US Airways Gets Conditional OK From Federal Loan Board
US Airways yesterday was given preliminary approval of its application for $900 million in federal loan guarantees to back a $1 billion loan. However, the Air Transportation Stabilization Board is requiring the carrier, among other things, to conclude negotiations with all labor unions and provide the federal government with a greater stake in the company than initially offered in order to obtain final approval.
"The board has determined that the applicant has demonstrated a reasonable assurance that it will be able to repay the loan according to its terms," ATSB executive director Daniel Montgomery wrote in a letter dated yesterday to US Airways CEO David Siegel. "But the board does not consider the stock purchase warrants described in the application to represent sufficient participation in the applicant's potential future gains."
In a prepared statement, Siegel said the loan "is one of the cornerstones of our restructuring plan and, when closed, upon our satisfying the ATSB's terms and conditions, should provide us with the necessary liquidity and cash resources as we restructure our airline." The carrier in recent weeks has progressed on its recovery plan, deferring various payments, hammering out tentative labor union agreements and negotiating with pilots an increase in regional jet flying.
However, a new domestic and/or international codeshare agreement, deemed necessary for US Airways' recovery, has not yet been finalized. Continental Airlines recently said it would not enter into such an agreement with US Airways, leaving United Airlines--itself awaiting word from ATSB on its loan guarantee application--as the most likely partner.
Should US Airways receive final approval, the loan will help it avoid bankruptcy proceedings, at least in the near term. Thus far, America West Airlines, which provided the federal government warrants for about one-third of its stock, is the only carrier to win approval from ATSB. Aside from United, several other carriers have loan guarantee applications pending, including American Trans Air, Frontier and National airlines.