Government loan board rejects operator's first request for fear of repayment problems

Vanguard Airlines is rushing to re-file its application for a US government loan guarantee after a first request was denied. But with the scheme ending on 28 June, time is running out to make use of the $10 billion of loan guarantees made available to US airlines last September after the terrorist attacks.

Kansas-based Vanguard says it was "surprised and disappointed" that its bid for $13.5 million of federal guarantees on a $15 million loan was refused last week. The ailing low-fares carrier had been working on its application since December and twice cut the amount of guarantees it was seeking after an initial request for $60 million.

The Air Transportation Stabilisation Board (ATSB) says Vanguard's proposal "did not provide a reasonable assurance" the carrier would be able to repay the loan. Vanguard vice-president marketing Elizabeth Cattell says a new application will be filed, in which the company will address the ATSB's concerns about repayments rather than again reducing the amount sought.

So far, only America West Airlines has benefited - it gained approval for a $429 million government-backed loan in January.

Other airlines that have submitted applications include low-fares carriers National Airlines and Spirit Airlines, cargo carrier Evergreen and tiny Alaska-based Frontier Flying Service.

US Airways has indicated it intends to apply by mid-June and United Airlines is believed to be considering an application. However, their labour unions may not be willing to accept pay concessions that the ATSB might attach to a loan guarantee. Most US majors have also indicated that stiff terms make it attractive only as a last resort, perhaps explaining why so few have stepped forward despite massive industry-wide losses.

Non-US carriers, meanwhile, are complaining it represents an unfair subsidy. Some US carriers are also concerned that such loan guarantees could prop up competitors struggling before 11 September.

That criticism may help to explain the ATSB's reluctance to part with much of the $10 billion at its disposal.

Source: Flight International