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Weaker airlines to get help
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October 4, 2001: 8:38 a.m. ET
Draft loan guarantee rules would allow no-collateral loans at higher rates
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NEW YORK (CNNfn) - The Bush administration is considering giving better loan terms to the stronger U.S. airlines, but won't shut out the weaker carriers, according to a published report.
The Wall Street Journal, quoting sources who have seen a 30-page draft memo being circulated among airline executives and investment bankers, said the terms of the loan will take into account the risk for the government. Airlines that can put up 20 percent collateral or agree to quicker repayment would have lower interest rates or lower fees than those that cannot meet those terms.
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Continental Airlines and other carriers that have relatively few unencumbered aircraft still would be able to get federal loan guarantees under a draft of new loan rules, according to a published report. | |
The Sept. 11 terrorist attack and the resulting drop in passenger traffic created a crash crunch at a number of carriers. Congress quickly passed a bailout package including $5 billion in direct assistance and $10 billion in loan guarantees.
Some of the financially weaker carriers were afraid that the Office of Management and Budget loan guidelines would lock them out of receiving loan guarantees. The Journal report says the draft memo has at least allayed those concerns for now.
If the rules were to require 20 percent collateral, the three largest airline companies, AMR Corp. (AMR: Research, Estimates), which owns American Airlines and Trans World Airlines, United Airlines owner UAL Corp. (UAL: Research, Estimates), and Delta Air Lines (DAL: Research, Estimates) would be able to get loans because of billions of dollars worth of unencumbered aircrafts and engines. A number of other major carriers, such as Northwest Airlines (NWAC: Research, Estimates), Continental Airlines (CAL: Research, Estimates), America West Holdings (AWA: Research, Estimates) and Alaska Air (ALK: up $1.84 to $23.00, Research, Estimates) would have trouble getting new loans.
The paper said some Congressional leaders had written to OMB to urge that loan guarantees not be too restrictive.
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"It was not our intention for the federal government to become the architect of a new aviation economy, effectively picking winners and losers and in doing so contributing to the further consolidation of the airline industry," said a letter signed by Senate Majority Leader Trent Lott, R-Miss., Sen. Harry Reid, D-Nev., the Democratic Whip, and others. 
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