GRAHAM WARWICK / WASHINGTON DC
But strict conditions may deter other airlines from applying for government loans
The US Government has granted $380 million in loan guarantees to struggling carrier America West, the first US airline to receive state support under the Air Transportation Safety and Stabilisation Act. However, conditions attached may deter other carriers from applying.
The guarantees will allow America West to secure $445 million in loans needed to ward off imminent bankruptcy. In return for the guarantees, the government will take options on a 33% non-voting stake in America West, and will also receive over $100 million in fees during the life of the loan.
In order to receive the guarantees, the carrier must provide the newly formed Air Transportation Stabilisation Board (ATSB), a committee headed by Alan Greenspan, which disburses the Stabilisation Act funds, with executed commitments for $600 million in creditor concessions outlined in its application for the loan guarantees. The ATSB has also warned AmericaWest that it must keep labour costs down if it is to repay the loan, and told the airline's chief executive Douglas Parker that it recognised a "significant risk of default".
America West originally asked for $400 million in guarantees and offered warrants for just over 5% of its shares, but the ATSB rejected the proposed terms. Even with the revised conditions, the Board's eventual decision was not unanimous. Board member Peter Fisher, the US Treasury undersecretary for domestic finance, argued that guaranteeing AmericaWest's loans posed too high a risk for taxpayers.
Citibank will lend the airline $429 million, $380 million of which will be guaranteed by the US government and $45 million by two aircraft leasing companies. Two private sector investors will lend a further $16 million, with the option of converting the loan into a 10.1% stake in the airline.
America West announced in early January that it would defer $72 million in aircraft lease payments. An airline source says that the delays would probably be "days, rather than months", and are intended to conserve cash reserves, within the terms of lease contracts, until the first payments of the guaranteed $380 million loan come through. The deferrals are believed to be part of the $600m in creditors concessions demanded by the ATSB. America West leases around 100 of its 146 aircraft fleet, 60 from GE Capital Aviation Services alone.
Source: Flight International
