Loan Terms Could Give U.S. America West Stock

America West Airlines, confirming the U.S. government wants the right to own part of some airlines in exchange for federally backed loans, said Monday it offered Uncle Sam a stake of about 10% in the carrier to help secure a $445-million loan guarantee.

The struggling airline, a unit of America West Holdings Corp., so far is the only domestic carrier to seek part of the $10 billion in loan guarantees that are part of the U.S. bailout of the industry in the aftermath of Sept. 11.

Other major airlines are closely watching the America West application to see whether they, too, might have to surrender some ownership to win the backing they need to weather the slump in passenger traffic that followed the terrorist attacks.

The panel overseeing the program, the Air Transport Stabilization Board, had said that providing the government an equity stake was among the criteria it would consider in approving a loan guarantee. It hadn’t been clear until now whether the government would make stock ownership a priority.

But America West, which first applied for the loan backing on Nov. 13, said it filed an amended application that included warrants to acquire America West stock “following discussions with the Stabilization Board.” Changes in the filing were “in direct response to requests” from the panel, said America West spokeswoman Patty Nowack.

The Phoenix-based carrier, the nation’s eighth-largest airline, also said it raised the amount of loan-related fees it would pay, which “could result in cash payments of more than $175 million to the U.S. Treasury.” The airline also lowered the government-guaranteed portion of the loan to reduce the risk to U.S. taxpayers.

America West said its amended filing provides a more conservative forecast for how soon passenger traffic and the airline’s revenue will bounce back.

“We are confident that America West’s application is now in a form that can and should be approved,” said America West’s Chief Executive Douglas Parker in a statement.

But it’s the stock-ownership portion of the package that’s getting much of the industry’s attention, though it’s not new in corporate finance. Indeed, the Treasury turned a profit of more than $200 million two decades ago when it cashed in stock warrants it had acquired in exchange for backing loans made to Chrysler Corp., now part of DaimlerChrysler.

Warrants give their holder the right to buy stock at a specified price within a specified time period. America West said it offered the U.S. government warrants to buy 3.4 million of its Class B common shares, but did not disclose the exercise price.

America West currently has just under 34 million Class B shares, so the government’s potential ownership stake is about 10% if it approves the loan guarantee and exercises those warrants. However, America West also has Class A shares, with superior voting rights, that are controlled by financier David Bonderman and his Texas Pacific Group.

America West says the guaranteed loan would help the airline secure another $600 million in concessions from creditors and suppliers, which should enable the airline to recover. But some analysts still worry about the carrier’s future.

“We have more fundamental concerns and that is whether they are going to be able to get the traffic to the level they need to generate the cash and service their debt,” said Sean Egan, managing director of the bond rating firm Egan-Jones Ratings Co.

The company’s Class B stock rose 3 cents, to $2.61 a share, Monday on the New York Stock Exchange.

The airline received no indication of when the Stabilization Board--which is led by Federal Reserve Chairman Alan Greenspan--might respond to its application, Nowack said.

The department didn’t immediately return phone calls seeking comment.

In the new filing, the Phoenix-based carrier forecast it will lose money again next year and earn a “very modest” profit in 2003. America West said it can repay the loan between 2005 and 2008 while retaining cash balances of more than $400 million.

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Bloomberg News was used in compiling this report.