Aloha Airlines to seek federal loan assistance
By Susan Hooper
Advertiser Staff Writer
Aloha Airlines, one of Hawai'i's major local interisland carriers, is expected to file an application as early as today for a federal loan guarantee that would help strengthen its financial health.
Aloha Airlines spokesman Stu Glauberman said the carrier expects to file before the Friday deadline, but he declined to disclose the amount of Aloha's request or other details of the application.
The $10 billion program was approved last fall by Congress 10 days after the Sept. 11 attacks. It was designed to provide assistance — in the form of federal backing for commercial loans — to airlines affected by the drastic drop in business that followed the attacks.
Like most other U.S. airlines, Aloha saw business plummet following the attacks. It cut back on interisland routes, furloughed staff, and in December entered into a planned merger with rival Hawaiian Airlines before the deal fell apart in March.
Aloha has since moved forward independently to rebuild its business, including restoring some interisland flights cut after the attacks, rehiring furloughed workers, and recruiting new ones, and adding new routes between North America and Hawai'i.
The backing of the federal government would strengthen Aloha's position in a bid for new private credit, but winning a nod from the three-member Air Transportation Stabilization Board that decides on the applications has proven to be anything but automatic for the handful of airlines that so far have applied.
The board's actions suggest its members are proceeding with considerable caution as they review the applications, to protect the federal government from exposure to financial risk.
"The sense I get is the stabilization board is driving a harder bargain than many in the industry anticipated," said Joseph Schwieterman, a transportation specialist with DePaul University in Chicago.
"... I think people thought the money would flow more freely to get the industry back on its feet," he said. "They didn't expect quite as much federal micromanagement of recovery plans. We all expected the federal government to monitor the industry closely, but we didn't expect such aggressive negotiations."
The application process is grueling, industry analysts say. The airline must submit stacks of supporting paperwork, including information from its lending institution, a description of the losses incurred because of the terrorist attacks, and a detailed business plan, including "reasonable assurance" that it will be able to repay the commercial loan.
Analysts say that, among other requirements, the board is looking for hard evidence that airlines have developed a serious cost-cutting strategy to help them return to profitability.
"They don't want the (loan guarantee) to get in the way of bold corporate action to stem the flow of red ink, because the worst thing they can do is just prop these carriers up for a few years and have them die a year later," Schwieterman said.
Jim Levine, the board's chief legal counsel, said the applications "get a thorough review by a diverse constituency," which includes the board staff as well as the staff of the three board members, who are from the federal treasury and transportation departments and the Federal Reserve System.
Levine also said that, once airlines submit their completed applications, a "negotiation process" ensues during which reviewers may ask for additional information or other changes that will strengthen the application.
"Provided that what was submitted prior to June 28 was complete, then we're open to working with it after June 28," he said.
Between Nov. 13 and June 13, eight airlines applied for loan guarantees under the program. The first two — Vanguard Airlines and America West Airlines — submitted amended applications a month after they applied. On Dec. 28, America West became the first, and so far only, carrier to win approval from the board, in the form of a $380 million loan guarantee on $445 million in commercial loans.
The board's conditional approval of America West's application came three weeks after the airline submitted its amended application. Among its other concessions, the airline offered the government 3.4 million warrants, representing 5.3 percent of America West's common stock.
In a letter to the airline, the board said its approval was contingent in part on a commitment from the airline to control growth in labor costs.
America West's experience, however, is of limited benefit in determining the fate of other applicants, including Aloha, experts said. Board officials have said that, because each airline's situation is unique, each application is considered on a case-by-case basis.
America West fared better than Vanguard at the hands of the board. On May 28 Vanguard became the first airline to be turned down for a loan guarantee, five months after it re-submitted its amended application. The board said Vanguard's application for a federal guarantee of $15 million in financing did not provide reasonable assurance the airline would be able to repay its loan.
Three days later, the board rejected the application of Frontier Flying Service for a federal guarantee of $7.2 million in financing. Among its reasons, the board said Frontier did not demonstrate it would be able to repay the loan.
At the end of last week five airlines were waiting for a decision from the board: Evergreen International Airlines; Spirit Airlines; National Airlines; US Airways and American Trans Air.
Levine said he could not estimate how many other airlines are expected to apply before the Friday deadline. But industry giant United Airlines, which lost $2.1 billion last year, is likely to be among them if it can win concessions from its workers, United officials have said.
Glauberman said he could not comment on the board's decision to reject the Vanguard and Frontier applications, including how the actions might affect Aloha's application.
"We're moving forward with our application based on our needs and our understanding of the program," Glauberman said. He said airline officials expect the application review will take 60 to 90 days.
Hawaiian Airlines is not expected to apply for a loan guarantee, company officials have said.
Reach Susan Hooper at 525-8064 or shooper@honoluluadvertiser.com.
