Citicorp and Salomon Smith Barney have placed on hold the proposed $175 million credit facility for Amtran, the parent company of American/Trans Air, as credit officers within banks nervously eye their loan exposures to the airline industry. Kim Wick, manager of investor relations at Amtran, said that last Wednesday the banks sent a letter to Amtran requesting information regarding the business condition, operations and properties of the Indianapolis-based company. American Trans Air flies mostly in the U.S.
Amtran received the initial commitment for the credit in June. The loan was to back the privatization of Amtran, valued at $82 million, and refinance the current $100 million revolver, Wick said. The privatization, contingent on the financing, is on hold, she said. Wick said that 90-95% of Amtran's planes are in the air, but she had no figures for how full they are. Other officials at Amtran were in Washington, awaiting news of a possible bailout of the beleaguered airline industry, said Wick.
"The government aid package is significant, but in most cases it may only be influencing the timing of the distress," said Bill Warlick, director of transportation industry research at Fitch. Amtran is focused on the leisure market, so privatization at this stage is highly unlikely, he noted. Other airline debt affected includes Continental Airlines, Northwest Airlines and Southwest Airlines, all on negative watch.
Even before the events of Sept. 11, the profitability of most airlines had been eroded significantly by a dramatic reduction in bookings and higher fuel and labor costs. Warlick believes that dramatic cuts in capacity, even if implemented quickly, will not be sufficient to match the anticipated declines in passenger numbers. Significant government support is required to ensure a stable U.S. airline industry, he added. The plan, which included $5 billion in cash aid and $10 billion in loan guarantees, is also problematic from a credit standpoint, Warlick explained. "Loan guarantees represent more borrowing and do not tackle leverage issues." Fitch was not looking at a specific figure to improve credit quality, Warlick said. Immediate steps the airline industry can take include reductions in seat capacity. Cost-cutting measures are tough, though, as the industry has high fixed costs, Warlick added. Economy measures may also be offset by rising fuel prices, he noted. Citigroup, J.P. Morgan, Bank of America andCredit Lyonnais are among the names with exposure to the aviation industry.