NCPA - National Center for Policy Analysis

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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