US to back AWE

Steve · 12-29-2001, 05:51 AM

The government last night agreed to guarantee $380 million in loans to America West Airlines Inc., but only if the carrier gives the government a potential one-third stake in the airline.

Within minutes of the government's announcement, America West Chairman W. Douglas Parker said the airline planned to meet the government's demands so it could receive the loan guarantees, even though Washington was demanding far more than the 10 percent ownership that America West had offered.

America West, the nation's eighth-largest carrier, was the first airline to seek federal aid under the industry bailout package passed by Congress after the Sept. 11 terrorist attacks. Its request was being closely watched by the industry for clues to how the government will rule on future applications.

The government's decision comes at a critical time for America West, which was running out of cash so fast that financial analysts said it might have had to file for bankruptcy by year's end if the loan guarantees were not approved.

"We are very excited that we have been given conditional approval, with conditions we can meet and indeed plan to meet," Parker said in a conference call. "This allows for the viability of America West Airlines for a very long period to come."

The government's demand for such a large stake in America West may keep all but the most desperate airlines from applying for loan guarantees.

The decision was a key test for the Bush administration, which has been philosophically opposed to loan guarantees and warned that it would approve them only for viable airlines. Among airline officials, America West had been considered one of the weakest carriers, with severe operational problems that put it in financial peril even before Sept. 11.

The government's decision was disclosed late last night in a letter sent to Parker by the newly created Air Transportation Stabilization Board. The board was created by the legislation that provided $15 billion in aid to the airlines -- $5 billion in direct grants and $10 billion in loan guarantees.

The board comprises officials from the Treasury and Transportation departments and the Federal Reserve Board. Last night's vote was 2-1, with Treasury Undersecretary Peter Fisher dissenting.

The majority demanded a 33 percent stake "to ensure that the federal government is compensated for the risk." It also conditioned the guarantees on a "commitment satisfactory to the board to control growth in labor costs."

Even with those demands, the majority said "the proposal presents a significant risk of default."

Parker, however, said he believed "there is very little risk of default."

"We presented a business plan that under conservative assumptions we can comfortably repay this loan," Parker said.

The federal board had been reviewing America West's request since mid-November. At issue was not only whether the government would be adequately compensated for any risks but also whether the airline had a workable business plan to survive the travel slump.

America West twice amended its application to win government approval for the loan guarantees, which simply make the government a co-signer for loans that the airline might not otherwise obtain. However, the airline's concessions did not go nearly as far as the board demanded yesterday.

A month after submitting its application, America West offered the government the potential to buy a 10 percent stake in the company. Then, a week later, the airline reduced the amount of loans it was asking the government to guarantee to $380 million from $400 million. As a result, the government would guarantee repayment of only 85 percent of the $445 million America West borrowed, not 100 percent of the $400 million it had initially requested.

Under Washington's latest demands, the airline will give the federal government warrants equal to one-third of the company's fully diluted common stock. Those warrants will be issued at a negotiated price, and the government can cash them in if the airline's stock rises over the life of the loans.

Warrants are not new. When the government agreed to provide up to $1.5 billion in loan guarantees to Chrysler Corp. in 1979, it received stock warrants. The government made a $380 million profit from the warrants.

In addition to the warrants, America West will pay the government about $135 million in fees for obtaining the loan guarantees, in part to make sure the airline doesn't go into the loan markets with an advantage over other carriers.

As part of its financial package, America West said it had also negotiated about $600 million in concessions and contributions, including reduced or stretched-out payments to aircraft lessors, creditors and vendors, as well as tax breaks from state and local authorities. The majority of those concessions, which America West says will help it regain profitability, are contingent on the loan guarantee.

America West had been struggling before the attacks, in part because of the economic downturn that affected all carriers and also because of its own operational problems. Company executives said those problems were being resolved and the company had been in line to get $200 million in financing in mid-October but that plan fell through after Sept. 11.

© 2001 The Washington Post Company

Gunship01 · 12-29-2001, 05:47 PM

I hope they make it O.K. Cool jets!

SonicCruiser · 12-31-2001, 01:44 PM

What's it called when a government owns an airline?
=Aeroflot?

This is a really bad idea. The government espouses open skies, deregulation, etc... now government ownership of airlines? How
much say will they have in running it? Will there not be a conflict
of interest, especially when other airlines apply for mergers, and
the DOJ reviews these applications? It opens up a whole lot of
unanswered questions. What if America West makes predatory
pricing charges against other airlines, will the govt. be able
to judge these cases fairly when they have a stake in it?
How can the govt. then be against AA/BA?

Ben Franklin said it best, come sheckles, come schackles. I hate
to see AWE go under, and our friends lose there jobs, but we
need to let the market take care of it self and find it's own level.

I say, if the govt. bails them out, then AWE should pay them back
by providing free transportation for govt. business, military personal moves, etc... but to structure it the way you have
described is very dangerous to all the other airlines, and their
employees.

