"Regionals Could Suffer If Congress Cuts Loan Guarantees"

Monday, May 27, 2002

Regionals Could Suffer If Congress Cuts Loan Guarantees
Commuter/Regional Airline News


U.S. regional airlines could lose much-needed access to reasonably
priced capital under provisions of supplemental spending bills now going
through both chambers of Congress. 

The House appears ready to accept a provision in the House
Appropriations Committee bill that suspends any loan guarantees to
airlines during the remainder of fiscal year 2002, while the Senate
Appropriations Committee is marking up its bill to include a provision
that would keep $46 million available for the loan guarantee program but
reduce the aggregate total by 60 percent. 

How this will impact the airline industry has yet to be determined,
since there has not been a rush to borrow money through the current
program. Although US Airways has indicated it needs up to $1 billion in
guaranteed loans to survive, only America West has taken advantage of
the program, borrowing $383 million out of the $429 million available in
FY2002. 

The final provision regarding loan guarantees still has to be worked out
by the two chambers of Congress. But the total suspension of the loan
guarantee being considered by the House and the 60 percent reduction
under review by the Senate would be major blows to already cash-strapped
airlines that need ready access to low-cost capital in order to recover
from a slowly recovering economy. Even though the major carriers are
expected to be primary recipients of the loan guarantee program, its
reduction - or loss - could have a significant impact on the regionals
that depend on their major partners' access to reasonably priced
capital. 

Without this funding, "some regional airlines, already struggling with
enormous cost burdens and passenger fall-off ... could be forced to
dramatically reduce or even eliminate service to smaller communities,"
said Faye Malarkey, legislative affairs director for the Regional
Airline Association (RAA). 

The Senate is now marking up its version of the supplemental spending
bill, leaving in the $429 million in loan guarantees for FY2002, but
cutting the aggregate amount for the program from $10 billion down to $4
billion. Other than the $46 million left for FY2002, the remaining
balance cannot be used until fiscal year 2003, which begins Oct. 1. The
House bill has no provisions regarding the loan guarantee program beyond
Sept. 30. 

Suspension of the loan guarantee program was one of three provisions
that RAA had lobbied hard to have stricken from the House Appropriations
Committee's bill. A provision of the bill that would have doubled the
security fee attached to airline tickets, increasing the fee to a
maximum $20, was killed in markup following intensive lobbying by RAA
and other airline industry groups, while the provision cutting the final
stabilization funding is expected to be dropped prior to passage of the
bill. 

RAA's main effort now is to advise its members on the danger of the
Senate cutting the loan guarantee program by $6 billion, urging them to
contact their respective Senators to educate the Senators on the impact
the cut would have on the country's air transport industry. "By cutting
funds for this program, Congress removes a critical safety net for the
aviation industry," Malarkey said 

The House had promised that it would bring its version to the Floor by
remaining in session through this past weekend. However, the Senate is
expect to face battles similar to those in the House, which will make
the joint conference to create a final version of the bill unlikely to
occur within the immediate future. Pending changes during markup by the
Senate Appropriations Committee, differences between the House and the
Senate bills include: 

   * Total TSA funding: $4 billion vs. $4.7 billion

   * Baggage Screening, EDS, EDT: $506 million vs. $850 million

   * Airport Security Reimbursement: $73 million vs. $75 million

   * Loan Guarantee Program: Suspended until FY2003, no change to total
funding vs. Suspended until FY2003 save for $46 million, plus cut in
aggregate by $6 billion. 


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