(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
JS-1235
The Air Transportation Stabilization Board (ATSB) recently voted 2-1 to approve broad amendments and waivers under US Airways’ federally guaranteed loan agreement. While Treasury supports US Airways’ efforts to adapt to the changing climate of the airline industry, the ATSB must always strive to maintain strong protections for the U.S. taxpayer. The presented waivers do not preserve many of the stronger taxpayer protections previously agreed to between the ATSB and US Airways, and therefore, Treasury cannot support their approval. An alternative approach to afford them the flexibility to maintain compliance with covenants and pursue the significant steps necessary for restructuring would have been preferable.
On March 31, 2003 the ATSB, the lenders and US Airways entered into a loan agreement with terms and conditions that were mutually agreed upon and were designed to protect the taxpayer from unnecessary risk. The critical terms and conditions pertained to, among other items, events of default, financial covenants, and restrictions on asset sales, liens and collateral.
During the ATSB’s recent deliberations, the Department of the Treasury presented the Board with an approach that was designed to demonstrate our resolve to protect the interests of the U.S. taxpayer and provide US Airways with necessary flexibility. The Treasury proposal would have:
- Required the $250 million repayment by US Airways.
- Provided US Airways with financial covenant relief.
- Committed the ATSB to a quick review and decision process for any proposed non-cash asset sales.
- Required an ATSB evaluation of US Airways new business plan.
- Provided temporary forbearance on the “going concern” event of default. The forbearance would be subject to extension if U.S. Airways was making measurable progress in its revised business plan.
Once the ATSB approves and closes a loan, it has an obligation to enforce the contractually agreed upon terms that are designed to protect the U.S. taxpayer’s contingent liability. However, we recognize prudent flexibility is required to deal with any continued or new challenges that a previously approved applicant faces. The issues before US Airways represent a potentially significant challenge to its business. So while the Department of the Treasury wishes to provide US Airways with the flexibility to manage this challenge, we would have preferred a structure of waivers which maintained a higher level of practical protections for the taxpayers.
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