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Dec 28, 01, 9:03 pm
Agency Votes to Grant Airline LoansAgency Votes to Grant Airline Loans
By ROBERT GEHRKE, Associated Press Writer
WASHINGTON (AP) - America West Airlines, the first carrier to file for government help after September's terror attacks, received conditional approval Friday for federal loan guarantees that may fend off bankruptcy.
The Air Transportation Stabilization Board voted to grant conditional approval for $380 million in loans the airline sought under a $10 billion package of loan guarantees passed by Congress after the hijackings.
Under terms of the deal, if America West should default on $445 million in loans it has negotiated, the government would repay up to $380 million.
More than $600 million in concessions from America West suppliers and creditors hinged on government approval.
But the board - which had been offered 10 percent of the company's publicly traded stock as an incentive to make the loan - said the company must now put up 33 percent of its stock to protect taxpayers from the risk of making the loan.
``In reaching this conclusion, the board recognizes that the proposal presents a significant risk of default,'' wrote Roger Kodat, acting executive director of the stabilization board, in a letter to America West chief executive officer W. Douglas Parker.
Kodat said the concessions sought by the board make the taxpayer risk acceptable and fit Congress' intent to help airlines that can't get loans because of the terrorist attacks.
``We are very excited by the fact that we have been given conditional approval - conditions we can meet and indeed plan to meet,'' Parker said. ``We view this as just fantastic news. It allows for the continued viability of America West Airlines for a very long time to come.''
The board also said the airline must provide assurances it can keep labor costs down. That must be worked out with the airline's unions, said company spokesman James Sabourin.
Parker said he expects terms of the deal to be completed within a few weeks.
Although the government would have the option of buying 33 percent of America West stock at a fixed price, it would have no say in America West's decision making.
The deal would allow the government to sell the stock for a profit only if its value rises in the future.
A similar deal was arranged when the government bailed out Chrysler in 1979.
Rep. John Shadegg (news - bio - voting record), R-Ariz., who helped write the airline bailout legislation, said the government should not be taking such a large equity interest in America West.
``I'm not anxious to have the government own a part of America West Airlines,'' he said. ``But the bottom line is that keeping America West Airlines in the air is the single most important goal of this effort.''
The approval came on a 2-1 vote of the board. The dissenting vote came from Treasury Undersecretary Peter Fisher.
A denial of the loan guarantees could have been a severe blow for the cash-strapped airline.
Sen. Jon Kyl (news - bio - voting record), R-Ariz., said Thursday the company has a Jan. 2, 2002, deadline to pay $87 million to creditors, and bankruptcy may have been inevitable if payments were missed.
Aviation consultant Morten Beyer agreed that bankruptcy could have been possible if the government hadn't intervened, but the company may still experience turbulence.
``They've still got a very poor yield and a weak balance sheet that they've got to cope with, and in my mind there is still a question what America West can do,'' he said.
Add strong competition in the low-fare market from Southwest Airlines, and ``they've definitely got the deck stacked against them,'' Beyer said. ``I don't think anybody really needs them.''
The Tempe, Ariz., airline employs 12,000 and is the nation's eighth-largest, but it is widely regarded as the weakest financially. It was the first to seek a piece of the $10 billion in federal loan guarantees. Vanguard Airlines, a smaller airline based in Kansas City, Mo., has since applied, and others are expected to follow.
America West twice reworked its application at the board's request, once to offer the government 10 percent of the company's publicly traded shares and a week later to scale back the loan guarantee request from $400 million to $380 million, bring in a new lender, offer a $3.8 million upfront fee to the government and shorten the time taken to repay the loans.
America West's business plan forecasts losses in the current year and 2002 but a modest profit in 2003.
A $200 million loan America West negotiated before the hijackings fell apart after Sept. 11. The company was losing $5 million a day and was forced to lay off 2,000 employees.
Ridership has rebounded, somewhat, although the company continued to lose $1 million a day and lost $31.7 million last quarter, despite receiving $60 million in government aid.
