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Airlines Told to Supply Data on Loan Panel
By MICHELINE MAYNARD
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Published: March 20, 2004
T <http://graphics7.nytimes.com/images/dropcap/t.gif> reasury
Department investigators have ordered major airlines to turn over
records of their dealings in 2002 and 2003 with the federal board
overseeing loan guarantees to domestic carriers, industry officials said
yesterday.
Five airlines confirmed that they received subpoenas on March 12 from
Jeffrey Rush Jr., the department's inspector general, directing them to
provide their records of dealings with Daniel G. Montgomery, a former
executive director of the Air Transportation Stabilization Board; other
staff members; board members; and relatives.
The eight-page subpoenas, which cover the period from Jan. 1, 2002, to
Jan. 31, 2004, do not say why investigators are seeking the information.
Inspectors general at federal agencies usually investigate accusations
of fraud, abuse and other wrongdoing in their departments.
A spokesman at the Treasury Department, which oversees the board,
declined to comment, as did a board spokeswoman.
Mr. Montgomery, who was executive director from March 2002 to August
2003, said yesterday that he had no knowledge of the subpoenas and
declined to comment further. He left the board to join
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Kroll Zolfo Cooper, a financial consulting firm.
Mr. Montgomery is the only person mentioned by name in the subpoena. It
does not cite his successor, Michael Kestenbaum, although the subpoenas
cover the first part of Mr. Kestenbaum's tenure.
According to the subpoena, investigators are seeking receipts for any
meals, airline tickets, gifts, loans or discounts for Mr. Montgomery or
other staff members of the board. The airlines were also asked to submit
copies of memorandums, faxes, e-mail and other correspondence between
the airlines and the loan board.
Investigators are also seeking expense account records for meetings,
entertainment, employment discussions and other transactions with Mr.
Montgomery, board staff, board members and members of their immediate or
extended families.
The airlines have until April 9 to submit the material, the subpoena
said.
Congress created the Air Transportation Stabilization Board after the
Sept. 11, 2001, attacks to administer $10 billion in loans it authorized
to help keep the industry afloat. Since then, the board has awarded $1.7
billion in loan packages.
The biggest has been $900 million granted to US Airways in 2003.
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America West and
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Frontier Airlines, among others, have also received loans. The board is
deliberating a revised application by United Airlines, a unit of the UAL
Corporation, for $1.6 billion in loan guarantees; that would be the
largest grant to any single airline. It rejected United's bid for $1.8
billion in guarantees in 2002, sending the airline into Chapter 11
bankruptcy.
The Treasury sent subpoenas to airlines that received or applied for
loan guarantee packages and to those that did not, officials of the
companies said yesterday.
Word of the subpoenas had circulated in aviation circles since late
February. But some officials expressed surprise at the inclusion of Mr.
Montgomery, who they said is known as a straight arrow. "He wouldn't
even take a Coke from anyone," said an executive at one airline, who
spoke on condition of anonymity.
The three-member loan board, which includes one representative each from
the Treasury, the Transportation Department and the Federal Reserve
Board, does not operate under any timetable when it considers requests.
Its deliberations are closed to the public. Airlines applying for loans
do not meet with members of the board, but deal with its staff.
The current board members are Edward M. Gramlich, a Federal Reserve
governor who is A.T.S.B. chairman; Brian C. Roseboro, an acting under
secretary of the Treasury; and Jeffrey N. Shane, under secretary for
policy at the Transportation Department.
Two members, Peter R. Fisher, an under secretary of the Treasury, and
Kirk K. Van Tine, general counsel of the Transportation Department, left
the board last year.
Four major airlines - American, Delta, Continental and Northwest - did
not seek loan guarantees, although all suffered financially after the
attacks in New York, Pennsylvania and at the Pentagon. Executives
pointed to the board's rigorous examination of America West Airways, the
first to apply, in the fall of 2001, as a reason for choosing to address
their problems without federal scrutiny. The board required America West
to submit a seven-year business plan, and then defend it before the
board's staff.
The loan board turned down several applications, including those by
Vanguard Airlines, Spirit Airlines and National Airlines.
"It certainly hasn't been accessed by many players," said Michael Allen,
chief operating officer of Back Aviation Solutions, an industry
consulting business.
The loan board has since, however, shown a willingness to amend the
terms of loan packages. Last week, it agreed to restructure the package
it awarded US Airways, which would have been in default of its loan
covenants without the revisions because of its sagging financial
position.
US Airways, which emerged from Chapter 11 bankruptcy in 2003, agreed to
repay $250 million of its loans early, and to post a profit in 2005. The
board, in return, lifted a restriction that required the airline to sell
assets for cash and allowed the airline to keep some of the proceeds of
asset sales, rather than apply them all to its loan.
The board had previously amended covenants for US Airways and America
West, though not to the degree of the revisions allowed last week.
United submitted a revised application for loan guarantees in December,
but executives there said they had no indication when they might receive
an answer. On Wednesday, representatives of
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om.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=JPM> J.
P. Morgan Chase and
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Citigroup, the airline's bankers, met with the board's staff to discuss
United's application.
The $1.6 billion in loan guarantees sought by United would form the
basis of its $2 billion restructuring plan. However, the loan board has
suggested that the airline trim its application by about $100 million
and seek the rest from other lenders, people involved in the discussions
said.
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