Struggling air carrier US Airways Group Inc. asked the government to guarantee 90 per cent of a $1 billion loan that it would use to help salvage its business, which took a huge financial hit after the September 11 attacks.
The Arlington, Virginia-based air carrier, the nation's sixth-largest, reported a $2.1 billion loss last year, and its financial stability deteriorated even further as it reported a $269 million shortfall in the first quarter of this year.
The carrier filed an application on Monday evening for a $900 million loan guarantee from the government's Air Transportation Stabilization Board (ATSB), which was created to aid the faltering airline industry after the September 11 attacks.
US Airways' business was hit particularly hard after September 11 as traffic plunged on many of its routes, which are concentrated on the East Coast. Its operations at Washington DC's Reagan National Airport came to a standstill following the attacks, when the airport was shut down for weeks.
The airline had said over the past few weeks that it was preparing to ask the government to back its loans through a loan guarantee, which it claims is a cornerstone of its restructuring plan. US Airways has said it may have to file for bankruptcy if the guarantee is not granted.
US Airways spokesman David Castelveter said on Monday that the airline has had "a number of discussions" with possible lenders who could provide the $1 billion loan.
One condition of the government's willingness to guarantee loans from the private sector to US airlines, most of which have poor credit ratings, is that some of the backing must come from another lender.
Castelveter would not comment on whether talks were underway with lenders who might back $100 million of the loan that would not be federally guaranteed.
Merrill Lynch analyst Michael Linenberg said the timing and amount of US Airways' loan guarantee application were not surprising.
"The amount that they're asking for is in line with what they've put out with their plan," Linenberg said. The actual filing of US Airways' application may be more a perfunctory move than anything else, he added, because the carrier is still mired in negotiations with labor unions, suppliers and lenders in an attempt to cut more than $1.3 billion in annual costs.
US Airways has said that slashing costs is necessary to make it an attractive candidate for the loan guarantee.
America West Airlines, a unit of America West Holdings Corp., is the only air carrier that has applied for and received federal loan guarantees, which are part of a $10 billion programme created to boost the airline industry after demand for air travel dropped precipitously following the September 11 attacks.
After revising its application several times, promising to keep labour costs in check, and granting the government warrants to buy up to one-third of the company's stock, No. 8 US carrier America West was approved for a $380 million loan guarantee.
Applications from both Vanguard Airlines Inc. and Frontier Flying Service were recently rejected when the government said it was not confident either carrier could repay the loans.
US Airways will continue to meet with its labor unions this week, as the parties attempt to hammer out agreements on wage concessions and other issues ahead of the final loan guarantee application deadline of June 28. Union leaders have said the negotiations are expected to be finished by Saturday.