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On the Net: America West Airlines: http://www.americawest.com
Air Transportation Stabilization Board: http://www.ustreas.gov/atsb/
By ROBERT GEHRKE, Associated Press Writer
WASHINGTON (AP) - America West Airlines, the first carrier to file for government help after September's terror attacks, received conditional approval Friday for federal loan guarantees that may fend off bankruptcy.
The Air Transportation Stabilization Board voted to grant conditional approval for $380 million in loans the airline sought under a $10 billion package of loan guarantees passed by Congress after the hijackings.
Under terms of the deal, if America West should default on $445 million in loans it has negotiated, the government would repay up to $380 million.
More than $600 million in concessions from America West suppliers and creditors hinged on government approval.
But the board - which had been offered 10 percent of the company's publicly traded stock as an incentive to make the loan - said the company must now put up 33 percent of its stock to protect taxpayers from the risk of making the loan.
``In reaching this conclusion, the board recognizes that the proposal presents a significant risk of default,'' wrote Roger Kodat, acting executive director of the stabilization board, in a letter to America West chief executive officer W. Douglas Parker.
Kodat said the concessions sought by the board make the taxpayer risk acceptable and fit Congress' intent to help airlines that can't get loans because of the terrorist attacks.
``We are very excited by the fact that we have been given conditional approval - conditions we can meet and indeed plan to meet,'' Parker said. ``We view this as just fantastic news. It allows for the continued viability of America West Airlines for a very long time to come.''
The board also said the airline must provide assurances it can keep labor costs down. That must be worked out with the airline's unions, said company spokesman James Sabourin.
Parker said he expects terms of the deal to be completed within a few weeks.
Although the government would have the option of buying 33 percent of America West stock at a fixed price, it would have no say in America West's decision making.
The deal would allow the government to sell the stock for a profit only if its value rises in the future.
A similar deal was arranged when the government bailed out Chrysler in 1979.
Rep. John Shadegg (news - bio - voting record), R-Ariz., who helped write the airline bailout legislation, said the government should not be taking such a large equity interest in America West.
``I'm not anxious to have the government own a part of America West Airlines,'' he said. ``But the bottom line is that keeping America West Airlines in the air is the single most important goal of this effort.''
The approval came on a 2-1 vote of the board. The dissenting vote came from Treasury Undersecretary Peter Fisher.
A denial of the loan guarantees could have been a severe blow for the cash-strapped airline.
Sen. Jon Kyl (news - bio - voting record), R-Ariz., said Thursday the company has a Jan. 2, 2002, deadline to pay $87 million to creditors, and bankruptcy may have been inevitable if payments were missed.
Aviation consultant Morten Beyer agreed that bankruptcy could have been possible if the government hadn't intervened, but the company may still experience turbulence.
``They've still got a very poor yield and a weak balance sheet that they've got to cope with, and in my mind there is still a question what America West can do,'' he said.
Add strong competition in the low-fare market from Southwest Airlines, and ``they've definitely got the deck stacked against them,'' Beyer said. ``I don't think anybody really needs them.''
The Tempe, Ariz., airline employs 12,000 and is the nation's eighth-largest, but it is widely regarded as the weakest financially. It was the first to seek a piece of the $10 billion in federal loan guarantees. Vanguard Airlines, a smaller airline based in Kansas City, Mo., has since applied, and others are expected to follow.
America West twice reworked its application at the board's request, once to offer the government 10 percent of the company's publicly traded shares and a week later to scale back the loan guarantee request from $400 million to $380 million, bring in a new lender, offer a $3.8 million upfront fee to the government and shorten the time taken to repay the loans.
America West's business plan forecasts losses in the current year and 2002 but a modest profit in 2003.
A $200 million loan America West negotiated before the hijackings fell apart after Sept. 11. The company was losing $5 million a day and was forced to lay off 2,000 employees.
Ridership has rebounded, somewhat, although the company continued to lose $1 million a day and lost $31.7 million last quarter, despite receiving $60 million in government aid.
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On the Net: America West Airlines: http://www.americawest.com
Air Transportation Stabilization Board: http://www.ustreas.gov/atsb/