Airlines may decline loan offer
Airlines may decline loan offer
By Andrew Edgecliffe-Johnson in New York and Mark Odell
Published: October 8 2001 20:33 | Last Updated: October 8 2001 22:55
Several US airlines may decide not to take up the largest portion of the aid offered under the federal assistance package, despite having lobbied intensely for a government bail-out of the industry.
The Air Transport Association estimates that only half of the 10 largest carriers will apply for loan guarantees offered by the government, which could total $10bn.
The guarantees are in addition to the $5bn in cash already granted under the bail-out scheme.
Continental Airlines, seen as one of the carriers most at risk after last month’s terrorist attacks, said on Monday: “We are going to try to borrow first in the private capital markets and will only apply for government loan guarantees if the private capital markets are not available.”
Southwest Airlines, the largest discount airline, has said it does not expect to need the loan guarantees, and others including United Airlines said on Monday they had not decided whether to apply.
Michael Linenberg, airline analyst at Merrill Lynch, said airlines were cautious about possible dilution to their current shareholders, as the government can ask for warrants over the shares of carriers whose loans it guarantees.
He added that many carriers were already highly leveraged, with debt to capital ratios of more than 90 per cent. “If this means they will take on another $1bn or $2bn in leverage, what do you think the credit rating agencies’ response will be?” he asked.
Jim Higgins of Credit Suisse First Boston said the loan guarantee scheme “will merely extend, not fix, the financial suffering at some of the weaker carriers, notably America West and US Airways”.
Airline stocks in the US and Europe fell on Monday morning in response to the US-led strikes against Afghanistan and the second fatal airliner crash in five days, but rallied from their lows later.
Safety concerns were further heightened following the crash of an SAS-operated airliner in Milan, which claimed the lives of all 110 people on board. The disaster came less than a week after the crash of a Russian airliner in the Black Sea.
More gloom descended on the sector after Amadeus, one of the world’s largest travel reservation systems, revealed that airline bookings fell 27 per cent in the 20 days after the attacks on the US. Bookings for the first five days of October were 17 per cent down, it added.
Shares in Northwest Airlines and US Airways were each down more than 3 per cent by early afternoon, although AMR, the parent of American Airlines, rallied 2.4 per cent.
KLM, the Dutch carrier, was one of the biggest European fallers, closing down 30 cents at E8.60, while Alitalia fell 2 per cent to E0.79.
Europe’s two biggest airlines, British Airways and Lufthansa, recovered from sharp intraday losses. BA rose 7p to close at 162p, while Germany’s flag carrier rose 25 cents to 10.85.
