US Airways Group last week announced that it had applied for a $900 million loan guaranty from the Air Transportation Stabilization Board (ATSB), and indicated that if it doesn't seal the deal, it might resort to bankruptcy protection.

According to rating agency sources, aircraft ABS has very limited exposure to US Airways, as the carrier has actively used enhanced equipment trust certificates (EETCs) for financing, with issuance topping $3 billion.

Two weeks back, the ATSB demonstrated that it had no intention of writing blank checks, having denied much less substantial loan guaranties to two small carriers - a $15 million application from Vanguard Airlines and a $7.5 million application from Frontier Flying Service (see ASR 6/10/02). The ATSB indicated that an airline would have to reasonably show it could make good on the loans for the Board to issue its guaranty.

Though US Airways has been under duress for the past several months, equity investors appear slightly confident (or rather, are willing to bet) that the carrier's application will be approved, as the stock rose nearly 9% on the news that US Airways had applied with the ATSB, according to published reports. At press time, a share of US Airways was trading at just under $3.50.

To improve its financial position, and demonstrate to the board that it would likely be able to honor its debt, US Airways is working to reduce its yearly expenses by about $1.3 billion, particularly through negotiations with its labor unions.

US Airways last closed an EETC deal in 2001, worth approximately $600 million in size. The outstanding unwrapped equipment certificates would obviously come under stress should US Airways file for bankruptcy. The equipment notes, rated B2' by Moody's Investors Service, and the long term corporate debt, rated Caa1' by Moody's, have been downgraded several times over the past few years, both prior to and since Sept. 11.

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