- The Washington Times - Tuesday, March 19, 2002

ASSOCIATED PRESS
Aviation experts, after the terrorist attacks, gave congressional leaders their stamp of approval on a multibillion-dollar bailout being lobbied for by the airline industry.
Six months later, the same experts and some economists believe the $5 billion payout to compensate carriers for lost business shouldn't have rushed through without more strings attached.
The $10 billion in loan guarantees made available was tied to strict preconditions, but so far only one major carrier, America West, has tapped that fund.
"Should we have been a little more circumspect and argumentative? With what we know now, we probably did act too hastily," said Darryl Jenkins, director of the Aviation Institute at George Washington University.
"Longtime structural problems could have been better addressed through Chapter 11 than a bailout," he said.
Mr. Jenkins worries that major carriers have less incentive and leverage to tackle fundamental problems, such as the high cost of labor, now that the intense financial pressure has been lifted. Knowing that their employers received hundreds of millions of dollars apiece, unionized workers at United, US Airways and other airlines have become less likely to accept wage reductions during labor negotiations, he said.
Wall Street analysts argue that while the emergency aid bolstered a few of the weakest carriers, it only delayed the rest of the industry's recovery. A Chapter 11 bankruptcy here or there, or even some consolidation, would have increased the remaining carriers' market share and returned them to profitability sooner, analysts said.
The effect on consumers is another story.
"One big bankruptcy I think the customers would survive just fine," said Michael E. Levine, a professor at Harvard Law School and a former airline executive. "Two big ones and you're beginning to push pretty hard on the level of competition in the industry."
But in the immediate aftermath of the 48-hour shutdown of the nation's airspace, and as concerns about the safety of air travel mounted, airline executives pleaded with Congress for a bailout, saying it was the only action that could prevent widespread bankruptcies.
"In those dark days after September 11, we were all scared," Mr. Jenkins conceded. "None of us thought we'd ever recover from all of this."
Indeed, the rush to bail out the airlines also had patriotic roots, said Clifford Winston, an economist at the Brookings Institution in Washington, who also was invited to the Sept. 16 meeting on Capitol Hill.
"We were going to make a statement to the world that we will not allow terrorist attacks to damage our industries," he said. "That's what I think was motivating it."
While Mr. Winston is not opposed to economic decisions made with a social goal in mind, he said Congress may have gone about it the wrong way. Instead of giving away cash, the government should have cut airfare taxes, he said. That would have spurred revenues by enabling carriers to squeeze more profits out of each ticket sold, he said.
Critics of the bailout say there is nothing to prevent airlines from leaving less profitable airports anyway. That is exactly the type of precondition that Rep. Peter A. DeFazio, a Democratic congressman from Oregon who voted against the bailout package, would have liked to have seen written into the airline stabilization act.
Passenger demand has gradually improved over the past six months, yet it remains about 10 percent below year-ago levels, even with a 15 percent decrease in the average price of a domestic ticket.


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