There were two pieces to the act. The direct compensation to compensate for the ground stop orders and fallout from the terrorist attack , and the loan guarantees that followed. NWA, naturally, got a prorated piece of the direct compensation for the attacks (which were not required to be paid back). As stated, NWA did not participate in the loan program. Below is an excerpt that explains the act more clearly.
Don's Original Statement - "When nwa went into BK it had nearly $2B (as in Billion) in the bank. This money was courtesy of the U.S. government as part of the bailout of airlines over 9-11."
As stated, the compensation received was to offset direct losses inflicted as a result of the attack. The net tax benefit of that compensation (about $300M) is a drop in the bucket of the $2B of borrowed cash that NWA had at the time of the BK filing 3 years later.
BACKGROUND
After the terrorist attacks of September 11, 2001, there was serious concern that, without significant U.S. government financial support, many U.S. airlines would go bankrupt. In response to this concern, Congress enacted the “Air Transportation Safety and System Stabilization Act†(P.L. 107-42), which was signed into law on September 22, 2001. The Stabilization Act provided a total of $5 billion in compensation to air carriers for direct losses incurred as a result of Federal ground stop orders and for incremental losses incurred between September 11, 2001 and December 31, 2001, as a direct result of the terrorist attacks. In addition, the Stabilization Act provided for up to $10 billion in airline loan guarantees.
STATUS OF IMPLEMENTATION OF STABILIZATION ACT
Direct Compensation
As of September 18, 2002, $4.55 billion of the $5 billion in direct compensation provided by the Stabilization Act had been paid to a total of 396 passenger and cargo air carriers. The bulk of these funds were distributed in 2001, including $2.3 billion that was distributed very quickly -- by October 1, 2001.
The Department of Transportation (DOT) initially used procedures set out in Program Guidance Letters to make a first round of payments amounting to nearly 50 percent of the $5 billion total. On October 29, 2001, DOT issued a final rule providing procedures for air carriers to use in applying for additional compensation. Under the October 29th rule, DOT issued a second round of payments that was intended to distribute about 85 percent of $5 billion total. Three subsequent rules were issued, in January, April, and August of 2002, to address comments received on the prior regulations. Applications for a third round of payments were due to DOT no later than July 29, 2002, and DOT is now in the process of issuing the third, and final, round of payments.
In general, payments that have not yet been made at this point fall into two categories: (1) contested claims, and (2) the $35 million set-aside for small carriers, such as air taxis, air tour operators, and air medical operators. Regarding the contested claims, DOT is working to settle contested claims as quickly as possible, but some will likely result in litigation. Regarding the $35 million set-aside, this category of funds cannot be distributed until all claims in that category are settled. About half of these claims are settled to date, and DOT estimates that it will be able to settle the other half and distribute the $35 million set-aside in about one month.
Since the $5 billion in compensation is subject to taxation, the Air Transport Association (ATA) estimates that the air carriers will receive a net benefit of about $4 billion after taxes, assuming a marginal tax rate of 20 percent.1
Loan Guarantees
Sixteen air carriers applied for a Federal loan guarantee under the program established by the Stabilization Act. To date, only one -- America West -- has been finally approved, and one other -- USAirways -- has been conditionally approved. Four applications have been denied (Vanguard, Frontier Flying Service, Spirit Airlines, and National Airlines). Ten applications are pending -- the largest of which is United Airlines’ request for a $2.0 billion loan, of which $1.8 billion would be guaranteed by the Federal government.
The America West loan is a $429 million unsecured loan, of which $380 million is guaranteed by the Federal government. This loan is not secured by tangible assets. However, as part of the loan agreement, the Air Transportation Stabilization Board (ATSB) received stock purchase warrants that will enable it to buy a certain amount of America West stock at a certain “strike price†in the future. No voting rights are attached to these warrants.
For USAirways, the ATSB has conditionally approved a $1 billion loan, of which $900 million would be guaranteed by the Federal government. In contrast to the America West loan, the USAirways loan will be secured by a variety of assets. To receive final approval of this loan guarantee, USAirways must conclude legally binding agreements, satisfactory to the ATSB, regarding the cost-savings and the initiatives described in USAirways’ business plan. In addition, the ATSB must receive additional stock purchase warrants in an amount and at a “strike price†acceptable to the Board. Finally, certain issues as to collateral (including slots and gates) must be resolved to the ATSB’s satisfaction. The loan guarantee would be available to USAirways if and when it emerges from bankruptcy.
My answer clearly qualifies what I thought the coversation was about. I took for granted that you guys would not be referring to the direct compensation for the lost revenue as a result of the attacks. I presumed the loan program was at issue, since that is the only thing that would be relevant still today (i.e., does NWA have to pay it back in BK). It looks like you guys are way too desperate to "win" a conversation.
