United

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United has been trying to get the federal government to underwrite its loans:

United Airlines on Monday lost a bid to secure a federal loan guarantee, a fresh setback to the carrier's efforts to emerge from bankruptcy.

The Air Transportation Stabilization Board said that after studying the airline's latest application, submitted last week, it would not change the panel's June 17 decision to reject United's request for a $1.6 billion federal loan guarantee....

In Monday's letter, the board said it "carefully considered the additional financial information provided by United." But in the end, the board concluded � as it did in its June 17th rejection � that granting the loan guarantee was not a necessary part of maintaining a safe, efficient and viable commercial aviation system in the United States, a requirement for receiving a federal loan guarantee.

If they cannot climb out of bankruptcy on their own, perhaps they don't deserve to survive. I say let 'em fail!

There would be a market upheaval if the second largest carrier failed. I'm not going to judge whether this would be "good" or "bad" in a welfare sense, but clearly creative destruction is sweeping through the airline industry.

11 Comments

It should be noted that the situation was very different when Congress co-signed the loan for Chrysler. In that case, Chrysler had a history of being profitable, and was having short term cash flow problems as a result of buying AMC and getting stiffed by Renault. It was a pleasant surprise when the loan was paid off ahead of schedule without drawing on the government, but far from a miracle.

I'm so sick of the airlines whining to the government every time they get in trouble - especially becasue the airlines are more than willing to sacrifice "unprofitable" passenger safety/security measures. Let UA sink or swim, the arrogant dogs!

But anyway, what's the "creative" part of the creative destruction?

While I tend to agree ... imagine if government hadn't bailed our Chrysler. Chrysler revolutionized the way cars are designed and built post-bailout. Consumerrs benefitted significantly. Economically, the bailout has paid back society multiple times over.

Yeah, and then Chrysler got bought by the Germans. When that happened, I said, "wait a second, American taxpayers bailed that company out, and now the Germans benefit? What's up with that?"

If the government hadn't bailed Chrysler out, wouldn't those engineers who revolutionized the way cars are designed and built simply have done so for another car company?

Howard, Lugo

You both describe exactly why I will not judge whether United failing is a "good" or "bad" thing, but just as one outcome in a process that yields very good things in the long run.

With hindsight, the deal supporting Chrysler looks like a very good investment--for both Germany and the US. (How does German primary ownership mean that Americans receive lesser benefit?)

But what were the possible alternate market paths should the US Gov. have not gotten involved? Would auto consumers have been better off if the talent at Chrysler had been widely dispersed?

I don't know.

But, as people have long overlooked and I pointed out, the taxpayers were not out any significant money on the Chrysler "bailout"; only the paperwork costs of co-signing the loan. Chrysler paid back the loan without further government assistance, and the company, its employees and its suppliers have paid vast amounts of taxes since.

Chrysler was the junior partner in the Daimler merger, but it was bought as valuable and its stockholders received value for their shares. The U.S. economy did not take a big hit from that transaction.

The expectation that the same engineering advances would have been made at another company is simplistic; Chrysler was under pressure to come up with an economy line because of the loss of the Renault line and the need to pay off the loan.

What Iaccoca changed was the way cars were designed and built, and it was radically different from what other automakers were doing, so it isn't likely that those same engineers would have succeeded elsewhere.

And it's a world economy, so it's no big deal that a German company merged with Chrysler.

Bankruptcy laws encourage bad behavior. Companies that declare bankruptcy but keep on operating end up ruining the profitability of their rivals.

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This page contains a single entry by Kevin published on June 28, 2004 10:23 AM.

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