This article from NYTimes.com has been sent to you by psa188@juno.com. /-------------------- advertisement -----------------------\ Share the spirit with a gift from Starbucks. Our coffee brewers & espresso machines at special holiday prices. http://www.starbucks.com/shop/subcategory.asp?category_name=Sale/Clearance&ci=274&cookie_test=1 \----------------------------------------------------------/ America West Seeks Loan Guarantee to Avoid Bankruptcy December 27, 2001 By LAURENCE ZUCKERMAN Three months after Congress created a board to distribute $10 billion in federal loan guarantees to help the airline industry, the first application is coming down to the wire. America West Airlines, which is the country's eighth-largest carrier and one that was struggling even before the terrorist attacks, has asked for help and could be forced to file for bankruptcy protection early next week if the board does not grant it a guarantee. Other airlines, which together have lost billions of dollars since Sept. 11, are watching the process closely. While their condition is not as pressing as America West's, they say they, too, will be forced to apply to the board if passenger traffic does not pick up significantly next year. The last-minute drama indicates that there remains broad disagreement about whether and how much taxpayer money should be used to help the airlines, and under what circumstances. The board and the White House, which devised the guidelines under which the board operates, have stressed the importance of making sure that the loans are repaid so that taxpayers are not forced to pay the bill. Treasury and Federal Reserve representatives on the board have argued that weak airlines destined to fail before the terrorist attacks should not be propped up by the government. But executives at America West and other airlines, and lawmakers in states where they have operations, say the board has made it surprisingly difficult for them to get financial help. Since America West first submitted its application on Nov. 13, the board has asked it to revise its application twice, adding conditions more demanding than those applied to a normal commercial loan, according to several people involved in the process. Those have led some critics to conclude that the panel is not interested in dispensing any of the guarantees. "It looks as if the board is simply making them come back and back, and in the meantime their cash is disappearing," Representative Jeff Flake, a Republican from America West's home state of Arizona, said yesterday. Rob Nichols, a spokesman for the loan board, said, "the application is receiving a prompt and thorough review." He added that the Bush administration is weighing its desire for a viable commercial aviation system against "our duty to protect the pocketbook of the American taxpayer." The new panel, which is called the Air Transportation Stabilization Board, is set to meet Friday or Monday, according to three people close to its deliberations, but has not indicated whether it will make a decision on the America West application. "We have asked for a decision by year-end and the board appears to be working very hard to meet our request," W. Douglas Parker, America West's chief executive, said in an interview yesterday. The airline has $70 million worth of debt payments due on Jan. 2 and may be forced to file for bankruptcy protection early next week if its application for a federal guarantee worth $380 million is not approved, according to industry analysts. America West, which is the only carrier founded since deregulation 20 years ago that has surpassed $1 billion in annual sales, insists that it has a viable business plan. It says that it was on its way to recovery before Sept. 11 after experiencing operational difficulties last year and has seen its business bounce back faster than many other carriers since the attacks. The board's hard line has discouraged other airlines, which have until June 28, from applying for guarantees. So far the tiny Vanguard Airlines (news/quote), which is based in Kansas, is the only other carrier to submit an application and it has already made one revision at the board's request. Fiscal conservatives say that making the guarantees hard to obtain is good policy. But lawmakers who wrote the emergency legislation counter that guarantees were created so that airlines could obtain financing at a time when normal commercial credit for the industry has dried up because of the attacks. "We all fully understood that the program, as contemplated by Congress, would involve potential risk to the federal government," six senators wrote in a letter to the board last month. The bailout law contained three elements: a direct grant of $5 billion to cover the losses incurred by the airlines after all planes were grounded on Sept. 11; relief from liability claims from people on the ground killed and injured by the four jets that were crashed by the hijackers; and the $10 billion in loan guarantees. The voting members of the board include the Treasury secretary, transportation secretary and Federal Reserve chairman or their representatives. As of last week, $3.8 billion of the $5 billion had been distributed to 115 airlines, including $98 million to America West. At the end of September, the airline had $144.5 million in cash but it has been losing about $1 million a day. In its initial application to the board, America West asked for a guarantee on $400 million of a $426 million financial package that it said would also bring $600 million in additional savings from creditors and partners. After discussions with the board, the airline increased the at- risk portion of the loan and gave the government the right to buy up to 10 percent of its stock. The board subsequently complained that General Electric (news/quote), which is one of the biggest aviation financiers in the world and is America West's largest creditor, should not be a source of $13 million of the at-risk part of the loan because it had too great an interest in keeping America West out of bankruptcy court. That brought a tart reproach from Dennis D. Dammerman, G.E.'s vice chairman. "Our obligations are to G.E. shareholders and in that regard we try very hard not to throw good money after bad," he wrote to Peter Fisher, the Treasury secretary's representative on the board, on Dec. 13. Mr. Dammerman accused the board of creating a Catch-22 by requiring new, independent capital as a prerequisite for federal aid intended to help airlines unable to attract private capital on normal commercial terms. "The board's apparent position would suggest that the loan guarantee program is unworkable under almost any circumstance," he wrote. America West managed to find a new investor, according to Senator Jon Kyl, a Republican from Arizona, who has been watching the process closely. But at a steeper price than G.E. was asking, he said. For months, airline executives have privately criticized the loan board for dragging its feet. On Friday, the board finally announced the selection of its executive director, who will start work on Jan. 7. While it hires staff, the board has been supported temporarily by the Treasury. In October, a board spokeswoman said that no airline would be forced to file for bankruptcy because the board was not yet fully staffed. Mr. Parker and the 13,000 other employees of America West are now hoping she was right. http://www.nytimes.com/2001/12/27/business/27AIR.html?ex=1010423029&ei=1&en=d9d91d6d17133e3e HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact Alyson Racer at alyson@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2001 The New York Times Company