This article from NYTimes.com has been sent to you by psa188@juno.com. Conditions Set for the U.S. to Back Loans to US Airways July 11, 2002 By EDWARD WONG The federal government gave conditional support yesterday to a $900 million loan guarantee that US Airways is seeking for $1 billion in private financing. The guarantee is only the second granted to a carrier after the Sept. 11 attacks severely damaged the industry, and it is the larger one. But US Airways, the nation's sixth-largest airline, will receive the guarantee only if it can meet the conditions set by the Air Transportation Stabilization Board, which Congress established to administer a $10 billion loan guarantee program. The board said yesterday that the airline must permit the government to buy even more shares in the company than it has offered, and at a lower price; obtain greater concessions from its unions; and work out issues regarding collateral, including slots and gates at airports. The board wants US Airways to ensure that it can repay the loan, because federal backing means the government will be responsible for 90 percent of the loan if the airline defaults. The government's announcement is also likely to draw criticism from some industry experts who say that federal aid is distorting market forces and that struggling companies should be permitted to fail. Many experts say that the industry cannot support so many airlines and that some must fail before others can make consistent profits. Despite all that, US Airways has taken a large step toward obtaining the full backing of the government, making it much easier for the airline to secure $1 billion in private loans. "The board noted the disciplined and comprehensive approach that US Airways brought to its restructuring, as reflected in its business plan," the stabilization board said yesterday in a letter to David N. Siegel, the chief executive of US Airways. "US Airways' proposal is based on reasonable assumptions and includes substantial cost savings. The board, however, has notified US Airways that it requires more compensation than has been offered and will continue discussions with the company." The board has received 16 applications; it rejected two and approved one before yesterday. In December, it agreed to give America West $380 million in backing but demanded the right to buy a third of the company's stock. People who follow US Airways' finances say the airline, based in Arlington, Va., has few assets for collateral other than stock. "Obtaining the conditional approval of this $1 billion loan is one of the cornerstones of our restructuring plan and when closed, upon our satisfying the A.T.S.B.'s terms and conditions, should provide us with the necessary liquidity and cash resources as we restructure our airline," Mr. Siegel said yesterday in a statement. "Much has been accomplished in a very short period of time as we have worked to meet the very rigorous standards established by the A.T.S.B., but now we must focus on completing the process quickly." Mr. Siegel said agreements on concessions had to be completed with all the unions and ratified by their members. In the business plan submitted to the federal government, he said US Airways would cut its personnel costs $950 million a year. On Monday, the airline reached a tentative deal with its pilots' union to trim $465 million a year in costs. But at least one union, the one for passenger service agents, has said US Airways is making unreasonable demands. "The time for brinkmanship by any of us is over," Mr. Siegel said yesterday in a message sent to employees before the board's announcement. "We simply must get these agreements finalized." In that message, Mr. Siegel sharply reminded workers that the airline has deferred payments on bonds and money owed on airplane leases and that the company could be forced to seek bankruptcy protection. Mr. Siegel also said yesterday that increasing the company's regional jet service and finding a code-share partner remained critical. US Airways has been talking with several competitors, particularly United Airlines, on forming a partnership in which the airlines would be able to book passengers on each other's flights. US Airways was badly battered by the Sept. 11 attacks and the subsequent three-week shutdown of the Reagan airport in Washington. It reported a loss of $269 million last quarter and $2 billion last year. Only one other airline, United, asked the government for a larger loan guarantee. The stabilization board has yet to decide whether to give United its requested $1.8 billion of backing on $2 billion in loans. http://www.nytimes.com/2002/07/11/business/11AIR.html?ex=1027406037&ei=1&en=fee37cfbbfe8921b 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 onlinesales@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 2002 The New York Times Company