DAVID FIELD / WASHINGTON DC
The second stage of the $15 billion US airline bailout has met with surprising resistance and scepticism from potential recipients. The $10 billion tranche of loan guarantees follows a $5 billion cash package, of which the first half has been paid out on a capacity basis. But the guarantees come with so many conditions and strings that major carriers have balked at applying.
The guidelines issued by the Federal Office of Management and Budget (OMB) favour stronger airlines - which in turn have an incentive to avoid taking the loan guarantees because the government wants to lend to airlines that issue warrants or other equity instruments. These let the government "participate in the gains of the company". This, says attorney Bill Rochelle of Fulbright and Jaworski in New York, will discourage carriers from diluting their equity by issuing any form of new shares or warrants giving rights to buy shares at fixed price. Carriers who can borrow elsewhere will do so, says Rochelle, and airlines that do borrow will have to pay an annual fee that goes up each year to encourage rapid repayment.
But wherever an airline borrows, added leverage is added debt, says Merrill Lynch analyst Mike Linenberg. "What do you think the credit-rating agencies' response will be to an added $1 billion or $2 billion more in leverage?" he asks.
OMB director Mitch Daniels insists the government is not getting into the business of picking winners and losers. But the loan-guarantee guidelines clearly prefer carriers with the strongest and most detailed business plans. An ownership or equity stake could put the government in the role of encouraging mergers and consolidation.
The rules also favour airlines that offer collateral or other pledges that reduce the government's risk. That provision, says analyst Holly Hegeman of Planebusiness.com, would hasten the bankruptcy of already weak carriers. The OMB loan-guarantee rules also urge airlines to seek concessions from existing lenders and labour.
Source: Flight International
