US airlines may spurn state aid

THE US airline industry wrapped Congress in a big congratulatory hug when congressmen set aside partisan differences to approve a $15bn (£10.3bn) package of loan guarantees and grants for the devastated industry within days of the 11 September disaster.

Dozens of struggling US carriers were handed more than $2bn in the immediate aftermath of the attacks but the bulk of the aid was to be made in loan guarantees if carriers could prove need and presented a viable business plan for weathering the industry downturn.

British carriers were upset at the broad promise of US government support because they believe it has enabled American rivals to offer profit-killing deals on transatlantic travel that they have been forced to match.

Three months on, however, only one major US airline has applied for loan guarantees and industry criticism of the programme is mounting as the board dispensing the money is reportedly seeking tough conditions for approval, including a government equity stake in exchange for aid. At the same time, there are signs the airline industry is regaining speed faster than anticipated and some of the carriers expected to apply for extended government help may not do so, analysts believe.

The number of domestic US passengers was down 19.5% in November from a year earlier but that was a big improvement from October when air travel was off 23%, according to the Air Transport Association. Several carriers, including Continental, have said that they could return to profitability as soon as the second quarter of 2002, if current trends continue.

America West, the only major carrier to apply for further aid, recently revised its application for $400m in loan guarantees to increase the chance of approval. Without the government-backed funds, the regional carrier, said to be losing $1m to $2m a day, may be forced to file for bankruptcy. America West, the eighth-largest US airline, earlier amended the proposal to offer the government a 10% stake.

Other airlines are opposed to any US government equity and some may not apply at all if America West's proposal becomes the standard-for approval. 'The government-should be compensated for the risk they assume,' Northwest Airlines president Douglas Steenland said recently. 'But each airline should be looked at case by case and no one template used for each one.'

The controversy over the loan programme may die down as market conditions improve. The airlines have until June to apply for the loan guarantees but by then they may not need them.