Federal aid a last resort for airlines

DeltaFlot · 01-15-2002, 12:20 PM

January 15, 2002 Posted: 10:37 AM EST (1537 GMT)

WASHINGTON (AP) -- America West Airlines got final approval Monday for a government-backed loan for $429 million, but other major airlines may not seek the aid because of the strict stipulations demanded by federal authorities.

Congress approved $10 billion in loan guarantees as part of the airline bailout package prompted by the September 11 attacks. So far, cash-strapped America West is the only major airline to tap into the fund.

Under the deal, the federal government agreed to repay up to $380 million if America West defaults on the loan. In return, America West had to give the government the option over 10 years to buy one-third of the company's publicly traded stock at a fixed price -- 18.7 million shares for $3 each.

America West shares closed Monday at $3.15, down 57 cents, on the New York Stock Exchange.

The airline said the deal could be signed this week.

The deal also calls for America West to pay the government annual payments totaling $135 million over the nearly five-year life of the loan and a $3.8 million upfront fee.

"They gave a desperate airline the chance to turn their operation around, but at the same time they made it so difficult that most of the other airlines won't try to take advantage of what they may see as easy money," said Ray Neidl, an aviation analyst for ABN Amro.

Betsy Holahan, spokeswoman for the Air Transportation Stabilization Board, which was assigned by Congress to screen loan guarantee applications, said keeping the airlines safe and viable is critical to the economy.

"However, that responsibility must be weighed against the federal government's duty to protect the pocketbook of the American taxpayer," she said.

Congress also approved $5 billion in direct cash payments to compensate air carriers for the business lost while the airlines were grounded immediately following the hijackings. So far, the Transportation Department has paid out $3.8 billion.

The board was established to determine what airlines get loan guarantees, which essentially make the government a co-signer on the company's loan. So far, the only other airline to apply for a loan guarantee is Vanguard Airline, a small, low-fare carrier based in Missouri. Airlines have until June 28 to apply.

John Heimlich, director of economic and market research for the Air Transport Association, an airline industry group, said he expects others will apply and that the board will apply different requirements in each case, based on the airline's financial viability.

"If I were a carrier, I would use this as a last resort. I would do everything else that is within my means to survive," he said. "At the end of the day if you need it you're going to do it."

Which other airlines apply for government help depends partly on when the rest of the direct payment money is made available and whether more passengers return to the skies, he said.

Tempe, Arizona-based America West, which employs 12,000, is the nation's eighth-largest airline. Analysts believed it was most vulnerable to bankruptcy after the attacks.

Travelin' Man · 01-15-2002, 12:42 PM

So what is the first resort?

Sentinel Chicken · 01-15-2002, 03:58 PM

First resort is having decent customer service! Or hot looking FAs, either will do nicely......

DeltaFlot · 01-15-2002, 04:03 PM

Quote:

Originally posted by Sentinel Chicken
First resort is having decent customer service! Or hot looking FAs, either will do nicely......

NO WONDER TWA WENT BELLY UP!

01-15-2002, 12:20 PM	#1
DeltaFlot The Patriot Join Date: Jan 2001 Location: Laurel, MD Age: 36 Posts: 3,228	Federal aid a last resort for airlines January 15, 2002 Posted: 10:37 AM EST (1537 GMT) WASHINGTON (AP) -- America West Airlines got final approval Monday for a government-backed loan for $429 million, but other major airlines may not seek the aid because of the strict stipulations demanded by federal authorities. Congress approved $10 billion in loan guarantees as part of the airline bailout package prompted by the September 11 attacks. So far, cash-strapped America West is the only major airline to tap into the fund. Under the deal, the federal government agreed to repay up to $380 million if America West defaults on the loan. In return, America West had to give the government the option over 10 years to buy one-third of the company's publicly traded stock at a fixed price -- 18.7 million shares for $3 each. America West shares closed Monday at $3.15, down 57 cents, on the New York Stock Exchange. The airline said the deal could be signed this week. The deal also calls for America West to pay the government annual payments totaling $135 million over the nearly five-year life of the loan and a $3.8 million upfront fee. "They gave a desperate airline the chance to turn their operation around, but at the same time they made it so difficult that most of the other airlines won't try to take advantage of what they may see as easy money," said Ray Neidl, an aviation analyst for ABN Amro. Betsy Holahan, spokeswoman for the Air Transportation Stabilization Board, which was assigned by Congress to screen loan guarantee applications, said keeping the airlines safe and viable is critical to the economy. "However, that responsibility must be weighed against the federal government's duty to protect the pocketbook of the American taxpayer," she said. Congress also approved $5 billion in direct cash payments to compensate air carriers for the business lost while the airlines were grounded immediately following the hijackings. So far, the Transportation Department has paid out $3.8 billion. The board was established to determine what airlines get loan guarantees, which essentially make the government a co-signer on the company's loan. So far, the only other airline to apply for a loan guarantee is Vanguard Airline, a small, low-fare carrier based in Missouri. Airlines have until June 28 to apply. John Heimlich, director of economic and market research for the Air Transport Association, an airline industry group, said he expects others will apply and that the board will apply different requirements in each case, based on the airline's financial viability. "If I were a carrier, I would use this as a last resort. I would do everything else that is within my means to survive," he said. "At the end of the day if you need it you're going to do it." Which other airlines apply for government help depends partly on when the rest of the direct payment money is made available and whether more passengers return to the skies, he said. Tempe, Arizona-based America West, which employs 12,000, is the nation's eighth-largest airline. Analysts believed it was most vulnerable to bankruptcy after the attacks. __________________ Febuary 15, 1898 December 7, 1941 June 8, 1967 September 11, 2001 Never Forget, Never Forgive If you kick the Tiger in the arse, you better be able to deal with the Tiger's teeth.

01-15-2002, 03:58 PM	#3
Sentinel Chicken Go-Getters Go Ozark Join Date: Jan 2001 Location: DFW/THE GREAT STATE OF TEXAS Posts: 4,167	First resort is having decent customer service! Or hot looking FAs, either will do nicely...... __________________ *Piss on noise abatement!*

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01-15-2002, 12:42 PM	#2
Travelin' Man Insane Collector Join Date: May 2000 Location: Aspen USA!!! Posts: 1,919	So what is the first resort?