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 \----------------------------------------------------------/ More Strings on U.S. Deal for Airline December 29, 2001 By LAURENCE ZUCKERMAN The board in charge of doling out $10 billion worth of federally backed loans to the ailing airline industry tentatively approved a guarantee for America West Airlines yesterday but placed new conditions on its application, including the demand that America West give the government the option to buy up to 33 percent of its stock. The Air Transportation Stabilization Board, the panel set up by Congress after the September terrorist attacks, voted two to one in favor of approving America West's request for a $445 million loan package, $380 million of which will be paid by Washington if the airline fails. The board also sought a guarantee from America West that its labor costs would remain under control so as not to jeopardize its odds of repaying the loan. The new demands from the board came after America West already revised its loan application twice since Nov. 13, giving the government increasingly sweeter terms. The airline, which is based in Phoenix and is the country's eighth-largest carrier, has $70 million in debt payments due on Jan. 2. Without new financing, it will have to file for bankruptcy protection, according to analysts. "This is very good news for America West Airlines," W. Douglas Parker, America West's chief executive, said. "We plan to continue working with the stabilization board and its staff over the next few days to resolve these conditions." In a letter sent to Mr. Parker yesterday, the board said that commercial investors were receiving better terms than the government even though they had much less money at risk. To be compensated on an equal basis, the board said, the government must receive warrants to purchase a third of America West's stock at a strike price equal to that being offered commercial lenders. Even with the conditions, the board wrote, America West's proposal "presents a significant risk of default." The three voting members of the board are representatives of the Treasury and Transportation Departments and the Federal Reserve board. The dissenting vote was cast by Peter R. Fisher, the undersecretary of the Treasury for domestic finance. "As a consequence of the precedent it sets," Mr. Fisher said in a statement yesterday, "I fear that the board's decision is likely to impede, rather than promote, real progress toward a safe, efficient and viable air transportation system for our country." But Mr. Parker chose to ignore the panel's warnings, saying he was confident that America West could meet the conditions and that the loan package ensured the airline's survival for many years to come. "Clearly the America West view is that there is little risk of default," he said. "We presented a business plan under very conservative assumptions. We can repay this loan." The board's action is sure to provoke strong criticism from lawmakers, industry executives and aviation lenders. Even before yesterday's decision, the board was criticized for making demands that experts said went beyond those exacted by commercial lenders. Executives at other airlines, who have followed America West's progress, have expressed reservations about taking part in the program. So far only one other carrier, Kansas-based Vanguard Airlines (news/quote), has applied for a loan. But other, larger airlines may have no choice because the industry continues to lose millions of dollars each day and the cash reserves of most carriers are running out. The loan guarantee program has been controversial from the beginning. The White House, Treasury Department and Federal Reserve board all opposed the idea. But Congress insisted on including $10 billion worth of guarantees in an emergency bill that also gave the airlines $5 billion in cash and protection from claims resulting from the thousands killed and hurt on the ground in the terrorist attacks. The law, which was signed by the president on Sept. 22, created a board to administer the guarantee program. Airlines have until June 28 to apply. The lawmakers who created the program saw it as a way to provide financing to airlines that could not obtain it on regular commercial terms because of the attacks. They have complained that the board has insisted on terms that are even more onerous than a normal commercial loan to dissuade airlines from applying. "As this process unfolded, I continued to get the impression that some of the people representing the board didn't like this program, that they didn't want to do it," Senator Jon Kyl, a Republican from Arizona, said earlier this week. Within the Treasury Department, which is temporarily providing staff for the board, there was concern about setting a high bar for the first loan. In addition, some on the board members questioned whether America West was heading for bankruptcy before Sept. 11 and therefore did not deserve federal support. After America West submitted its application on Nov. 13, the board spent hours studying its proposed business plan, according to people involved in the process. Consultants hired by the board even went so far as to recommend which routes the airline should fly and which type of jets it should use. America West was forced to revise its application twice. It increased the at-risk part of the loan package, nearly doubled the fees to the government to $175 million, and offered the government options to buy 10 percent of its stock. The board also insisted that General Electric (news/quote) could not be the source of $13 million of unsecured financing because it was already a large backer of the airline. That forced America West to scramble to find a new investor at the last minute. The airline ended up getting backing from two private equity firms but at a high price. It was that new investment that caused the board to insist that the government's compensation be raised. "If this thing craters," said one person close to the board's deliberations, "it will be because the government forced them to find new financing." At the end of September, America West had $144.5 million in cash. Lately, it has been losing about $1 million a day. The value of its outstanding stock is about $80 million. Asked if time was running out, Mr. Parker replied, "We are confident we have plenty of time to get this deal negotiated." http://www.nytimes.com/2001/12/29/business/29AIR.html?ex=1010657202&ei=1&en=39330a77c4ddcf1f 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