The major US airlines renewed their pleas for federal aid in the lead-up to war with Iraq. But many in Congress believe that the industry's woes are of its own making.
Warning that hostilities could lead to losses of $13 billion, cancellation of 3,800 flights a day and the elimination of as many as 98,000 airline jobs, Air Transport Association (ATA) president James May said in mid-March that in a worst case war scenario the industry could face "forced nationalisation".
May proposed that six taxes paid into a trust fund be suspended from the start of any war, and resumed one year after it ends. They include user fees on cargo and passengers, a $2.50 per passenger security surcharge and a 4.3¢ per gallon jet fuel tax. That comes to about $9 billion.
The lobby's warning comes as the belief mounts that the industry's troubles are much of its own making. One senator, Charles Grassley of Iowa, who heads the tax-writing Finance Committee, responded that Congress would consider aid when the majors get their costs down to Southwest Airlines levels. House Aviation Subcommittee chairman John Mica told May: "We'll try to keep you flying. While we all are sympathetic, there is only so much we can do."
Congress is more likely to extend war-risk insurance than to shell out funds, Mica says: "If we take money from one place, it's got to be made up somewhere else." House Transportation Committee chairman Don Young offered little encouragement - he is leading a push to raise gasoline taxes for motorists and so would not want to risk favouring a tax break for one group and a tax raise for another.
May insists: "This is not a bailout. What we're talking about is finding a way for the industry to survive hostilities in Iraq, which is separate and apart from anything to do with the marketplace." May suggested that the airlines had become a victim of government policy even in peace. He said the government decision to raise the terror alert status in February led to a 20% decline in advance bookings despite fares at 15-year lows.
Although the alert was later reduced, bookings remain depressed, and outside analysts such as Sam Buttrick of UBS Warburg see security worries prompting a longer-term traffic reduction.
May spoke days after airline executives, led by Delta Air Lines chief Leo Mullin, went to the White House to plead their case. May said that the industry was not seeking a renewal of the $10 billion loan guarantee package offered after the 2001 attacks. With industry leverage at 93%, he said, "airlines could not afford any more debt".
The industry plea won one ally: labour has ended up adopting the cause, picketing in front of Congress with signs that on one side ask for federal aid and on the other say the crisis is not labour's fault and that wage cuts alone will not restore the airlines' financial health.
More major airlines are warning that the ATA may not be exaggerating. Continental Airlines has highlighted weakened traffic and Delta issued a warning that in the first quarter it expects a negative cash flow, reversing a positive projection made in early January.
And in the most closely watched struggle to survive, American Airlines parent AMR has reportedly begun seeking financing that would support it in the first stages of a bankruptcy. The airline downplayed union speculation that it would seek reorgani-sation protection by summer but did confirm that it had engaged bankruptcy counsel.
DAVID FIELD WASHINGTON
Source: Airline Business