12-29-2001, 05:51 AM	#1
Steve Master Collector Join Date: Nov 1999 Location: Northern Virginia Posts: 835	US to back AWE The government last night agreed to guarantee $380 million in loans to America West Airlines Inc., but only if the carrier gives the government a potential one-third stake in the airline. Within minutes of the government's announcement, America West Chairman W. Douglas Parker said the airline planned to meet the government's demands so it could receive the loan guarantees, even though Washington was demanding far more than the 10 percent ownership that America West had offered. America West, the nation's eighth-largest carrier, was the first airline to seek federal aid under the industry bailout package passed by Congress after the Sept. 11 terrorist attacks. Its request was being closely watched by the industry for clues to how the government will rule on future applications. The government's decision comes at a critical time for America West, which was running out of cash so fast that financial analysts said it might have had to file for bankruptcy by year's end if the loan guarantees were not approved. "We are very excited that we have been given conditional approval, with conditions we can meet and indeed plan to meet," Parker said in a conference call. "This allows for the viability of America West Airlines for a very long period to come." The government's demand for such a large stake in America West may keep all but the most desperate airlines from applying for loan guarantees. The decision was a key test for the Bush administration, which has been philosophically opposed to loan guarantees and warned that it would approve them only for viable airlines. Among airline officials, America West had been considered one of the weakest carriers, with severe operational problems that put it in financial peril even before Sept. 11. The government's decision was disclosed late last night in a letter sent to Parker by the newly created Air Transportation Stabilization Board. The board was created by the legislation that provided $15 billion in aid to the airlines -- $5 billion in direct grants and $10 billion in loan guarantees. The board comprises officials from the Treasury and Transportation departments and the Federal Reserve Board. Last night's vote was 2-1, with Treasury Undersecretary Peter Fisher dissenting. The majority demanded a 33 percent stake "to ensure that the federal government is compensated for the risk." It also conditioned the guarantees on a "commitment satisfactory to the board to control growth in labor costs." Even with those demands, the majority said "the proposal presents a significant risk of default." Parker, however, said he believed "there is very little risk of default." "We presented a business plan that under conservative assumptions we can comfortably repay this loan," Parker said. The federal board had been reviewing America West's request since mid-November. At issue was not only whether the government would be adequately compensated for any risks but also whether the airline had a workable business plan to survive the travel slump. America West twice amended its application to win government approval for the loan guarantees, which simply make the government a co-signer for loans that the airline might not otherwise obtain. However, the airline's concessions did not go nearly as far as the board demanded yesterday. A month after submitting its application, America West offered the government the potential to buy a 10 percent stake in the company. Then, a week later, the airline reduced the amount of loans it was asking the government to guarantee to $380 million from $400 million. As a result, the government would guarantee repayment of only 85 percent of the $445 million America West borrowed, not 100 percent of the $400 million it had initially requested. Under Washington's latest demands, the airline will give the federal government warrants equal to one-third of the company's fully diluted common stock. Those warrants will be issued at a negotiated price, and the government can cash them in if the airline's stock rises over the life of the loans. Warrants are not new. When the government agreed to provide up to $1.5 billion in loan guarantees to Chrysler Corp. in 1979, it received stock warrants. The government made a $380 million profit from the warrants. In addition to the warrants, America West will pay the government about $135 million in fees for obtaining the loan guarantees, in part to make sure the airline doesn't go into the loan markets with an advantage over other carriers. As part of its financial package, America West said it had also negotiated about $600 million in concessions and contributions, including reduced or stretched-out payments to aircraft lessors, creditors and vendors, as well as tax breaks from state and local authorities. The majority of those concessions, which America West says will help it regain profitability, are contingent on the loan guarantee. America West had been struggling before the attacks, in part because of the economic downturn that affected all carriers and also because of its own operational problems. Company executives said those problems were being resolved and the company had been in line to get $200 million in financing in mid-October but that plan fell through after Sept. 11. © 2001 The Washington Post Company

12-29-2001, 05:47 PM	#2
Gunship01 Lufthansa Skyshark Join Date: May 2000 Location: San Diego Age: 45 Posts: 1,401	I hope they make it O.K. Cool jets! __________________ Now where's that 747-400 club? More Lufthansa and Virgin Atlantic 744s!! By all that is holy.... MORE JET BLUE AND US AIRWAYS(NC)!!

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12-31-2001, 01:44 PM	#3
SonicCruiser Collector Join Date: Jun 2001 Location: Greenwood, Indiana, USA Posts: 75	What's it called when a government owns an airline? =Aeroflot? This is a really bad idea. The government espouses open skies, deregulation, etc... now government ownership of airlines? How much say will they have in running it? Will there not be a conflict of interest, especially when other airlines apply for mergers, and the DOJ reviews these applications? It opens up a whole lot of unanswered questions. What if America West makes predatory pricing charges against other airlines, will the govt. be able to judge these cases fairly when they have a stake in it? How can the govt. then be against AA/BA? Ben Franklin said it best, come sheckles, come schackles. I hate to see AWE go under, and our friends lose there jobs, but we need to let the market take care of it self and find it's own level. I say, if the govt. bails them out, then AWE should pay them back by providing free transportation for govt. business, military personal moves, etc... but to structure it the way you have described is very dangerous to all the other airlines, and their employees.