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By Ray Stern
By New Times
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By Stephen Lemons
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Presumably, the latest round of emergency financing will help America West by giving it cash in hand to keep daily operations going.
But more than half of the heralded $53 million of new financing barely settled in America West's checkbook before it was headed out again, much of it back to where it came from.
Altruism was not the compelling motive for the two companies to open their wallets, analysts note. If America West goes under, each company will get its airplanes back. The odds of finding someone else to lease or buy them are slim in a reeling industry.
In the past few years, Pan American, Eastern, Midway, People's Express and Braniff have gone under. America West, Continental and Trans World Airlines are in bankruptcy.
At a time when even new aircraft are ending up in desert storage lots for lack of buyers, the two companies have tremendous incentives to keep America West alive.
"If the leasing companies get the aircraft back, they're going to have to put them in the desert," says Seymour Licht, an engineer who has invested roughly $90,000 in America West bonds. "They're going to have to pay insurance. They're going to have to pay maintenance. Aren't they better off having America West fly them? Aren't they better off having America West pay the insurance? . . . They will do anything and everything to keep [America West] from going under."
Besides, Ansett and GPA each immediately got back a chunk of the money they lent. America West paid approximately $17 million of it to the two companies to catch up on overdue lease payments.
Scott Hamilton, an airline analyst with Dallas-based Commercial Aviation Report, says he estimates that GPA received between $10 million and $12 million and Ansett somewhere in the neighborhood of $5 million.
Another $10 million of the financing was used to pay a loan due to Northwest Airlines from an earlier emergency financing deal.
And another 1 percent of the money, or $530,000, went back to all lenders as a "facility fee" for making the loans available, according to court records.
Finally, undisclosed amounts were paid to the legion of lawyers involved in putting the deal together, although the totals are not detailed in the court records.
One firm that was paid an unknown amount was Snell & Wilmer. The firm's Dick Mallery, one of Symington's closest informal advisers, represented the Phoenix lenders putting up the $8 million.
According to one attorney directly involved in the financing deal, Snell & Wilmer's fees were so substantial that they caused "friction" in the closing days of the negotiations.
But Mallery and Franke denied that Snell & Wilmer's fees were out of line, although neither would say how much the firm was paid.
"Concerns were raised about several of the fees, and I wouldn't want to pick on one or the other," Franke says.
Mallery, while he would not disclose numbers, dismissed any wonder about how much his firm was paid as meaningless "rumor."
Whatever the case, by the time everyone took his money, the $53 million that America West appeared to receive shrank substantially.
"By the time you get through with it, there's very little money that goes to America West for operating purposes. Almost all of it simply pays off existing debt, so you take the debt out of pocket A and put it in pocket B," says one Phoenix attorney familiar with airline financing. "They're sort of flying on funny money in that sense, because the money's not there. This is not new money that can be used for payroll or office expenses or aviation fuel or whatever."
All told, in terms of actual cash to put in the bank, America West only received "in the $20 million range," Franke confirms. But skeptics, Franke says, overlook the fact that the airline also received $140 million in concessions from creditors who agreed to do things like lower rents or interest rates, effectively chopping away at the airline's fixed costs.
Another $8.2 million, he points out, came into the company's bank accounts from advance ticket purchases that area companies have agreed to make.
"That's a significant amount of money," Franke says. "[And] if you take the $140 million of future benefits that began immediately, that produces more cash each month the airline stays in existence over what it would have been but for this financing. I think it's important to keep all of this hinged."
Some analysts, however, question the significance of the cash inflow.
"The cash coming in, that doesn't change the company one bit, other than it allows them to keep operating," says Glenn Engel, an analyst with Goldman Sachs in New York. "I guess what America West is hoping for is to hang on long enough for fundamentals to improve."
Skeptics point out that the company needed the newest round of cash because it had already sucked up $78 million in cash and more than $100 million in concessions from a previous financing package, and still wasn't showing a profit.
Effectively, what the company did last month was take out a second round of mortgages on the few assets it has left. Much more, however, will be needed to bring the airline back into the black, analysts and observers say, and there is little left to mortgage.