Most airlines shun federal loan guarantees

Associated Press ^ | Sat, Jun. 29, 2002 | JONATHAN D. SALANT

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WASHINGTON (June 28, 2002 6:11 p.m. EDT) - Less than half of the major U.S. airlines sought government-backed loans under a program created to help the industry recover from the Sept. 11 terrorist attacks.

Of the country's 11 largest passenger airlines, only four - America West, American Trans Air, United Airlines and US Airways - asked the Air Transportation Stabilization Board to lend them money to keep flying.

The loan program required airlines to provide detailed information and let the government buy stock in their companies, a provision modeled after the Chrysler bailout.

"Once they actually looked at what the deal was, a lot of them said, 'We'll pass,'" said Dean Headley, associate professor of marketing at Wichita State University and co-author of an annual study on airline quality. "That doesn't mean they're all out of the woods, but the baggage that came with the loans is something they didn't want to deal with."

Air Transport Association spokesman Michael Wascom said the provision requiring airlines to let the government buy stock may have discouraged airlines from seeking government help. "There are some carriers who decided that was not a consideration they wanted to entertain," said Wascom, whose trade group represents the major airlines.

Nine smaller airlines also have applied for help under the $10 billion loan program, according to the Air Transportation Stabilization Board.

Four submitted applications shortly before Friday's deadline: Aloha, Frontier, Great Plains and World. The others are Evergreen International, National and Spirit, whose applications are still pending; and Frontier Flying Service and Vanguard, both of which were rejected.

Besides the loan program, Congress also provided $5 billion in grants for the airline industry, Most of that money has been distributed.

Immediately following the attacks - in which terrorists hijacked two United and two American Airlines jetliners and crashed them into the World Trade Center, the Pentagon and a field in Pennsylvania - the nation's air fleet was grounded. Traffic has yet to return to pre-Sept. 11 levels.

The Air Transport Association reported that airlines carried 45.3 million passengers in May, down 10.3 percent from the same month a year ago. Airlines also carried 11.6 percent fewer passengers during the first five months of 2002 as they did during the same period in 2001. The Federal Aviation Administration has predicted air travel won't return to pre-Sept. 11 levels until 2003.

So far, the board has approved one application, that of America West, which received $380 million in government-backed loans, in exchange for warrants to buy 5.3 percent of the airline's stock.

Those still waiting to hear about their applications include United Airlines, which is seeking $1.8 billion in loan guarantees; US Airways, which asked for $900 million in backing; and American Trans Air, which requested $165 million.

Although US Airways didn't lose any planes Sept. 11, its business was hurt when Reagan National Airport was shut down for three weeks and then allowed to reopen with only a limited schedule.

Other airlines said they don't need the loan guarantees.

"We believe it is unnecessary and would be inappropriate to apply for a federal loan when private capital is clearly available, especially given the terms that the board would require," said Jeffrey Campbell, senior vice president and chief financial officer for American Airlines.

Alaska, American Eagle, Delta, Continental, Northwest, Southwest spokesmen all said Friday the airlines would not ask for government help.

With the small number of airlines seeking government-backed loans, one expert said the program may not have been needed in the first place.

"I'm not sure that it was necessary and I'm not sure it was a good idea," said Darryl Jenkins, director of George Washington University's Aviation Institute. "Everybody was scared. None of us knew at the time what was going on. The whole industry was looking at just trying to survive."

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