US Airways Group Inc. and America West Holdings Corp. moved closer to their planned merger yesterday by receiving approval from a federal board that holds loans for both carriers.

In backing the deal, the Air Transportation Stabilization Board consolidated the airlines' outstanding loan balances of about $1 billion and set a new payment schedule beginning in September and continuing through 2010.

While the board's approval was expected, the merger still requires approval by the U.S. Bankruptcy Court, US Airways' creditors and America West shareholders. Last month, the Justice Department said it had no objection to the merger on antitrust grounds.

Congress established the ATSB to oversee $10 billion in loan guarantees set aside to help stabilize the nation's airline industry following the Sept. 11, 2001, terrorist attacks.

US Airways received a $900 million loan guarantee in March 2003, when the Arlington-based airline emerged from its first stay in bankruptcy protection. It now owes nearly $708 million. America West received its loan guarantee of $380 million in January 2002 and owes about $300 million, the airlines said.

In May, US Airways and America West announced that they planned to combine to create the nation's sixth-largest airline to compete with flourishing low-cost carriers such as Southwest, JetBlue and AirTran. The combined airline would operate as a low-cost carrier, uniting US Airway' strong East Coast route system with America West's West Coast presence.

US Airways and America West executives said they expect to complete the merger by late September or early October. The new airline will be called US Airways and will be based in Tempe, Ariz., where America West is headquartered.

"Today's announcement continues the positive momentum for our planned merger and brings us one step closer to building a stable future for our airlines," said W. Douglas Parker, America West's chairman and chief executive. Parker will also be the combined airlines' chief executive.

As part of the revised ATSB agreement, assets including aircraft, airport gates and flight simulators of both carriers will serve as collateral. Mark R. Dayton, ATSB executive director, said the proposed merged airline has offered a "competitive business plan" and presented "good prospects for repayment."

US Airways has been operating under bankruptcy court protection since September. The airline said it expects to emerge from Chapter 11 by the time the merger is scheduled for completion.

Executives of both carriers said this week that they expect the combined airline could earn a profit by 2007 and would be able to trim its loss to $65 million next year.

This week, America West reported second-quarter earnings of $13.9 million, a 31 percent increase from the second quarter of 2004. America's West executives attributed the profit -- which came despite record high fuel costs -- to a 20 percent increase in revenue due to higher fares and increased passenger loads. US Airways is scheduled to report its second-quarter results next week.