The US government's Air Transportation Stabilization Board may be working after all, even if its stabilising effect has less to do with the loans that it has approved, than the very fact of its existence.

So far, the Board has only offered a solitary loan guarantee to America West. Yet Board director Joseph Adams argues that its very presence has helped to bring back some stability to the uncertain airline markets post-11 September.

America West is cited as a success story. Since receiving the Board's first and only loan to date, the Phoenix-based carrier has posted a stronger operating performance and has begun taking on the role of airfares reformer. At other major airlines, the lesson of America West has not been lost: It won its $429 million in backing in large part because it satisfied the Board that it had the co-operation of its lenders and suppliers, as well as its workers in the form of pay concessions. And it has also helped sharpen the focus of labour negotiations.

Mike Dyment, managing director of airline consulting at Arthur Andersen, says the Board will be wary of advancing funds that will just end up being spent on higher operating costs. It made it "very clear that the funds are for working capital," says Dyment, who advises carriers on the stabilisation funds.

As spring began in Washington, the two carriers with the chronically highest labour costs, United Airlines parent and US Airways, said they were seriously considering seeking loan guarantees. Their unions interpreted this as a sign that they would use the light touch of the federal helping hand to urge them to givebacks at the negotiating table.

Within days of word getting out that US Airways might seek the Board's aid, its Air Line Pilots Association chapter decided that it could after all bargain with new chief executive David Siegel on scope-clause revisions. The union reached agreement on the same day that Siegel formally told Wall Street he would "likely" seek aid.

United has only said that it would actively consider the loan guarantees, but that may be enough. Management can speak softly if government is waiting in the wings with a big stick.

The lessons of America West also hover over the United discussions. America West gave the government an equity stake in return for the loan guarantees, which would alarm the United unions, whose once majority stake in the group could be diluted still further.

If the Board's mere presence speaks volumes to airlines, so also does its silence on one case - that of tiny Vanguard Airlines. The small carrier, based in Kansas City, sought a loan guarantee in December, about three weeks after America West did, but was asked to revise its application and has continued discussions since.

Vanguard says that the issue seems to be the criterion of size. In other words, it may just be too small, but its case has drawn the attention of key members of Congress. They insist that size does not matter.

Airlines have until the end of June to make their case for a piece of the $10 billion fund that the board can use for loan guarantees, and given the board's record of very careful deliberation before acting, says Dyment, that makes it wiser to act sooner. But given the careful deliberation that would accompany board scrutiny of a loan-guarantee application, this is not a decision to be made in haste.

Source: Airline Business