Federal Agency Nears US Airways Merger Ruling

The federal panel that backs more than $1 billion in loans to US Airways and America West Airlines expects to make a decision on the airlines' merger plans within a month.

In an interview Thursday with the Observer, the executive director of the Air Transportation Stabilization Board, Mark Dayton, said the board has reached no verdict on whether to approve the merger. But he said that even if the panel found that the link-up increases financial risk, it could sign off on the deal and require an accelerated payoff or a higher interest rate.

"There are ways to address that risk to taxpayers by changes to the loan terms," he said.

The upcoming decision by the ATSB is one of several wild cards in the planned US Airways-America West merger. To close the deal by the fall, as planned, the companies still need to fend off any rival bids and gain the approval of the ATSB, Justice and Transportation department regulators, a bankruptcy judge, US Airways creditors and America West shareholders.

Rival bids for US Airways assets are due July 1, and the airline plans to ask a judge to approve the merger agreement July 7. The other approvals could come this summer.

The fate of the merger is crucial to Charlotte, US Airways' largest hub. The airline employs about 5,600 of its 24,000 workers here, and businesses view the hub as a big factor in the region's economic growth. If the merger goes through, air service from Charlotte would stay largely unchanged, and the city could remain a hub for years to come.

With just five employees and a $2-million-a-year budget, the ATSB is a small federal agency but an important player in the merger plans.

After the 9-11 attacks, the agency provided loan guarantees to six airlines -- including America West and US Airways -- to keep the carriers afloat. US Airways still owes $707 million, scheduled to be paid back by 2009, while America West owes $303 million, scheduled to be paid back by 2008.

The leaders of the two airlines have said the merger would be a good deal for the ATSB because it would result in a strengthened carrier that could repay the loans more easily than the companies individually. After the merger, the new company would have more than $2 billion in cash and little debt, the companies have said.

The ATSB, though, is evaluating the merger plans independently, with the help of New York financial adviser Lazard Ltd. Dayton said the board wants to know if the merged company will generate enough revenue to repay the loans.

"That's what you look for, that there's sufficient liquidity in the company and that the fundamental business plan is sound," he said.

Some industry analysts have said they believe the companies are exaggerating the amount of savings the merger would generate, which the airlines say is $600 million a year.

The ATSB has shown a willingness to work with US Airways amid its financial troubles. It allowed the airline to dip into cash savings for operating expenses and expects to extend that agreement beyond its current June 30 expiration. More recently, it signed off on the proposed sale of 10 Boeing 737s and three spare engines, for $48 million.

But Dayton said there is no guarantee the board would approve the merger.

"The board has been very strongly committed to protecting the taxpayers' interest," he said. "They will do whatever they think protects that interest."