When the federal government guaranteed a life-saving loan for America West Airlines after the Sept. 11 terrorist attacks, it demanded a stake in the company for the big risk taxpayers were taking.
On Monday, it cashed in that stake to the tune of $116 million. That's about half the payback the government would have received if it collected a couple years ago after America West's stock skyrocketed, but is healthy compensation for taxpayers, the company says.
The government is getting its money from the new US Airways, formed by last week's merger of America West and US Airways. The Tempe-based airline, flush with cash from the $1.5 billion it raised to pull off the merger, is buying back the warrants America West issued to the Air Transportation Stabilization Board in early 2002.
The warrants gave the government the right to buy 7.7 million shares of stock at $7.27 per share. The stock closed Monday at $21.50, giving them a paper profit of $14.23 a share, or $109 million. The government is getting a premium for the early buyback of the warrants, an airline spokesman said.
The buyback is good for both sides, analysts say.
Jim Corridore, who covers airline stocks for Standard & Poor's, said it's a good use of US Airways' cash but still leaves them with a big cushion against high oil prices and cutthroat competition.
"It's not going to break the bank," he said.
He said it also eliminates a big unknown on the stock: when the government would exercise the warrants and sell the underlying stock. The large number of warrants made it US Airways' third-largest shareholder, with a roughly 10 percent stake, so selling all those shares would put downward pressure on the stock, Corridore said.
The government should be happy, he said, because it's getting a decent return for the huge risk it took in granting the loans. The outgoing head of the loan board said in an recent interview with the New York Times that it "grabbed" a then-one-third stake in America West in January 2002 because the probability of default on the $429 million America West loan package was significant. The board also had warrants to buy stock of the old US Airways, another loan guarantee recipient, but those became worthless with its bankruptcy filing a year ago.
The warrants were in addition to the payback of the loans with interest. America West and US Airways have a combined $1 billion in ATSB-guaranteed loans outstanding and are paying those back.
"It's nice to see a company pay back the government and be able to make a nice story out of it," Corridore said of the $116 million payout. "Hopefully it will (continue to) be a nice story in the future. Obviously, it's still unfolding."
The government was interested in a warrant buyback because the ATSB is winding down, spokeswoman Brookly McLaughlin said. Last week, it announced plans to try to sell the outstanding loans of America West and US Airways to private investors.
The $116 million will go to the government's general fund, she said.
The ATSB's stake in America West was worth $225 million on paper in late 2003 after a surge in America West's stock price that made it one of the country's top-performing stocks in the country that year. The government was bombarded with questions about what it planned to do with its stake given the huge run-up and said it was studying the Chrysler bailout, among other things. The issue was less pressing when America West's stock headed down a few months later and since then buying back the warrants hasn't been an option for America West because it didn't have any cash to spare.
Coming out of the merger, the combined airline had been touting its cash balance of $2.5 billion.
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