Bailout Package Could Turn Taxpayers Into Airline Investors

As Congress debated the finer points of the proposed Airline Bailout Bill, which sailed through Congress late Friday night and was signed into law on Saturday by President Bush, most attention was centered around two main parts of the bill -- the amount of direct cash aid for the airlines and the insurance liability provisions within the bill.

But one part of the bill that didn't get much coverage was the $10 billion guaranteed-loan program for the airlines.

As part of this program, airlines will be able to apply for assistance through an Air Transportation Stabilization Board, whose members include Transportation Secretary Norman Mineta, Federal Reserve Chairman Alan Greenspan, Treasury Secretary Paul O'Neill and the Comptroller of the U.S.

As part of the loan process, the government will be compensated for a potential loss on a loan to an airline by several means -- including the issuance of stock options, warrants, common or preferred stock, or other equity instruments.

Just think. This means that someday soon you and I and many other taxpayers could be shareholders in America West (AWA). Or US Airways (U).

I have to say, this gives a whole new meaning to shareholder ... er ... passenger rights.

Seriously, did anyone take the time to think of the long-term tangled situations these types of government equity stakes could create? While I agree with the overall thinking behind the structure of the loan program, have we not inadvertently stepped into a financial and political mess -- where the airline industry finds its survival even more dependent upon governmental control?

Maybe I am just being cynical today, but in the big scheme the thought of the feds being shareholders of airlines strikes me as being inherently problematic down the road -- for both airlines and airline investors of choice.

Airline Stocks Rebound

As expected, most airline stocks are on the rebound today, along with much of the rest of the market. No surprise. It would appear that the bailout bill has many airline investors beginning to look at a longer-term perspective. And hey, you have to admit, as long as you can avoid the potentially equity-destroying bankruptcy possibilities in the sector, shares of many major airlines are starting, once again, to look like screaming buys.

In a future column I'll discuss airline stocks I like and some you might want to avoid.

Quick and Dirty Details ...

Want to know just how much money the airlines are set to receive from the federal government? Here are some of the details from the bill that was signed on Saturday.

There is $5 billion in cash available immediately. Of that, $4.5 billion will be made available to passenger airlines, and $500 million will go to cargo airlines.

The money will be distributed based on available seat miles flown by each airline during August 2001. The amount given to the airline may not exceed direct or indirect losses from the grounding of flights beginning Sept. 11, 2001.

The estimated amounts to be paid to the carriers are: American Airlines, a unit of AMR (AMR), $939 million; America West (AWA), $126 million; AirTran (AAI), $30 million; Continental (CAL), $400 million; Delta (DAL), $684 million; Northwest (NWAC), $480 million; Southwest (LUV), $301 million; United (UAL), $818 million and US Airways, $334 million.

The cargo airlines will get $500 million, in funds distributed based on revenue ton miles from the last available quarter.

Our thanks to Credit Suisse First Boston airline analyst Jim Higgins, who provided a great summary of the bill in his research note this morning.

JetBlue IPO on the Back Burner

Finally, as readers who followed this column in its previous incarnation here will remember, I was pretty bullish on the long-term financial prospects of privately held JetBlue last spring.

I'm still bullish on the airline, although I think the recent events in New York will affect the airline negatively in the short term.

Unfortunately, investors will have to wait even longer for the airline's much-awaited IPO filing. On Sept. 11, David Neeleman, CEO of JetBlue, and members of his upper management team were in Lower Manhattan, preparing to file the initial registration papers for the airline's IPO. Tragically, as one JetBlue source told me last week, "The most important part of the trip to Lower Manhattan that morning suddenly became how to escape from Lower Manhattan."

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