America West Gets Badly Needed Federal Loan Guarantees
WASHINGTON – America West Airlines, the first to file for government help after September's terror attacks, received conditional approval Friday for federal support 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 defaults, the government would repay up to $380 million of $445 million in loans the airline has negotiated.
More than $600 million in concessions from America West suppliers and creditors hinged on government approval.
A denial of the loan guarantees could have been a severe blow for the cash-strapped airline.
Sen. Jon Kyl, 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.
The first time, America West offered the government the option of buying 3.4 million shares of America West stock -- 10 percent of the company's publicly traded shares -- which would make the government one of America West's largest shareholders.
The offering would allow the government to profit if America West regains its footing, much as the government did during a 1979 bailout of Chrysler.
The airline also scaled back its request from $400 million to $380 million, brought in a new lender without a financial stake in America West's survival, agreed to pay a $3.8 million upfront fee to the government. It promised to repay the loans in 4 years, 16 months faster than previously scheduled.
Vanguard had to make similar concessions.
Arizona Sens. John McCain and Kyl sent letters to the board, reminding members that Congress intended that each airline be given a fair shot at the loan guarantees. Last week, Kyl criticized the board, accusing members of changing the rules on America West.
America West's business plan forecasts losses in the current year and 2002 but a modest profit in 2003.
An appraisal by Salomon Smith Barney said the airline's biggest problem is lack of liquidity.
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, although the company continued to lose $1 million a day and reported $31.7 million in losses last quarter despite receiving $60 million in government aid.
Last week, however, America West said it had record ridership levels in the week leading up to Christmas.