No Aid for UAL's United Air

United Airlines' third application for government help struck out on Monday, as the bankrupt carrier lost its last-ditch effort to get a $1.1 billion loan guarantee.

A week after rejecting its second request for aid, the Air Transportation Stabilization Board, which was created after the World Trade Center attacks to provide liquidity to the airline industry, rejected its latest request and said it would not accept a revised application from the struggling carrier. United, the nation's second-largest airline, is a unit of UAL (UALAQ Quote).

"The board concluded that granting the loan guarantee is not a necessary part of maintaining a safe, efficient, and viable commercial aviation system in the United States," said Michael Kestenbaum, executive director of the ATSB, in a letter to United.

The move officially closes the door on the airline's bid for help and makes it even harder for the carrier to emerge from bankruptcy at the end of the year. The $1.1 billion loan guarantee was going to be used to back $2 billion in loans raised by J.P. Morgan Chase (JPM Quote) and Citigroup (C Quote).

Without it, the carrier will have to tap the private capital markets for financing and will have to drastically cut costs to do it. The carrier continues to post losses, last week announcing that it had a net loss of $93 million during May.

But while United said it had an operating profit of $9 million in May, CEO Glenn Tilton will have to keep cutting costs. A week ago, Tilton said the company had identified another $300 million in cost cuts over and above the $5 billion in cost savings it has found since filing the largest bankruptcy in the history of commercial aviation in December 2002.

In recent sessions, investors had been growing more optimistic that United could win government approval for the loan guarantee. Over the last month, shares of UAL have gained 40%. But even if United successfully emerges from bankruptcy, current shareholders will not profit -- shares will be cancelled by the company and rendered worthless if and when United exits Chapter 11.

The ATSB has been notoriously stingy in approving loan applications, especially now that US Airways (UAIR Quote), which won a guarantee, teeters on the verge of a second bankruptcy filing in as many years. Of the airlines which received guarantees, America West (AWA Quote) has proven the most successful, growing its profit and giving the government warrants to buy up to a third of its stock in exchange for $400 million in backing.