Small airlines feel shut out from loans
By Leslie Miller
Associated Press
WASHINGTON — Regional airlines say a federal loan-guarantee board created to help the financially strapped industry recover after Sept. 11 is showing little regard for small carriers.
The board has approved one guarantee and given conditional approval to a second for large airlines close to bankruptcy when those decisions were made. All four applications the board considered from small carriers were rejected.
"We're just perpetuating dinosaurs that aren't able to meet the demands of the market in the 21st century," said Alan Bender, aviation professor at Embry-Riddle Aeronautical University. "This is being used to bail out the airlines for problems that existed before Sept. 11."
A board spokeswoman, Betsy Holahan, said all applications are treated equally and evaluated carefully.
Added Rep. John Mica, chairman of the House Transportation aviation subcommittee: "They're being very stingy with taxpayer-guaranteed dollars, and that's what we wanted,"
In Hawai'i, Aloha Airlines is waiting for a decision from the board on its application for a five-year, $45 million loan — $40.5 million of which would be guaranteed. Hawaiian Airlines did not apply for a loan.
Industrywide, more than 100,000 layoffs were announced in the weeks after Sept. 11. Midway Airlines ceased operations and announced plans to become part of US Airways.
Congress, moving quickly, approved $5 billion in direct payments to airlines for lost business because of the attacks and created the Air Transportation Stabilization Board. It is making up to $10 billion in loan guarantees to airlines that can show they were hurt by the attacks.
A guarantee makes the federal government a co-signer on an airline's loan, agreeing to cover the debt if the airline folds. The airlines arrange the loans, but the financing will not go through without the government's signature.
The board, which meets secretly, has three voting members: Peter Fisher, Treasury undersecretary for domestic affairs; Kirk Van Tine, general counsel for the Transportation Department; and Edward Gramlich, a Federal Reserve governor.
From the outset, critics were concerned the board would favor politically-connected larger airlines over smaller, regional airlines. There also were worries the guarantees would just delay the inevitable demise of some airlines, leaving taxpayers responsible for the loans.
Michael Conway, chief executive of Las Vegas-based National Airlines Inc., called the board "the most powerful force affecting this industry today."
National's request for a $50.5 million loan guarantee was rejected last week because it was deemed too risky. With other low-cost carriers in National's market, the board said, the airline "wasn't essential to a safe, efficient and viable commercial aviation system."
Conway said that America West, the eighth-largest airline and the first to get a loan guarantee, is using the financing to expand its service so it can drive National out of business.
National has filed a complaint with the Justice Department.
America West spokeswoman Janice Monahan denied Conway's claims.
America West was on the brink of bankruptcy when it received a $380 million guarantee in January. In return, the airline had to give the government the option over 10 years to buy one-third of the company's publicly traded stock at a fixed price — 18.7 million shares for $3 each.
The deal also called for America West to give the government annual payments totaling $135 million over the nearly five-year life of the loan, as well as a $3.8 million fee upfront.
