CHICAGO – America West Airlines said Monday it will give the U.S. government the right to take a 33-percent stake in the carrier, as requested, to pave the way for federal guarantees backing up a much-needed $429-million loan.
America West, the No. 8 U.S. carrier, is a unit of Phoenix-based America West Holdings . Late in December, as part of a $15 billion federal bailout package set after the Sept. 11 attacks, a special board approved the loan guarantees conditionally. But it also said the airline had to offer more equity and promise to control labor costs.
America West, primarily a leisure airline, was the first U.S. airline to apply for the loan guarantees. Tiny Vanguard Airlines is the only other one so far to do so.
The process is being widely watched as a barometer of how the Air Transportation Stabilization Board is going to work.
Many major U.S. airlines have said they do not intend to apply for the loan guarantees, while others are taking a wait-and-see approach.
It is extremely rare for the U.S. government to bail out a company. The most prominent example was the 1979-1980 bailout of Chrysler in the early 1980s.
"It's never really been done in the airline sector," said ABN Amro analyst Ray Neidl. "I think it's the only way that America West can survive. It's still a high-risk situation."
However, Neidl noted the government could make much money if the airline turns itself around and the stock price rises, like it did with giant automaker.
America West will issue warrants to the government for the purchase of 18.75 million shares of class B common stock at an exercise price of $3.00 per share.
America West had to revise its application several times and the government last month demanded the ability to take a one-third stake in the company to compensate it for a high degree of risk in guaranteeing a loan.
America West said the approval cleared the way for it to apply for a $429 million loan, down from $445 million, and complete more than $600 million in concessions, financing, and financial assistance.
Certain lenders having no financial interest in the company were no longer required to participate, the airline said.
LOAN SEEN THIS WEEK
America West Spokesman Jim Sabourin said the airline hopes to get the loan from the private sector this week.
The warrants could increase the number of fully diluted shares outstanding, varying with the changes in America West's stock price.
If the stock price is $5, the estimated number of shares is 43 million. At $10, the number of shares is estimated at 50 million; at $15, 55 million; at $20, 60 million.
On Monday, shares were up 2.15 percent to $3.80, while the rest of the airline sector traded lower.
The stock has fallen by 56 percent since Sept. 11 and underperformed the American Stock Exchange's airline index by 62 percent last year.
The airline also said it reached an agreement with the airline board to control the growth of its labor costs.
Since the Sept. 11 attacks, America West has struggled to conserve cash as traffic remains below normal levels and fares remain cheap. Talk of a bankruptcy filing was widespread in the days before the loan guarantees were approved.