Feds turn down Frontier's loan request

PHOTO/Ed Bennett/AJOC
Frontier Flying Service Inc. has been denied a $7.2 million federal loan, money the Fairbanks-based airline said would have helped it recover from the effects of the Sept. 11 terrorist attacks.

The Fairbanks-based airline’s proposal, among other things, "did not provide a reasonable assurance that Frontier would be able to repay the loan," the U.S. Department of the Treasury’s Air Transportation Stabilization Board said June 3 in a statement.

"It’s upsetting," said Bob Hajdukovich, director of operations for Frontier Flying Service. "We spent a lot of time, effort and money on the application."

The 52-year-old company was one of only six carriers in the nation to apply for the government’s $10 billion loan bailout offered to airlines to help with losses attributed to the East Coast jetliner attacks.

In its loan application to the federal government, Frontier Flying Service said its cargo and passenger operations saw a dramatic drop in activity following the terrorist attacks.

The airline originally sought $10 million in federal loan assistance.

Hajdukovich said the decreased operations coupled with increased insurance costs prompted the company to apply for the loan.

Hajdukovich said the company would have used the money to purchase a fleet of five Beech 1900-series aircraft it has been leasing for the past three years.

Insurance premiums have increased since the terrorist attacks, Hajdukovich said, adding that if the company were to purchase the fleet of airplanes instead of leasing them, the airline would be able to negotiate better rates.

Securing the $10 million loan also would have allowed the company to refurbish another nine other aircraft the company owns and provide needed working capital, Hajdukovich said.

Hajdukovich has said the company, established in 1950, is not seeking bankruptcy protection nor are any of the airline’s 185 employees facing layoffs because of the events of Sept. 11.

The Air Transportation Safety and System Stabilization Act passed by Congress in November offered $5 billion in direct aid to airlines to cover losses incurred after Sept. 11, plus $10 billion in loan guarantees.

Some 266 of the nation’s airlines, including about 30 airlines who do business in Alaska, have been given $3.8 billion in direct grants.

Frontier Flying Service has received $133,589 in direct aid under the grant program.

Only America West has received a loan guarantee under the program. The Tempe, Ariz.-based airline, the nation’s eighth largest, had a $380 million loan guaranteed in December by federal regulators.

As part of America West’s loan guarantee, the company had to offer a third of its common stock to the government, making it one of the airline’s largest shareholders.

While most of the nation’s airlines asked for -- and received -- grant money, they have balked at applying for federal loans, fearing a government stake in their companies.

Airlines still have until June 28 to apply.

Vanguard Airlines, based in Kansas City, Mo., was denied its $15 million bailout loan last month after federal regulators determined the small regional carrier’s proposal did not demonstrate it had a high likelihood of repaying the note.

Besides Vanguard, America West and Frontier Flying Service, three other regional carriers applied for government loans, according to federal officials. They are Spirit Airlines, based in Florida; National Airlines, based in Las Vegas; and Evergreen International Airlines, an Oregon-based carrier that was established in Anchorage in 1961 at Merrill Field by former cropduster and Air Force pilot Delford Smith.

In Alaska, Evergreen has a helicopter division, an aviation services and cargo company, and an avionics retail and service business, Avionics Specialists of Alaska Inc.

About 350 people are employed in Alaska by Evergreen.

Calvin Harmon, an Evergreen spokesman in Oregon, would not say how much the airline was asking for in its loan application.

Evergreen received more than $7.1 million in a direct grant following the terrorist attacks.

"We’ve applied and are awaiting a decision," Harmon said of the company’s loan request. "We’re hopeful."

Betsy Holahan, a spokeswoman for the Department of Treasury, which administers the loan program, said details of airlines’ loan applications are not made public for proprietary reasons.

Frontier’s Hajdukovich and Evergreen’s Harmon said their companies’ loan applications did not offer stock to the government since both are privately held companies.

Updated: 
06/09/2002 - 8:00pm

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