Posted on: Saturday, December 29, 2001

Board backs loan guarantee for America West

By Robert Gehrke
Associated Press

WASHINGTON — America West Airlines, the first to file for government help after September's terror attacks, received conditional approval today for federal support that may fend off bankruptcy.

The Air Transportation Stabilization Board voted to grant conditional approval for $380 million in loans that the airline sought under a $10 billion package of loan guarantees passed by Congress.

Under terms of the deal, the government would repay up to $380 million of $445 million in loans that America West has negotiated contingent on government backing.

More than $600 million in concessions from America West suppliers and creditors hinged on government approval.

A denial of the loan guarantees could have been a severe blow for the cash-strapped airline.

Sen. Jon Kyl, R-Ariz., said yesterday that the company has until Wednesday to pay $87 million to creditors.

Aviation consultant Morten Beyer said bankruptcy could have been possible if the government hadn't intervened, but the company may still experience turbulence.

"They've still got a very poor yield and a weak balance sheet that they've got to cope with, and in my mind there is still a question what America West can do," he said.

Add strong competition in the low-fare market from Southwest Airlines, and "they've definitely got the deck stacked against them," Beyer said.

He went as far as to say: "I don't think anybody really needs them."

The airline, based in Tempe, Ariz., employs 12,000 and is the nation's eighth largest, but it is widely regarded as the weakest financially. It was the first to seek a piece of the $10 billion in federal loan guarantees.

Vanguard Airlines, a smaller airline based in Kansas City, Mo., has since applied.

America West twice reworked its application at the board's request.

The first time, America West offered the government the option of buying 3.4 million shares of America West stock — 10 percent of the company's publicly traded shares.

The airline also scaled back its request from $400 million, brought in a new lender without a financial stake in its survival and agreed to pay a $3.8 million upfront fee to the government. It promised to repay the loans in 4 1/2 years.