"White House opposes congressional airline aid plans"

Wednesday, April 2, 2003

White House opposes congressional airline aid plans
By John Crawley and Susan Cornwell


WASHINGTON, (Reuters) - The White House on Wednesday opposed Republican-led
proposals in Congress for more than $3 billion in airline aid, claiming the
Iraq war has not hurt industry finances as badly as carriers had projected.

White House spokesman Ari Fleischer said conditions supporting the
industry's warning of financial catastrophe because of the conflict have not
materialized. He said fuel price pressures have eased and the decline in
travel demand has not been as sharp as the airlines initially feared.

But one airline chief executive, Gordon Bethune of Continental Airlines
CAL.N , said the drop-off in business, especially overseas, has been
staggering.

"I'm thinking about going into the shoe business or something else. This is
not the time to be in the airline business. This is as bad as it's ever
been," Bethune told CNBC in an interview.

Domestic and international traffic on U.S. airlines was off 11 percent last
week, according to figures released Wednesday by the Air Transport
Association, an industry trade group. Fuel prices, which more than doubled
in the past year, have generally been lower since the start of the war two
weeks ago.

Airlines had predicted a fuel price spike and steep travel declines over
three months could produce $4 billion in losses on top of nearly $7 billion
in red ink projected for 2003. Since the war began, airlines have slashed
thousands of flights, cut 10,000 jobs and are warning of more bankruptcies.

TRAVEL WARNINGS

Some airlines, like Northwest Airlines NWAC.O , Continental, and bankrupt
United Airlines UAL.N , are also facing travel warnings to parts of Asia
where they have extensive routes because of the SARS pneumonia outbreak.

The industry has requested relief from security taxes and fees that cost
them $4 billion in lost revenue each year as well as help in meeting
high-end liability insurance premiums and reimbursement of mandates to
improve security on planes.

But economic conditions are driving the administration's position on how
much to yield.

"The administration does not oppose assistance for the airlines, but clearly
given the factors that have affected the airlines -- such as fuel oil and
the limited impact the war has had -- the administration believes that the
amount that the Congress is considering now is excessive," Fleischer told
reporters at a briefing.

Appropriations panels approved a $3.5 billion package in the Senate and a
$3.2 billion plan in the House (of Representatives) on Tuesday. Each plan
was developed by the Republican leadership and attached to legislation for
$75 billion in emergency spending related to the Iraq war.

The proposals are expected to go to the House and Senate floors this week as
part of war legislation.

One Republican House member, Anne Northup of Kentucky, said she hoped to
offer an amendment reducing that package to $1.2 billion if Republican
leadership allows amendments.

Northup said she spoke to White House officials who indicated they favored a
package closer to $900 million, which administration officials have said
previously would cover a six-month suspension of aviation security fees.

SENATE, HOUSE AGREE ON LIMITS TO EXECUTIVE SALARIES

The Senate and House plans currently propose to reimburse carriers for those
and other fees through Sept. 30, but the House package adds a huge
retroactive benefit that drives up the cost significantly. The Senate plan
also would help airlines with their insurance premiums. Both tie passage to
limits on airline executive compensation.

A senior Transportation Department official, Jeffrey Shane, told a Senate
committee earlier in the day that any aid package would have to be
"substantially less" than what has been proposed in either chamber.

Shane said the administration might accept a plan to quickly forgive or
reimburse fees. Shane also said he could not envision the administration
accepting Democratic proposals in the Senate package for $225 million in
extended unemployment benefits and $375 million for airports.

Key Senate Republicans said the extended unemployment benefits have become a
target for exclusion.

Lawmakers and aides said the size of the aid plan may come down to
negotiations between House-Senate negotiators, rather than fights on the
floor of each chamber.

Congress approved a $15 billion bailout to cover losses related to the 2001
hijack attacks.

The Bush administration has been split on additional aid with transportation
officials pushing for another package, while key members of the economic
team prefer to let markets manage the worst-ever airline industry downturn.

"The question must be what what measure of assistance is appropriate." Shane
said. "We will face this issue every time we have a crisis and it will be a
perennial albatross for this administration and future administrations."

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