A helping hand with strings

DAVID FIELD WASHINGTON

What does US Congress approval of aid to US carriers mean for the relationship between airlines and government in the aftermath of the terrorist attacks of 11 September?

In a few short hours, the airline industry was changed forever, and with it the relationship between industry and government. And while the US airlines were opening a new chapter in their love-hate affair with Uncle Sam, the rest of the world was taking notes. The USA once again found itself the world's test case.

But in the midst of change, some things were consistent: the airlines did not get all they wanted. The US carriers spent an entire week in front of Congress seeking aid, coming in at first with a request for $24 billion. After being rejected in a midnight session, the claim was altered to $17 billion and then to $15 billion. A first request that included relief from fuel and other taxes was quickly dropped, and became one seeking loan guarantees and protection from lawsuits stemming from their portion of the $18 billion total liability.

Delta Air Lines chairman Leo Mullin, who was the industry's designated pointman in the hearings, insisted it was "stabilisation", not a bailout and that the package, whatever its shape and size, was as rare as an act of war.

He made a detailed explanation of the losses as calculated by the USAir Transport Association (ATA), the club of major airlines. Based on a daily industry expense of $340 million, the four days of grounding cost a basic $1.36 billion. Using the experience of the Gulf War (see tables) and the aftermath of the terrorist attack on Pan Am 103, the expectation was for a 60% cut in expected traffic revenues for the two following weeks 15-30 September. That adds another $3.36 billion, which together with $300 million lost by cargo carriers and others, brings the ATAheadline total to $5 billion.

"This is NOT the business cycle. We are not asking to be covered for our mistakes," Mullin told the House Transportation Committee. "We are here because an act of war puts us here."

And as they agreed to a lower total bailout or stabilisation, the airlines kept talking about how they would like to have the chance for greater co-operation. Therein lies the kernel of the change, says Teal Group analyst Richard Aboulafia. "We will see a different attitude toward merging and toward troubled carriers or indeed almost any carriers seeking relief from the antitrust laws in scheduling and route discussions," he says. Paul Stephen Dempsey, the Denver University law professor who is also a director of Frontier Airlines, asks: "Do we want airlines discussing routes and schedules?"

Aboulafia says that "we will see a vastly different government attitude towards airline industry consolidation, whether through merger or through simply allowing the weak to wither". Such consolidation through co-operation is far more likely than outright merger. As Washington lawyer Mark Schecter says: "Combining red ink with red ink does not produce black ink."

The airlines realised early they would have to give something if they were to get the aid. After all, they were competing for a chunk of money from a much sought-after pot of gold. Some wanted to keep the much-debated budget surplus, which consists largely of the Social Security pension funds, from being used to support the airlines. Some wanted to use it for defence, others want to use to prop up the budget as it has been used for years, and some actually want to use it for Social Security payments.

So the airlines promised and, for a change, they promised in writing. Rural state legislators gained promises from the airlines that small cities will not lose all air service and the small-town subsidised air service programme gets $120 million more this year. And the airlines agreed that the bailout bill would limit airline executive compensation by banning raises until September 2003.

In the end, Members of Congress with labour-union constituencies received promises that payments to the nearly 100,000 laid-off airline employees would get favourable scrutiny as soon as the aid bill was passed - a promise Congressional leaders had to make to get the bill through.

The bill, quickly signed by President Bush, sets aside $5 billion to be distributed on a seat-mile formula; another $10 billion will be in the form of loan guarantees and a limit on airline liability. And the government may end up holding stock or warrants in the airlines.

Congress protested as it headed toward the inevitable by saying it would not entertain other industries that came with hands outstretched - Travel agents were already lining up. The legislators' protests may have been pro-forma, but they will have made their point: They are saying: "If you come to us, just remember, you are coming to the government. You may not go away empty-handed, but neither will your hands be entirely free."

"I don't think there will be any industry that will be under more intensive scrutiny," Senate Aviation Subcommittee Chairman Jay Rockefeller told reporters after the Senate passed the bill.

As usual, some winners emerged. One was Transportation Secretary Norm Mineta, a lone voice in raising doubts about the rush to federalise airport security. Mineta told Senators eager at the prospect that adding 25,000 workers to the federal payroll would cost about $1.8 billion a year without guaranteeing immediate improvement. Mineta was regaining centre stage after having ceded much of the public presence of the administration on air traffic and air travel to the FAA's Jane Garvey. In fact, Garvey had become so closely identified with air traffic and gridlock issues that, as Mineta took control during the crisis, some in Washington began asking, "Where's Jane?" (At the FAA control centre throughout the crisis, her aides say).

One major winner though was definitely not one of the usual suspects. Delta's Mullin, a man whose limited public exposure had perhaps been as much to his own benefit as the industry's, was the real winner. Like many in a crisis, Mullin rose to the occasion and more, and the same sometimes tongue-tied sincerity that had limited his role as a spokesman became his greatest asset. When Mullin was emotional, it was emotion that simply could not have been prepared, faked or otherwise spun. Capitol Hill and indeed all of Washington, so used to the smooth and polished, was left with a new admiration for Mullin and his calm and sincerity qualities that even a member of Congress can recognise.

Source: Airline Business