Thursday, Aug. 15, 2002 | 11:23 a.m.
National Airlines Chief Executive Officer Mike Conway disclosed Wednesday that he has filed a complaint with the U.S. Department of Justice against longtime rival America West Airlines, alleging unfair competition.
The disclosure came after National was rejected for a federal loan guarantee by the Air Transportation Stabilization Board. That agency earlier granted a guarantee to Phoenix-based America West, the second-largest carrier of tourists and gamblers to Las Vegas behind Southwest Airlines.
"Since receiving its funding under the government guaranteed loan, America West has followed a strategy that, in our opinion, is contrary to the very business plan they submitted in support of their application," Conway charged. "We advised the ATSB that since receiving the government-guaranteed loan, America West has increased their service by approximately 50 percent in Las Vegas markets where they compete with National. At the same time, they only increased their operations by approximately 5 percent in non-National Las Vegas markets. This, and other related actions by America West, is included in a formal complaint that National filed with the Department of Justice on July 26 We are awaiting a response from the DOJ."
America West responded today that it is not targeting National and that the ATSB is only following criteria that has been in place since the board was formed.
"Their facts are wrong," said Janice Monahan, a spokeswoman for America West. "We're adding service to seven new markets from Las Vegas and in only one of them do we compete directly with National. That's the (Washington) Dulles route," she said.
Monahan said Las Vegas has been an important hub for the airline since 1983, well before National entered the market.
"We're doing what's best for our customers," Monahan said.
Conway also cut loose against the ATSB.
"I am absolutely appalled by the decision made by the ATSB," Conway began. "Not only did our application request that the government guarantee a smaller percentage of a loan than what other carriers have requested and received, but to my knowledge, National was the only airline to secure a significant amount of additional equity investment from the private sector.
"The ATSB stated that they weren't confident National could pay back the loan," Conway said. "That is a subjective stretch, at best. National has met the forecasts included in our business plan for the past nine months and we have no reason to believe that we will deviate from this positive trend, a trend that is running counter to what almost all other carriers are experiencing."
Conway said the ATSB has not provided him with any evidence that shows National would be incapable of paying off its debts.
"Using conservative forecasting assumptions, our business plan shows that National's cash balance would be well in excess of the government's exposure at all times," Conway said. "Our application also would have paid back the loan within a five-year period, two years faster than the one application approved thus far."
Conway also was critical of the process.
"National was never granted an audience with the voting members, despite numerous requests," he said. "We did, however, meet several times with ATSB staff members who represent the voting members. It has been apparent to us for some time that unless you're both big and in desperate straits, you're facing an uphill battle."
Conway then took issue with the way National's application was handled compared with the application of America West.
"The manner in which the ATSB has conducted the application process is replete with conflicts," he said. "Some of these conflicts were perhaps unavoidable, but all warrant scrutiny. America West's application and loan was approved and funded in rapid fashion in January, even before the ATSB staff was in place. America West is National's largest competitor and the government now has an equity interest in that carrier through the issuance of warrants, that if exercised, would result in the government owning approximately one-third of the airline."
As for the ATSB decision, America West's Monahan said the board appears to be leaning toward airlines that have been successful and have a history of profitability.
"They seem to be leery about funding airlines that have always been unprofitable," she said.
Conway also said the ATSB has conflicts of interest in its dealings with airlines.
"The consulting firm being utilized by the ATSB in the review of the revenue forecasting techniques of applicants is GRA, which is partially owned by General Electric. General Electric, through their aircraft leasing division GECAS, is one of the largest creditors of America West and US Airways, the only successful applicant and conditionally approved applicant, respectively. Surely, with the number of reputable financial consulting firms specializing in these matters, the ATSB could have and should have selected a firm with more independent credentials," he said.
"The ATSB has stated that, 'The board determined that National's proposal does not provide a reasonable assurance that National will be able to repay the loan.' On July 10, just five weeks following the formal application filed by US Airways on June 7, the ATSB provided a conditional loan guarantee in the amount of $900 million. The ATSB made it quite clear to National that no such conditional approval was in the offing, and was unwilling to provide National with any indication as to what it would take to get approved, conditional or otherwise.
"Considering the complexities involved in the US Airways restructuring, it is not clear to us what comfort level the ATSB and GRA assumed when the conditional approval was granted in such an expeditious manner. Nor is it clear how the ATSB could, within less than 24 hours following US Airways' Chapter 11 filing, affirm their conditional approval of US Airways without any additional commitments that a bankruptcy filing would necessitate."
Conway said smaller carriers aren't being treated the same was as their larger counterparts. "This is not about the merits of who is getting approved, it's about the blatant, inconsistent and even arrogant manner in which smaller carriers are being dismissed as not being 'a necessary part of maintaining a safe, efficient and viable commercial aviation system' as the ATSB has stated.
"The bias being demonstrated by the ATSB in favor of larger carriers runs completely counter to the dynamic changes taking place in the U.S. airline industry. There is a significant transition occurring that is being driven by a more discerning consumer. Irrational and illogical disparities between business and leisure fares are finally getting a long overdue restructuring. Fortress hubs, dominated by large high-cost carriers that perpetuated these pricing disparities, are now being tested by a new and growing breed of competition from efficient, low-fare airlines. National is such a carrier. It is unfortunate that the ATSB and its advisors are unable to understand and accept that efficient low-fare carriers are the future of the U.S. aviation industry."
Mike Boyd, an aviation expert with the Boyd Group, Evergreen, Colo., also ripped the ATSB.
"What needs to be rejected is the ATSB itself," Boyd said. "They don't understand that the airline industry saw its revenue base drop 15 to 20 percent overnight and that the agencies entrusted with helping it actually kicked the stool out from under it. They don't seem to understand what a hole the industry is in.
"If National goes down," Boyd said, "it may be time to send the ATSB packing. And it's time George Bush began worrying less about Iraq. Saddam Hussein is not the threat that the ATSB is to the airline industry."
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