America West Gets Federal Loan OK
America West Airlines won approval Friday for $380 million in loan guarantees, becoming the first U.S. carrier to get federal loan support after Sept. 11, but under stringent conditions that include giving the government the right to buy one-third of its common stock.
The airline’s application was approved in a 2-1 vote by the newly formed Air Transportation Stabilization Board on two conditions: that Uncle Sam be given rights to buy a larger chunk of stock in the airline’s parent--America West Holdings Corp.--than initially envisioned, and that the carrier control its labor costs to the board’s satisfaction.
The action was important not only for the survival of the struggling carrier, but because it set a precedent for other airlines considering getting the same help. And the precedent showed that U.S. regulators are ready to set stiff conditions for agreeing to guarantee loans to the industry.
Phoenix-based America West was the first to apply for a loan guarantee under the government’s bailout of the industry in the aftermath of the attacks, when air travel plunged. The package included $5 billion of direct aid and $10 billion of government-backed loan guarantees.
Offering the government stock in the company is among the most controversial aspects of the bailout package, and many other airlines are wary of making that allowance. It’s one reason most haven’t yet filed for loan guarantees of their own.
But the board’s approval of America West’s loan application shows that, while the government wants a sizable financial interest in America West in exchange for backing the loan, it doesn’t want U.S. taxpayers actually owning part of the carrier.
In a letter to America West Chairman W. Douglas Parker, the board said it wants warrants representing one-third of America West’s total common stock outstanding. Warrants give their holder the right to buy a company’s shares at a certain price and within a set period.
But the board said its warrants would not actually be convertible into voting stock, and thus the “federal government would not acquire voting rights” in the airline. Rather, the warrants in effect would enable the government to simply profit from a rise in America West’s stock price over time.
That might require that America West create a new class of stock just for the federal government. Currently, it has two classes: class B shares that trade on the New York Stock Exchange, and carry one vote apiece, and class A stock that has superior voting rights. The class A is owned by David Bonderman and his Texas Pacific Group, and they still would control America West.
America West spokesman Jim Sabourin said details about the stocks and other issues would be decided in the days ahead.
Before the board’s announcement, the airline’s class B stock closed at $2.47 a share, down 13 cents.
“On behalf of the 13,000 employees at America West and our millions of customers, we commend the Stabilization Board,” Parker said in a statement. “With the approval of the loan guarantees, competition is preserved and the viability of America West is assured well into the future.”
The federal board had been reviewing America West’s request since mid-November. At issue was not only whether the government would be adequately compensated for any risks but also whether the airline had a workable business plan to survive the air-travel slump.
The board is made up of officials from the Treasury and Transportation departments and the Federal Reserve Board. One board member, Treasury Undersecretary Peter Fisher, dissented.
Under terms of the deal, the government would repay up to $380 million of $445 million in loans America West has negotiated contingent on government backing. More than $600 million in concessions from America West suppliers and creditors also hinged on government approval.
America West, which already had revised its application twice after consulting with the board’s staff, also agreed to shorten the payback period for the loan to 4.5 years from 5.8 years.
A $200-million loan that America West negotiated before the attacks fell apart after Sept. 11, when the entire airline industry went into a tailspin. The company was losing $5 million a day and was forced to lay off 2,000 employees.
Ridership has rebounded, although the company continued to lose $1 million a day and reported a $31.7-million loss in the third quarter despite receiving $60 million from the cash portion of the bailout.
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Times wire services were used in compiling this report.
