Airlines received less than half the loan guarantees they sought from the government since the 2001 hijackings, with taxpayers backing just under 16 percent of $10 billion in available assistance.
Frugality by the Air Transportation Stabilization Board, created by Congress to help airlines get private loans when credit markets dried up after the Sept. 11 attacks, has cut two ways since the final and largest application, a $1.1 billion request from bankrupt United Airlines, was rejected a week ago.
Labor groups, some airlines and lawmakers have criticized the three-member board for being stingy and not taking a "longer view" of how denying bids would impact thousands of workers, airports and the communities that carriers serve.
“Congress thought $10 billion would back up an industry to take out the effect of September 11th. Somehow, only 16 percent of that money got guaranteed,” said Duane Woerth, president of the nation’s largest pilots union, the Air Line Pilots Association.
The board approved six of 16 applications, floating $1.56 billion to passenger and cargo airlines to support $1.74 billion in private loans. The government agreed to back between 80 and 90 percent of private financing for each airline, with guarantees maturing in five to seven years.
The biggest success has been America West Airlines, which received the first guarantee of $379 million two months after the attacks and is now profitable and well along in repaying its debt. Frontier Airlines repaid its $63 million loan guarantee early.
The biggest risk is US Airways, which received a $900 million guarantee to exit bankruptcy in 2003. It continues to struggle and has not ruled out another bankruptcy filing. US Airways repaid $250 million of the guarantee, but has restructured terms for the balance.
Despite concerns over US Airways, an architect of the loan guarantee program in Congress and some industry experts agree the board performed as designed.
“We wanted it tough and they were tough. We wanted it to be a guarantor. It wasn’t an open trough for everyone to feed at. We wanted it to be very frugal with taxpayers’ money,” said Rep. John Mica, a Florida Republican and chairman of the House aviation subcommittee.
Treasury Secretary John Snow, whose agency oversaw the board, said decisions were made on merit, despite assertions that politics clouded some cases, especially United’s.
The board weighed an applicant’s business plan and its ability to repay. It also considered market conditions that could preclude or support a guarantee.
Many decisions were split, with the Treasury’s representative opposed, the Transportation Department in favor and Federal Reserve Board Governor Edward Gramlich casting the swing vote.
“I think it was nonpolitical, contrary to what a lot of people thought and what some people continued to believe and say. I think you had three good agencies calling it like they saw it,” said Dorothy Robyn, a Brattle Group consultant.
Some big, highly leveraged airlines, like Delta Air Lines and American Airlines, opted not to participate. They were dissuaded partly by the tough criteria and the government’s interest in acquiring equity.
Having made decisions on guarantees, the board must now manage repayment and handle its investments.
The board received fees and stock warrants from all six of the airlines it approved — America West, US Airways, ATA Holdings Inc., Aloha Airlines, Frontier and World Airways. The average stake is 10 percent, except for America West, which is 33 percent.
Some of the investments are paying off, at least on paper. As of July 1, the government’s projected profit on America West stock warrants was approximately $111 million and approximately $16 million on Frontier. But the 10 percent stake in US Airways is currently worthless.
Anne Womack Kolton, a spokeswoman for the stabilization board, said it was exploring options for handling warrants but there is no timeframe for selling them.
