WASHINGTON -- A federal panel on Wednesday rejected cash-strapped United Airlines' request for a $1.8 billion loan guarantee, dealing a major setback to efforts by the nation's second-largest carrier to avoid bankruptcy.

The Air Transportation Stabilization Board's decision came as the Chicago-based carrier scrambled to pare costs and avoid a bankruptcy filing.

"The board believes that the business plan submitted by the company is not financially sound," the board said in a statement.

United had asked that the government guarantee $1.8 billion of a $2 billion private loan package. Without the guarantee and the loan, the airline has said it would probably have to file for Chapter 11 bankruptcy protection.

"We are disappointed that the ATSB could not approve the proposal submitted by United. We appreciate, however, the possibility expressed to consider an improved proposal at a later date," Chief Executive Officer Glenn Tilton said in a released statement. "Despite our disappointment, we believe that the work we've accomplished in developing our ATSB proposal will serve us well as we build our platform for the future, regardless of the path we take."

The $1.8 billion is the largest request received by the board, double the amount that US Airways was conditionally granted earlier this year.

The board was established by Congress last year to oversee a $10 billion loan program, part of an airline industry bailout after last year's Sept. 11 terrorist attacks.

The board, in its statement, also said that United's 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."

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Two of the three board members -- Treasury's undersecretary for domestic finance, Peter Fisher, and Federal Reserve Board member Edward Gramlich -- rejected United's request.

The third member, Kirk Van Tine, the general counsel of the Transportation Department, voted to defer a decision until Dec. 9 to allow United to submit additional financial information.

The board in early November sent a letter to United, seeking additional information including details on cost savings that could be achieved from labor unions and from management, capital spending commitments and pension obligations.

Local Costs

After losing an industry-record $2.1 billion in 2001, United is on course to exceed that loss this year as it struggles amid a weak economy and a decline in business travelers.

United is reportedly losing $7 million a day and faces nearly $1 billion in deferred debt obligations in the next two weeks.

In order to prevent a bankruptcy filing and in part to persuade the ATSB of the its commitment to cost-cutting, United has already negotiated wage concessions with most of its unions and has slashed several thousand jobs.

The board's decision made Thursday's mechanics union vote practically a moot point. The 13,000 mechanics had rejected a proposal for wage concessions earlier this week but was planning to vote on a revised wage and benefit concession plan Thursday.

The vote was canceled late Wednesday evening, hours after the ATSB announcement.

One of the leaders of the mechanics union said that he was stunned by ATSB's decision.

"Right now, here, at least, we're kind of unsure on what the motivation of the ATSB was," United mechanic Scott Brown said. "Shock is a good word for it."

Although bankruptcy would be unlikely to have any immediate effect on passengers, it could be a huge blow to Denver -- where United is the largest carrier.

Thousands of people in Denver work for United, and even more depend on the airline for travel and its business, 7NEWS reported.

"This is disappointing because United is such an important business for our community," said Denver International Airport manager Bruce Baumgartner said. "If United now finds it necessary to restructure, we would expect it to be similar to US Airways, with no dramatic disruption to service in Denver."

United has said it would continue flying its normal schedule, as US Airways has been doing since its Chapter 11 filing in August.

DIA said that before any talk of a Chapter 11 reorganization filing by United, DIA began conducting financial stress tests and determined that the airport "will not suffer serious financial hardship as long as United remains flying. The test included assumptions that United's connecting traffic through DIA would drop by about 2 million passengers from 2003 forecast levels, and that the airline would turn back some leased facilities."

"Under the assumption that United will continue the majority of its operations in Denver, we believe the airport's strong financial condition will not be materially impacted," said Vicki Braunagel, deputy manager of aviation.

But United is trying to avoid a filing because its stock shares would probably become virtually worthless and it would lose control of its restructuring to a judge. The airline is 55 percent owned by its employees.

News of the loan rejection sent shares in United parent, UAL Corp.. plunging as much as 66 percent in after-hours trading, 7NEWS reported. UAL Corp.'s shares fell to $1.05 in late trading.

Aviation expert Mike Boyd said that he is not surprised with the news.

"This is what I expected, and you can expect a (bankruptcy) filing within 36 hours," Boyd told 7NEWS.

"It's not a matter of if but when United will file for bankruptcy," said aviation analyst Bill Oliver.

If it does file, Chapter 11 protection would allow United to reorganize with no limit to the amount of debt. United would keep all assets but would operate under court supervision.

It can work but only 10 percent of chapter 11 filings lead to successful restructuring, 7NEWS reported.

The governor of Colorado remains optimistic.

"It is important to remember that the loan denial, or even chapter 11, is not a death sentence for the airline. Wherever these events lead, I believe that United can emerge as a stronger, better airline. I am committed to working to keep United flying in Colorado," Gov. Bill Owen said in a public release.

Board Has Helped Only 2 Other, Smaller, Airlines

Only two major airlines have gotten help from the board.

The board in July gave conditional approval to US Airways' application for a $900 million federal loan guarantee, but the carrier still ended up filing for bankruptcy protection. In December of last year, America West received conditional approval for a federal loan guarantee of $380 million.

The board has approved loan guarantees for some smaller airlines, as well.

Additional Resource:

Air Transportation Stabilization Board
United Airlines