Shares in

UAL Corp.

fell sharply Friday after the federal government late Thursday rejected its application seeking $1.6 billion in loan guarantees for its United Airlines unit.

United, the country's second-largest airline, entered Chapter 11 bankruptcy protection in December 2002, shortly after a federal panel rejected UAL's request for a slightly larger loan guarantee package.

Shares fell 9 cents, or 6.4%, to $1.38 in heavy trading. About three times the normal daily volume of 1,373,272 shares had changed hands. Under terms of UAL's reorganization plan -- thought to be nearing completion -- the current class of shares will become worthless, if and when the company exits bankruptcy.

"A majority of the board believes that the likelihood of United succeeding without a loan guarantee is sufficiently high so as to make a loan guarantee unnecessary," the Air Transportation Stabilization Board said in a statement Thursday. The company, however, will be able to resubmit its application.

"We are perplexed by the announcement made by the ATSB," the company said in a statement.

"We have reason to believe we are in the midst of a process with the ATSB to make our application acceptable, and that a decision was premature. We do not believe that the Board was made fully aware of the important modifications United was willing to bring to the table. We are respectfully petitioning the ATSB for reconsideration of our pending loan application."

The ATSB was formed by Congress to help the airline industry, which was financially battered after the Sept. 11, 2001, terrorist attacks.