The article below from NYTimes.com has been sent to you by psa188@xxxxxxxxx /--------- E-mail Sponsored by Fox Searchlight ------------\ I HEART HUCKABEES - OPENING IN SELECT CITIES OCTOBER 1 From David O. Russell, writer and director of THREE KINGS and FLIRTING WITH DISASTER comes an existential comedy starring Dustin Hoffman, Isabelle Hupert, Jude Law, Jason Schwartzman, Lily Tomlin, Mark Wahlberg and Naomi Watts. Watch the trailer now at: http://www.foxsearchlight.com/huckabees/index_nyt.html \----------------------------------------------------------/ New Scrutiny for Airline Bailout Plan Three Years After Sept. 11 September 15, 2004 By MICHELINE MAYNARD The federal loan board created in 2001 to help assure the survival of the floundering airline industry may ultimately face the opposite task and be forced to decide whether to pull the plug on US Airways. That is decidedly not what Congress had in mind when it passed $15 billion in emergency aid to the airlines only 17 days after Sept. 11. And it is hardly a position the three members of the Air Transportation Stabilization Board expected to be in after giving assistance to US Airways. But it is a distinct possibility, given that many experts think the decision of US Airways to seek bankruptcy protection for the second time means that it could liquidate. And that further illustrates the sad record of the bailout effort, industry analysts said. In the end, the loan guarantees did little to help the biggest airlines recover, either because they did not seek them, their bids were turned down, or they were unable to use the aid to their advantage. The only two airlines of note rescued by federal aid were America West and Frontier, both smaller players, not the major companies that find themselves in the worst shape in their histories. US Airways, which received the biggest package of loan guarantees awarded by the board - $900 million in 2003 - is in default. That means the loan board and the airline's lenders have the right to claim the cash, planes, airport gates and flight routes securing the $717 million loan balance. That drastic step is not going to happen in the near future. On Sunday, the board said in a statement that it understood the airline's circumstances, and its lawyer said on Monday that the board was "supportive" of its efforts to restructure. For the board to be put in such a situation shows the guarantee program was "not a good idea," said Gerald A. Grinstein, chief executive of Delta Air Lines. "We'd be better off if the government had not gotten into the business." Like a horseplayer at the racetrack, the loan program was "the government handicapping the business," Mr. Grinstein said. But Mr. Grinstein, who became Delta's chief in January, was not in that job when his company joined the airlines that sought and received help on two fronts. Congress authorized $5 billion in direct grants, to help make up for losses incurred when the air system was shut down after the terrorist attacks, and $10 billion in loan guarantees meant to help secure financing the airlines feared would not be available in capital markets. While executives were universally happy with the cash, the loan guarantee part of the equation has proved far less useful. Aside from US Airways, the only other big airline that applied for loan guarantees was United, which did not receive them and is still mired in Chapter 11 bankruptcy. Though they collectively lost billions of dollars after the attacks, American, Continental, Delta and Northwest all decided not to undergo the extensive scrutiny and hand over the stake that the board demanded in return for aid. Southwest did not apply because it remained profitable. Douglas M. Steenland, president of Northwest Airlines, said, "If one had the benefit of 20-20 hindsight, it would be better now to have had the grant program and not the loan guarantees." The real value of the loan program lay in the reassurance it gave financial markets that the airline industry would not disintegrate after the attacks, Mr. Steenland said. But in essence, it simply staved off and may have worsened the crisis the industry faces, he said. And now, the loan board is in the middle. Last week, the board - made up of Edward M. Gramlich, a Federal Reserve governor; Brian C. Roseboro, a Treasury under secretary; and Jeffrey N. Shane, an under secretary at the Transportation Department - agreed US Airways could draw from $750 million in cash to run its operations. But court documents show the board, and the airline's lenders, are demanding an accounting. Each week, from now until Oct. 15, US Airways must meet weekly cash levels and provide a 13-week cash forecast. And the airline must give full access to its books to the board, lenders, Lazard - which is the group's financial adviser - and others. For their part, the lenders and the loan board agreed they would not try to seize the company's cash or try to take control of the airline during that period. That arrangement does not satisfy Robert W. Mann Jr., an industry consultant, who said the board was putting too much faith in an airline that has received four rounds of federal help: the original cash grants, the loan guarantees, revised loan terms last spring and a portion of the $750 million in cash the board agreed it could use. "My sense is that the A.T.S.B. is being hasty," Mr. Mann said, in allowing the airline to tap its cash, before seeing and reviewing its restructuring plan. Meanwhile, the federal pension agency is upset with the airline for its plans to miss a $110 million payment to two pension plans today and for warning that it may not make future contributions. "Bankruptcy should not be the path of least resistance to deal with your pension problems," said Bradley D. Belt, executive director of the Pension Benefit Guaranty Corporation. Pensions are only one of the airline's problems. Eventually the airline will have to seek financing to exit bankruptcy, made difficult because the loan board and lenders have claim to the airline's assets. Phillip A. Baggaley, an analyst with Standard & Poor's, said to persuade the board to let the airline use some of its collateral, the airline might have to pay down a good-sized chunk of its guaranteed loans, along with fees to the board. But if US Airways is unable to get that far, the loan board will be on the spot, Mr. Steenland said. "There could come a point where the A.T.S.B. has to either assure that the loan is paid off in full, or accept a diminution in loan payments to save the airline," he said. And then, the board members "potentially face a very difficult position," Mr. Steenland said. In Washington yesterday, Senator Rick Santorum, Republican of Pennsylvania, said "things are not looking good," for US Airways, according to Reuters. Speaking with reporters after a meeting with Bruce R. Lakefield, the chief executive, Mr. Santorum blamed the situation on four leaders of the pilots' union from Philadelphia and Pittsburgh, who blocked a vote last week on the airline's proposal for wage and benefit concessions. "They've got their pound of flesh, shareholders have lost everything," he said. "Now where are we?" Last night, the pilots' union replied that US Airways' filing was prompted by its inability to make the pension payment today, not by the pilots' action. http://www.nytimes.com/2004/09/15/business/15air.html?ex=1096273875&ei=1&en=1ad05585012f46b5 --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! Click here: http://homedelivery.nytimes.com/HDS/SubscriptionT1.do?mode=SubscriptionT1&ExternalMediaCode=W24AF 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@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2004 The New York Times Company