Airlines Say "No Thanks" to Federal Loan Guarantees
January 14, 2002
Of the nation's 10 largest airlines, only America West has applied for its share of the $10 billion in loan guarantees Congress set aside for the industry last fall as part of a $15 billion bailout package. Following the attacks of Sept. 11 and the subsequent 50-hour grounding of the airlines by the government, airline executives paraded the specter of the industry's possible bankruptcy unless a bailout was forthcoming.
So why have they largely avoided the loan guarantees?
- From the very beginning, the airline bailout consisted of two separate measures: a cash payout ostensibly to compensate the airlines for the grounding, and a credit line designed to keep hard-hit airlines solvent in the face of reduced ridership.
- In a compromise between the airlines and the government, loan guarantees were set at $10 billion, as well as a payout of $5 billion in cash -- but no tax breaks, which the industry had lobbied for.
- Taking the cash would obligate the airlines to almost nothing -- but the loan guarantees carried a great many strings, which is why the airlines have been turning them down.
- Another reason the airlines could pass up the loan guarantees is that most of the majors had substantial lines of private credit -- in the case of some companies, over $1 billion -- they could call upon without opening themselves up to government dictates.
Experts say that most carriers were never interested in a traditional bailout. Just about the only reason they had for going along with the highly conditional loan guarantees was their public relations value. The guarantees were a fig leaf for the $5 billion federal giveaway.
Source: Noam Scheiber (New Republic), "The Airlines Sure Needed a Lift. Or Did They?" Washington Post, January 13, 2002.
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