Most airlines pass on federal loans

Jonathan D. Salant

Monday, July 1, 2002 | 9:50 a.m.

WASHINGTON -- 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.

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.

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," Darryl Jenkins, director of George Washington University's Aviation Institute, said. "Everybody was scared. None of us knew at the time what was going on. The whole industry was looking at just trying to survive."

The board that rules on the loan applications consists of representatives of Transportation Secretary Norman Y. Mineta, Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary Paul O'Neill. Comptroller General David Walker is a nonvoting member.