's business plan was "not financially sound".

The company is still talking to its bankers about the loans it needs to cover imminent debt repayments, and to allow it to keep flying while it enters Chapter 11 - a form of bankruptcy designed to give a firm space to restructure as a going concern.

Whatever the outcome, massive job losses are expected among the airline's 83,000 staff.

The company's shares lost more than half their value in after-hours trading.

Two years of troubles

United's nightmare scenario is only the latest facet of the crisis gripping the US aviation business ever since last year's September 11 terror attacks.

Carriers lost about $10bn that year, and could well match that in 2002.

This is the final nail in the coffin

Phil Baggaley, Standard & Poor's

United's rival, US Airways, filed for bankruptcy in August.

United's latest announcement brought an angry response from the company's workforce, which has agreed to swingeing pay cuts and other concessions in a bid to keep the company in the air.

"We are extremely disappointed... and do not agree with the board's analysis of United's business plan nor the timing of its announcement," said Captain Paul Whiteford, head of the airline's pilots' union.

The employees control more than 50% of voting rights in the company, and Chapter 11 would almost certainly rob them of that, along with most of the value of the holdings of the company's shareholders.

The company said only that it would continue to operate while it talked to its workforce and its bankers.

'Fundamentally flawed'

The ATSB held up the slim hope that backing might be available once the company made it through Chapter 11.

"These are hard decisions, and I certainly feel for the affected employees," said board member Edward Gramlich, a governor of the Federal Reserve.

But his colleague Peter Fisher, Treasury under-secretary for domestic finances, said the decision had been inescapable.

"This is not just about costs," he said.

"It's about a business plan that is fundamentally flawed."

And analysts were in no doubt that United was doomed to Chapter 11.

"This is the final nail in the coffin," said Phil Baggaley from credit ratings agency Standard & Poor's.

"United will have to file for bankruptcy very quickly."

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BBC's Theo Leggett
"United Airlines has been in a precarious position for some time."
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