"The first airline to step forward and ask for federal loan guarantees after the
Act was passed and the rules were promulgated explaining the application
requirements was America West Airlines, the eighth largest U.S. airline.
America West submitted its application on November 13, 2001.91 America West
had been struggling financially before September 11 because of the softening of
the economy and decline in business travel. It had been forced into bankruptcy
during the Gulf War in 1991, when the airline industry had previously taken a
serious war-related hit. Although America West had largely recovered from that
episode and now has one of the lowest cost structures in the industry, it had
management problems in 2000 and 2001 that it was trying to correct.
Furthermore, America West had lost $55 million in the first half of 2001 as a
result of declining traffic in the early months of the recession.92 The collapse in
traffic after September 11 sent it reeling. The company’s cash reserves began
shrinking at the rate of more than $1 million per day, and it could not raise more
money.93 Although America West received $98 million of the total $5 billion in
immediate cash payments to air carriers under the Act, some analysts were
predicting that, without further federal aid, the airline would run out of cash and
have to seek bankruptcy protection before the end of the year."
"The seven-year business plan laid out in the application, and in filings made
with the SEC in connection with the issuance of the convertible debt and
warrants, indicated that America West had negotiated with lessors to
immediately retire fourteen aircraft, or 9.3% of its fleet, and to defer deliveries of twenty-five new aircraft the company had ordered for delivery between 2001 and 2004, in order to spread out receipt of those planes through 2007.103
Under the plan, the loans, which America West was hoping the government would
guarantee, would be paid off between 2005 and 2008.
Finally, on the evening of December 28, 2001, the ATSB announced that it
had approved America West’s loan guarantee, conditioned on the airline further
increasing the compensation the government would receive in the form of
additional “warrants that represent [thirty-three] percent of AWA’s common
stock on a fully diluted basis, with a strike price, expiry date, anti-dilution
provisions, and other provisions protective of the taxpayers’ interest, acceptable
to the Board.”104 (The warrants ultimately issued were for America West Class
B common stock, which had a $3 exercise price and an exercise period of ten
years.)105 The guarantee was also conditional on America West committing to
keeping its labor costs under control.106 Even with this additional compensation,
the guarantee had been approved by only a two-to-one vote, with the Treasury
representative opposing the deal.
Treasury Undersecretary Peter R. Fisher, who served as the Treasury representative on the Board, issued a prepared statement saying, “I fear that the board’s decision is likely to impede, rather than promote,
real progress toward a safe, efficient, and viable air transportation system for our
country.”
