US Airways says bankruptcy may loom if Congress curtails emergency loans

Monday, June 3rd 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ US Airways and its supporters are battling congressional efforts to curtail the $10 billion in emergency airline loans that Congress approved just after Sept. 11, warning that squeezing the bailout program could force the company into bankruptcy.

The nation's seventh-largest airline and lawmakers friendly to its cause are in an uphill battle against holding up the loans for even a few months. The delay would help to pay for add-ons to the $27.1 billion President Bush wants in new emergency spending for the military and homeland security.

The fight has contributed to slow progress on legislation paying for the battle against terrorism, because the House and Senate versions of those bills contain provisions restricting the loans.

US Airways has been preparing to seek a federally backed loan of about $1 billion from the program. Airline officials maintain that waiting until Oct. 1, when the government's new fiscal year begins and the loan guarantees would become available again, will be too late.

Congress and Bush created the loans _ along with a separate $5 billion in grants _ to help airlines weather the drop in travel after the terrorist attacks.

``We'll have to consider reorganizing under the bankruptcy laws'' without the government-backed loans, said US Airways spokesman David Castelveter. ``When you do that, jobs are at stake.''

US Airways tried to stave off the loan restrictions, with lobbying by top executives and Capitol Hill visits by some employees in May. The airline had also contributed nearly $167,000 to congressional candidates in 2001 and early 2002, the sixth most of any airline, according to records compiled by the Center for Responsive Politics, a private group that monitors political contributions.

Even so, the airline struck out twice, both with the House and with the Senate Appropriations Committee.

The $29 billion-plus counterterrorism bill that the House passed on May 24 included language forbidding any new federally guaranteed loans to ailing airlines until Oct. 1. US Airways says it needs a cash infusion by August.

The Senate committee has a similar provision _ plus a permanent cut in the loan program's size to $4 billion _ in its $31 billion anti-terror legislation. Senators planned to begin debating that bill Monday when they return from their Memorial Day recess. The fight over the loans could be time consuming.

``This bill is not ready for passage,'' Sen. Rick Santorum, R-Pa., whose state has US Airways hubs in Philadelphia and Pittsburgh, warned before Congress' break. ``There are serious changes that must be made in this legislation for this bill to go through the Senate.''

With intense opposition from lawmakers from areas where the airline has major operations _ mostly in the East _ congressional aides say privately that the provision could well end up being dropped.

But it will not be easy.

The measure was included to help reduce the terrorism legislation's overall cost, as demanded by both Bush and GOP conservatives. The Senate claims $393 million in savings from the provision, the House $1.3 billion.

Removing the language probably would mean savings must be found elsewhere, which is never simple.

In an indication of how badly House GOP leaders needed to keep the savings in the bill, Virginia GOP Reps. Tom Davis and Frank Wolf both voted for the bill, but only after stating they had been told the problem will be resolved.

Both of their districts are home to numerous employees at Ronald Reagan National Airport, where US Airways has its headquarters.

Critics argue that the airline was troubled before the attacks. It reported losses of $269 million in this year's first quarter and $1.17 billion in 2001, and $269 million in all of 2000 as well.

Citing the airline's problems and noting it has yet to apply for the federally backed loan, Rep. James Walsh, R-N.Y., said during the House debate, ``It is no surprise that an airline this poorly managed would not have their paperwork done.''

The deadline for applying for the loans is June 28.

US Airways officials say they have not applied because they must first complete a financial plan calling for up to $1.3 billion in annual savings _ including about $950 million in concessions from the pilots, flight attendants and other unions. Those talks continue.

America West has received a $429 million federally backed loan, the only one so far under the program. Many airlines are reluctant to seek the loans because conditions include giving the government an option to purchase part of the company.