National’s chance of gaining a federal bailout loan analyzed

Thursday, Dec. 6, 2001 | 10:33 a.m.

The cornerstone of National Airlines' bankruptcy reorganization plan is gaining approval for a federally guaranteed loan of at least $45 million. But just how easy will that be?

The issue is alluded to in National's 95-page disclosure statement for its reorganization plan filed in U.S. Bankruptcy Court in Las Vegas Tuesday.

"Although New National intends to purchase and/or lease additional aircraft and equipment through its exit financing arrangements, such financing arrangements may not be sufficient to meet New National's capital needs," the plan's section on "risk factors" says. "Additional debt or equity financing may be needed and such financing may not be available to New National at all or on terms acceptable to New National."

Last month David Walker, the head of the General Accounting Office, which helps oversee the $10 billion in federal loan guarantees approved in the Air Transportation Safety and System Stabilization Act, said the loans weren't designed to bail out companies that had "significant financial challenges" before the Sept. 11 terrorist attacks.

"The purpose of the loan guarantees is to assist air carriers who suffered incremental losses due to the terrorist attacks of 9/11 and to whom credit is not otherwise reasonably available," Walker said in a speech to the International Aviation Club in Washington. The speech is posted on the GAO Internet site.

Walker is a non-voting member of the Air Transportation Stabilization Board, which will make the decisions on the loans. Other board members include the chairman of the Federal Reserve and the secretaries of Transportation and Treasury. All three have delegated board responsibilities to other staff members.

A GAO spokesman said Walker has declined all media requests for an interview and that the agency wouldn't discuss individual loan requests.

"One obvious and critical policy question that the board will have to face concerns the issue of how to define when a carrier has access to credit on 'reasonable terms.' What does that mean?" Walker said in the speech.

Walker said one possible framework to consider an airline's long-term viability is to divide loan applicants into three categories: carriers that were viable before the attacks and can obtain commercial credit on reasonable terms; carriers that were viable before the attacks, are considerably worse off today, but could still repay a loan; and carriers that were facing significant challenges before the attacks and now.

"These carriers may not be able to obtain access to credit on reasonable terms and may not be able to provide a reasonable assurance that the loan would be repaid," he said.

Under such a scenario, he said the burden would be on the individual carrier to prove that it fits the characteristics of the second category.

Under Walker's suggested framework, an airline like Southwest -- the busiest operator at McCarran International Airport -- would fit under the first category. An airline like Midway, which filed for Chapter 11 bankruptcy protection in August, discontinued flying and still hasn't returned to service, likely would fit in the third category.

But would National and, for that matter, financially weak America West Airlines, be treated like Midway or like a Category 2 company?

Not surprisingly, National's founder and chief executive officer, Mike Conway, was not impressed with Walker's remarks.

"The (aviation) industry in the second quarter lost several billion dollars," Conway said. "(Walker's remarks) don't mean anything.

"I certainly thought we were viable (prior to the attacks)," Conway said. "The people buying tickets, the vendors, the aircraft providers ... all of them thought we were viable."

Attorneys for several creditors concurred.

"This seems to me to be just the kind of airline they're (federal government) trying to help," said Steven Szostek, who represents Ameristar Casinos Inc., one of the creditors.

"What they should be looking at is the borrower's ability to pay back the loan," Conway said. "It's not how ugly or good looking you were on the date prior (to the attacks). It's can you pay the money back?"

Aviation expert Mike Boyd of the Boyd Group, Evergreen, Colo., said it would be "ludicrous" for the board to turn down National's or America West's loan requests, especially after the government issued grant money to both airlines in a separate aid package.

"If they turn down a loan to National, it would show that this administration has a total lack of comprehension of any kind of aviation policy," Boyd said. "After giving away all that money (in the grants), why would they turn down a loan?"

National already has received $17.9 million in grant money. One remaining installment of about $4.2 million, due in January, would give National a total of about $22.1 million in compensation for the government's closure of the nation's airspace in the days following the Sept. 11 attacks.