Atsb Loan

[nycbusdriver]

Can someone give me a sensible explanation as to just what good the ATSB loan has done for USAirways?

Here we have a business that does OK usually, but is having a rough time. It needs a huge revamping, but it does have a large, loyal customer base. To get it back on its feet and make it a powerhouse in its industry will require new capital and lots of it. So the banks are wary because the bottom line right now is pretty bleak. The government, seeking to "help," agrees to cosign the the loan and the banks open their purses. But there's a catch. All that capital the banks released that was necessary to spend on the "upgrade" of the business? You can't really spend it. You can keep it in your bank account until you pay us back, but you can't spend it on doing the things that need to be done to get your business back in shape.

How does this make sense?

Anyone?

 

[usair_begins_with_u]

If UAir management was not a bunch of incompetent losers.. The ATSB loan could have saved the company.

 

[Heinrich]

I asked this awhile back and no one answered. Why take out a loan when you can't spend any of the money? Is it for the interest generated by putting the money in the bank?

 

[funguy2]

I thought I already answered this but I will try again...

Cash is like water. Inbound cash (revenue) is poured in the top of the bucket. At the bottom of the bucket, there is a hole, which is cash out (expenses). You have cash pouring in the top and going out of the bottom every minute, every day.

A successful airline, would have a small hole in the bottom of the bucket. Assuming more water gets poured in the top than goes out the hole, the airline will be cash positive and the water level in the bucket rises.

Now, the inflow at the top comes in spurts... like Christmas, and Thanksgiving, and Spring Break, and Summer. However, you have to run the airline 365day/year, so the outflow at the bottom is always pouring out.

If you have a successful airline, your water level rises because for at least some part of the year, you have a big inflow at the top, and keep the outflow steady.

However, US Airways has a big hole in its bucket, and the water (cash) is not pouring in fast enough. This means that the water level in the bucket is dropping. Once the bucket is empty, US Airways cannot pay its bills, and shuts down. So it has to do something to keep the water level up... The answer is to borrow money via the ATSB in this case. Once the water level is raised, the company can continue to try to fix itself as the level drops again.

So the answer is that the airline needs the cash to pay its regular bills. If the airline had transformed itself, it would have more than the minimum restricted amount of money...

Think of it this way, you would not wait until you were literally on your last penny to borrow some money. Even if you only borrowed $20 from a friend to get you to the next pay day. You may not even use that $20, but just want it there, just in case...

Look at America West. I am sure they have similar loan covenants to US Airways... Yet they have been profitable, and therefore now have the highest cash balances in their history... True, much of it is borrowed via the ATSB process, however, if something should happen tomorrow (like a terrorist attack), America West will have a big cash cushion to fall back on. US Airways will not, because it cannot stablize itself.

 

[sfb]

I think the basic reason is that the company needs a certain amount of unrestricted liquidity simply to operate at all. Even though the ATSB loan guarantee terms require the company to keep a certain minimum amount of cash on hand, that amount is less than the total amount of the loans, and the intra-month requirements are lower than the month-end requirements.

The company had about $975 million on-hand as of the end of the second quarter -- without the loaned funds, they'd be down around $250 million. I'm fairly certain they have to hold back a certain amount of cash to cover forward sales of air tickets, but that may be covered under restricted cash. They also need a good chunk of cash lying around to cover payroll and various expenses that come up.

 

[WorldTraveler]

NYCBus,
US won the ATSB loan solely on the basis of timing. Even 18 months ago, there was a fair degree of pity for the woes of the airline industry. US clearly was one of the most wounded by 9/11 even though it lost no aircraft.

Times have changed and over and over the industry's critics are saying that the legacy business model is broken. There is little sympathy now for the legacy airlines and any idea of getting help from the government.

US wouldn't have won the loan guarantee if it were awarded today and the government at this point will do what it has to to protect its investment but is not at all interested in doing anything to help any airline.

It is worth reading the GAO report that was posted on this board, I believe last week by Boeing Boy. One can only interpret it to mean that the US government sees the need for change in the legacy airline business model and will not prevent economic forces from doing what is necessary to restructure the industry.

 

[bofie]

NYCBus,
U

US wouldn't have won the loan guarantee if it were awarded today and the government at this point will do what it has to to protect its investment but is not at all interested in doing anything to help any airline.

It is worth reading the GAO report that was posted on this board, I believe last week by Boeing Boy. One can only interpret it to mean that the US government sees the need for change in the legacy airline business model and will not prevent economic forces from doing what is necessary to restructure the industry.

[post="169497"][/post]​

I am not sure that POTUS wouldn't bail out a big airline in two swing states in an election year.

 

[RowUnderDCA]

oh my... why isn't there an emoticon for shaking your head in dismay?

 

[UseYourHead]

Good answer funguy2,

I would add that when we applied for the ATSB loan, it was "exit financing" allowing us to execute our "Plan of Reorganization" that was approved in bankruptcy court. Had we not been approved, we would be in the same mess as UAL right now, however, we did not have a Pacific operation, or other valuable assets to sell if required to ultimately exit BK (and I hope UAL will not have to sell anything).

We have similar needs to today...we must comply with the ATSB loan covenants or the loan will be called, if the loan is called, GE and American Express will want their cash, and pull financing.

So we must become profitable, to comply....

I thought I already answered this but I will try again...

Cash is like water. Inbound cash (revenue) is poured in the top of the bucket. At the bottom of the bucket, there is a hole, which is cash out (expenses). You have cash pouring in the top and going out of the bottom every minute, every day.

A successful airline, would have a small hole in the bottom of the bucket. Assuming more water gets poured in the top than goes out the hole, the airline will be cash positive and the water level in the bucket rises.

Now, the inflow at the top comes in spurts... like Christmas, and Thanksgiving, and Spring Break, and Summer. However, you have to run the airline 365day/year, so the outflow at the bottom is always pouring out.

If you have a successful airline, your water level rises because for at least some part of the year, you have a big inflow at the top, and keep the outflow steady.

However, US Airways has a big hole in its bucket, and the water (cash) is not pouring in fast enough. This means that the water level in the bucket is dropping. Once the bucket is empty, US Airways cannot pay its bills, and shuts down. So it has to do something to keep the water level up... The answer is to borrow money via the ATSB in this case. Once the water level is raised, the company can continue to try to fix itself as the level drops again.

So the answer is that the airline needs the cash to pay its regular bills. If the airline had transformed itself, it would have more than the minimum restricted amount of money...

Think of it this way, you would not wait until you were literally on your last penny to borrow some money. Even if you only borrowed $20 from a friend to get you to the next pay day. You may not even use that $20, but just want it there, just in case...

Look at America West. I am sure they have similar loan covenants to US Airways... Yet they have been profitable, and therefore now have the highest cash balances in their history... True, much of it is borrowed via the ATSB process, however, if something should happen tomorrow (like a terrorist attack), America West will have a big cash cushion to fall back on. US Airways will not, because it cannot stablize itself.

[post="169487"][/post]​