"Airline bailout rebuffed"

Wednesday, September 25, 2002

Airline bailout rebuffed
Mullin's pitch falls flat
By Marilyn Geewax
The Atlanta (GA) Journal-Constitution


Washington --- Major airlines face an ''unprecedented financial crisis''
that will ease only if government provides relief from about $4 billion
in security-related costs, Delta Air Lines Chief Executive Officer Leo
Mullin told a House subcommittee Tuesday. 

Otherwise, the airline industry's ''viability is seriously in
question,'' Mullin said. 

The carriers are not asking Congress to solve their competitive
problems, he said. Rather, they want taxpayers to ''relieve the industry
of government-imposed security costs stemming from the nation's war on
terrorism.'' 

House aviation subcommittee Chairman Rep. John Mica (R-Fla.) said the
airlines should not expect more cash aid. Last fall, Congress approved
$5 billion in cash aid and $10 billion in loan guarantees. 

''Let me say quite firmly at this point, there will be no government
bailout,'' Mica said. But he agreed to help craft legislation that could
help offset costs related to insurance, stronger cockpit doors and other
security measures. 

Other subcommittee members said they were willing to consider providing
temporary aid, but several criticized airlines for not doing more to
solve competitive problems. 

''The carriers seem unable to muster the discipline to reasonably price
their product,'' Rep. James Oberstar (D-Minn.) said. 

Some airline experts argue that government should not do anything else
to help the industry because it needs a massive restructuring. 

But Mullin and other industry representatives said costs and lost
revenue from tighter security are crippling their efforts to forge a
recovery. 

Mullin said government should: 

   > Help pay for the 900 percent increase in terrorism insurance
premiums. 

   > Reimburse carriers for fortifying cockpit doors and providing
federal marshals with first-class seats. 

   > Pay for federally mandated changes in airport security, such as
document verification and passenger screening. 

   > Remove restrictions on carrying U.S. mail weighing more than a
pound, which Mullin said costs the industry $540 million. 

   > Suspend the new ticket tax that costs passengers up to $10 per
round trip. Mullin said the fee is essentially lost revenue because
airlines can't raise prices to cover it. 

The security-related costs and a decline in passengers and fares have
left the industry facing its second straight year of losses exceeding $7
billion. To cope, the top six airlines have slashed 70,700 jobs and
trimmed capacity by 15 percent. 

Nevertheless, US Airways is flying under Chapter 11 bankruptcy
protection and ''other airlines grow increasingly vulnerable each day,''
Mullin said. 

Donald Carty, CEO of American Airlines' parent AMR Corp., told lawmakers
that ''without relief from these government-imposed costs, our efforts
to control our own costs will be futile, and thus more painful route
cutbacks, employee furloughs, labor concessions and the bankruptcy of
many will be unavoidable.'' 

Philip Baggaley, an airline analyst with Standard & Poor's Rating
Services, agreed that airlines took unexpected hits from security
measures and may suffer more if the United States takes military action
against Iraq. But Baggaley underscored that some carriers, notably
Southwest Airlines, are making money despite the new costs. 

These companies are profitable because they hold down labor expenses, he
said. The major carriers suffer from a ''huge cost disadvantage''
involving high wages. 

''The painful prescription for recovery consists mostly of cost
cutting,'' he said. 

Joseph Leonard, chairman of AirTran Airways, which like Southwest has
returned to profitability, also argued against approval of planned
marketing alliances between big carriers. 

''I implore you not to stand by and allow the current financial crisis
to be used by the larger carriers as an excuse for alliances that will
... paralyze real competition,'' he said. 

He said Delta recently gained coveted rights to boost flights at Reagan
National Airport through a "private deal" with Northwest Airlines, one
of its planned alliance partners. AirTran has long sought Reagan
National flight rights. 

''This bold step, even before the approval of their proposed alliance,
tells us a great deal about what we can expect'' as big carriers try to
help each other survive while stubbing out competition from small
discounters, he said. 

Worries about the industry's finances pushed shares of American and
Delta lower Tuesday, to levels not seen since the early 1980s. 

Shares of American dropped 62 cents, or 15 percent, to $3.60; those of
Delta fell $1.24, or 11 percent, to $10.06.


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