"Airlines begging for a bailout"

Wednesday, March 26, 2003

BEGGING FOR A BAILOUT
PASSENGERS STAYING HOME: Desperate airlines pin hopes on a proposed $4
billion from the government to avert financial ruin
By David Armstrong
The San Francisco (CA) Chronicle


The chances for a federal aid package for the battered airline industry
improved slightly Tuesday but the level of funding is still very much in
dispute.

"I think it is likely that either in supplemental or some other form, relief
will be given to the aviation industry," Senate Majority Leader Bill Frist,
R-Tenn., told reporters. He didn't say when or how much.

However, an official close to discussions between the Bush administration
and airline officials told the Associated Press the White House is not
inclined to support a major bailout.

Instead, Bush believes that the airlines must go through a restructuring
process and let market forces determine which carriers will survive, the
official said.

The cash-strapped industry is nervously awaiting a decision from the White
House.

U.S. carriers have asked Washington to cover $4 billion in additional
security costs incurred since the Sept. 11 terrorist attacks; tap the
Strategic Petroleum Reserve to help defray high fuel costs; and lift taxes
that add to the price of airline tickets.

The industry's financial situation is bleak. Delta, Continental, Northwest
and United airlines have dropped flights from their schedules and trimmed
staff. United filed for Chapter 11 bankruptcy protection in December.

The improved chances for a relief package helped push up airline stocks
Tuesday. Shares of UAL Corp., United's parent company, rose 2 cents on the
New York Stock Exchange on Tuesday, to close at 85 cents per share.
Northwest rose 72 cents, or 9.8 percent, to $8.08 Tuesday in Nasdaq Stock
Market trading. AMR,

the world's largest airline company, rose 17 cents, or 8.2 percent, to $2.25
and Delta gained 29 cents, or 3.1 percent, to $9.81 on the New York Stock
Exchange.

Frist's support came a day after Transportation Secretary Norm Mineta met
with other Bush administration officials to discuss federal aid for the
nation's airlines, which have lost $30 billion since mid-2000 and are on
course to drop $10.7 billion this year.

Said Transportation Department spokesman Bill Mosley: "The administration is
focused on this issue and is in daily contact on a variety of options. There
is nothing firm at this point. We are not favoring any one plan."

He said his department is "ready to move quickly" should Congress or the
White House decide in the coming days or weeks to aid the airlines.

Some observers describe the airlines' dilemma as the worst crisis in
commercial aviation since World War II, when the industry was much smaller
and far less important to the national economy.

Mineta, a former mayor of San Jose and the only Democrat in President Bush's
Cabinet, favors airline relief. The drive has picked up support from airline
workers who are often at loggerheads with management over how to address the
crisis.

LEAFLET CAMPAIGN

United Airlines flight attendants handed out leaflets in favor of federal
aid Monday at major airports, including San Francisco International Airport.

On Tuesday, the pilots union implored Washington to step in.

"This week, many of our brother and sister pilots will petition Congress for
emergency relief from the crushing taxes and costs of security levied on the
airline industry since the tragic events of 9/11 and heightened since the
beginning of the war in Iraq," said Air Line Pilots Association Chairman
Paul Whiteford.

The industry is organizing a lobbying effort this week to press for aid, AMR
chief executive Don Carty said. "I urge you to contact your senator or
representative to ask for their help," he said in a message to employees.

Despite the crescendo of support, there is also substantial opposition to an
aid package among some of Mineta's fellow Cabinet officers and members of
Congress.

Critics say that aiding the airlines when the president is proposing a $74.7
billion bill to cover the initial cost of the war with Iraq, on top of a $5
billion package that the airline industry received after the Sept. 11
attacks, is not affordable. There is also sentiment in favor of allowing
weak carriers to fail so the industry can reorganize and emerge from the
crisis streamlined and strengthened.

Contributing to the industry's problems are low fares for leisure travelers
and cutbacks by business travelers.

Of 123 major U.S. corporations surveyed last week by the Business Travel
Coalition, 21 percent said they have banned all international travel for the
foreseeable future, due to the war.

"I would say the way things are going in Iraq, that ban is not going to be
lifted soon," said the business group's chairman, Kevin Mitchell.

The war-driven slump probably will hurt the airlines even more than the
tailspin after the Persian Gulf War in 1991, Mitchell said.

"In those days, the alternatives to air travel were the telephone and very
inefficient, very expensive video conferencing. Now, you're surrounded by
cheap, high-quality video conferencing, mobile phones and the Internet. You
don't have these salesmen sitting around with angst, saying 'I've got to be
out there.' "

Shrinking demand for air travel has caused airlines to cut service.

Delta Air Lines, the nation's third-largest carrier, said Monday it would
shrink its network by about 12 percent, reducing service both domestically
and internationally as a result of fewer travelers since the onset of war in
Iraq.

The cutbacks at Delta followed similar moves last week by United,
Continental and Northwest, which said it will lay off 4,900 employees and
trim its flight schedule by 12 percent.

FEWER FLIGHTS

United, which has been attempting to reorganize under Chapter 11 since
December, said it will cut service by 8 percent. It will trim 104 domestic
flights on April 1 and 20 international flights on April 6, but will not
abandon any routes.

On Monday, United's machinists union pledged to fight United's plan to
temporarily shut down an Indianapolis maintenance center where job
reductions are set to start this week.

The International Association of Machinists told members it will file an
injunction to stop the closing. The union represents 1,148 mechanics at the
Indiana facility; 468 of the workers are scheduled to begin unpaid leave
this week and the rest on April 15.

United also maintains a maintenance plant at SFO. United spokesman Chris
Brathwaite said the airline has no plans to close its San Francisco
facility.

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