Barely United: if airline falls, will Denver stumble?

• Author: Caley, Nora
• Position: United Air Lines Inc. - Denver International Airport

More than two years ago, United Airlines declared bankruptcy. Since then, the Chicago-based carrier has struggled with fuel prices, labor disputes, and the quasi-governmental Pension Benefit Guaranty Corp., which eventually ensures the pension benefits of all Americans who have retired from private employers. Meanwhile, executives of United's parent, UAL Corp., continue to tell the airline's customers and employees on its website: "We have made tremendous progress in restructuring our business, and believe we are on track to exit (Chapter 11 bankruptcy protection) successfully."

Yet more and more people have begun to wonder if the industry giant, instead of exiting just bankruptcy, will exit its industry altogether and shut down. Concern is understandably high in Denver, where United Airlines is the dominant carrier at--and customer of--municipally owned Denver International Airport.

United filed for Chapter 11 protection in December 2002, after the Air Transportation Stabilization Board rejected the airline's request for a federal loan guarantee of $1.8 billion. Congress created the ATSB after September 11, 2001. The board has guaranteed much smaller loans for Denver's second major air carrier, Frontier Airlines, and others. The federal guarantee helps airlines secure bank loans at lower interest rates, and the loans are intended to help carriers survive the devastating loss of business that resulted from U.S. airliners being used as weapons of terror in New York, Washington and over Pennsylvania.

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Later, in June 2004, the ATSB again rejected United's loan-guarantee application--twice. After the third rejection, the board--whose three voting members are from the Treasury Department, the Department of Transportation and the Federal Reserve--said it would not accept any further submissions from United.

Optimistic United executives explained away the triple rejection as evidence that the ATSB had recognized the airline's progress financially, and that United was moving forward in securing the exit financing it would need to take itself out of bankruptcy court.

Others are not as optimistic.

News reports have hinted that United, which forecast a loss of $725 million in 2005, may be closer to liquidation than its management cares to publicly admit. Some city officials as well as others in the airline industry are planning for the airline's possible demise.

John Huggins, director of the Denver Office of Economic Development, for example, says the city has thought about what would happen at...