US Air relies on $1 billion cushion

It isn't applying for federal loan guarantees

January 01, 2002|By Paul Adams | Paul Adams,SUN STAFF

US Airways said yesterday that it has no plans to follow the lead of America West Airlines and apply for federal loan guarantees in an effort to shore up its finances in the midst of an industry slump.

Faced with a critical cash shortage, America West received conditional approval last week for a $380 million federal loan guarantee to help it survive an aviation industry downturn that was accelerated by the Sept. 11 terrorist attacks.

Analysts have said that America West and US Airways, the second-largest carrier at Baltimore-Washington International Airport, are among the most financially vulnerable U.S. airlines.

But US Airways Group Inc. executives have said in recent weeks that their airline has enough cash on hand to survive months of economic hardship without resorting to government loans. The carrier expects to begin the year with about $1 billion in cash reserves.

"As earlier indicated, we have no plan to file with the loan guarantee board but we will continue to monitor the economic recovery and the industry, and will act appropriately," said David Castelvetter, a spokesman for the airline.

The federal loan guarantees were included in a $15 billion airline bailout package approved after the Sept. 11 attacks.

The package included about $5 billion in direct cash assistance and $10 billion in loan guarantees.

Most airlines have already received a portion of the cash payout, but only America West and Vanguard Airlines have applied for a portion of the $10 billion in loan guarantees.

Analysts said America West, its cash running out, had little choice but to seek more federal assistance.

But because the loans come with strings attached, US Airways and other major airlines aren't likely to follow suit unless forced to do so, analysts said.

"The terms offered - or imposed - upon America West are, I think, not very attractive to any airline that has alternatives," said Robert Mann, a New York aviation consultant.

"I think, despite its difficulties, US Airways will have alternatives, and it will have alternatives especially if the industry continues to experience increases in passenger volume as it has over the last couple of months," Mann said.

America West will have to give the government about one-third of its stock and make other concessions as part of the loan package.

Though it has significant cash reserves, US Airways, the No. 7 U.S. carrier, is the most leveraged airline in the industry and continues to lose market share to budget carriers such as Southwest Airlines.

US Airways reported a $766 million third-quarter loss as many passengers avoided flying after Sept. 11.

The carrier was especially hard hit by the terrorist attacks because of a three-week shutdown of Washington's Reagan National Airport, one of its most profitable hubs.

US Airways is in the midst of a restructuring that began last summer, after federal regulators rejected its proposed merger with UAL Corp.'s United Airlines.

The plan includes eliminating unprofitable routes and incorporating more efficient regional jets on certain short-haul routes.

US Airways also decided to eliminate its Baltimore-based MetroJet fleet, which discontinued operations Dec. 2.

US Airways shares rose 74 cents, or 13.2 percent, to $6.34 yesterday.

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