"Most airlines decide not to seek federal loan guarantees"

Saturday, June 29, 2002

Most airlines decide not to seek federal loan guarantees
By Jonathan D. Salant
The Associated Press


   WASHINGTON -- Less than half of the major U.S. airlines sought
government-backed loans under a program created to help the industry recover
from the Sept. 11 terrorist attacks.

   Of the country's 11 largest passenger airlines, only four -- America
West, American Trans Air, United Airlines and US Airways -- asked the Air
Transportation Stabilization Board to lend them money to keep flying.

   The loan program required airlines to provide detailed information and
let the government buy stock in their companies, a provision modeled after
the Chrysler bailout.

   "Once they actually looked at what the deal was, a lot of them said,
'We'll pass,"' said Dean Headley, associate professor of marketing at
Wichita State University and co-author of an annual study on airline
quality. "That doesn't mean they're all out of the woods, but the baggage
that came with the loans is something they didn't want to deal with."

   Air Transport Association spokesman Michael Wascom said the provision
requiring airlines to let the government buy stock may have discouraged
airlines from seeking government help. "There are some carriers who decided
that was not a consideration they wanted to entertain," said Wascom, whose
trade group represents the major airlines.

   Nine smaller airlines also have applied for help under the $10 billion
loan program, according to the Air Transportation Stabilization Board.

   Four submitted applications shortly before Friday's deadline: Aloha,
Frontier, Great Plains and World. The others are Evergreen International,
National and Spirit, whose applications are still pending; and Frontier
Flying Service and Vanguard, both of which were rejected.

   Besides the loan program, Congress also provided $5 billion in grants for
the airline industry, Most of that money has been distributed.

   Immediately following the attacks -- in which terrorists hijacked two
United and two American Airlines jetliners and crashed them into the World
Trade Center, the Pentagon and a field in Pennsylvania -- the nation's air
fleet was grounded. Traffic has yet to return to pre-Sept. 11 levels.

   The Air Transport Association reported that airlines carried 45.3 million
passengers in May, down 10.3 percent from the same month a year ago.
Airlines also carried 11.6 percent fewer passengers during the first five
months of 2002 as they did during the same period in 2001. The Federal
Aviation Administration has predicted air travel won't return to pre-Sept.
11 levels until 2003.

   So far, the board has approved one application, that of America West,
which received $380 million in government-backed loans, in exchange for
warrants to buy 5.3 percent of the airline's stock.

   Those still waiting to hear about their applications include United
Airlines, which is seeking $1.8 billion in loan guarantees; US Airways,
which asked for $900 million in backing; and American Trans Air, which
requested $165 million.

   Although US Airways didn't lose any planes Sept. 11, its business was
hurt when Reagan National Airport was shut down for three weeks and then
allowed to reopen with only a limited schedule.

   Other airlines said they don't need the loan guarantees.

   "We believe it is unnecessary and would be inappropriate to apply for a
federal loan when private capital is clearly available, especially given the
terms that the board would require," said Jeffrey Campbell, senior vice
president and chief financial officer for American Airlines.

   Alaska, American Eagle, Delta, Continental, Northwest, Southwest
spokesmen all said Friday the airlines would not ask for government help.

   With the small number of airlines seeking government-backed loans, one
expert said the program may not have been needed in the first place.

   "I'm not sure that it was necessary and I'm not sure it was a good idea,"
said Darryl Jenkins, director of George Washington University's Aviation
Institute. "Everybody was scared. None of us knew at the time what was going
on. The whole industry was looking at just trying to survive."

Airlines seeking help
   Thirteen airlines have asked the Air Transportation Stabilization Board
for federal loan guarantees under the $10 billion program established
following the Sept. 11 terrorist attacks. Two applications have been
rejected and one has been approved.

   The airlines are:
   -- Aloha Airlines, applied Thursday.
   -- American Trans Air, applied June 13.
   -- America West, applied Nov. 13 and approved Jan. 18.
   -- Evergreen International Airlines, applied Feb. 25.
   -- Frontier Airlines, applied Friday.
   -- Frontier Flying Service, applied Jan. 29 and rejected May 31.
   -- Great Plains Airlines, applied Thursday.
   -- National Airlines, applied May 3.
   -- Spirit Airlines, applied March 28.
   -- Vanguard Airlines, applied Dec. 19 and rejected May 28.
   -- United Airlines, applied Monday.
   -- US Airways, applied June 7.
   -- World Airways, applied Friday.

   The board that rules on the loan applications consists of representatives
of Transportation Secretary Norman Y. Mineta, Federal Reserve Board Chairman
Alan Greenspan and Treasury Secretary Paul O'Neill. Comptroller General
David Walker is a nonvoting member.

   Source: Air Transportation Stabilization Board

On the Net:

Air Transportation Stabilization Board: http://www.treas.gov/atsb

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