- The Washington Times - Wednesday, September 25, 2002

The head of a congressional subcommittee pledged swift action yesterday on new legislation to rescue airlines from a financial crisis that is worse than anyone expected after the September 11 attacks.
Airline executives testified they have failed by wide margins to meet their goals for financial recovery this year, a situation that will only get worse in another war with Iraq.
They want the federal government to pay all the new security costs created by the war on terrorism. They also seek tax breaks, assistance with skyrocketing insurance premiums and reductions in the "hassle factor," which has turned travelers away from the indignities and delays of extensive airport searches.
"Unfortunately, as we meet here today, the majority of our major American airlines face cutbacks in operations, staggering losses and even bankruptcy," said Rep. John L. Mica, Florida Republican and chairman of the House Transportation and Infrastructure Committee's subcommittee on aviation.
He said he is seeking a solution that avoids handouts to airlines but still protects the industry and the U.S. economy.
"Let me say quite firmly at this point, there will be no government bailout," Mr. Mica said.
The U.S. airline industry predicts it will lose $7 billion this year, compared with $7.4 billion in losses last year. About 90,000 airline industry workers are still laid off.
However, the airline executives said any losses predicted for this year could be significantly worse if the United States engages in war with Iraq.
Unless the federal government provides financial relief, "Such an event really would put a financial burden on this industry that would inevitably sink several carriers," Donald Carty, president of American Airlines, said at the hearing.
Around the time of the 1991 Persian Gulf war, 20 percent of American Airlines' international customers and 10 percent of its domestic passengers disappeared. Meanwhile, fuel prices shot up because of interruptions in Middle Eastern oil supplies.
American Airlines emerged with only moderate losses because the nation's economy was strong, Mr. Carty said. Now, the economy is weaker.
"It is a chilling prospect for all of us," he said.
As the executives testified yesterday, stock prices for major airlines continued falling to unprecedented lows. Stock prices for American Airlines and United Airlines the two biggest U.S. air carriers each dropped about 10 percent.
Several executives at the hearing complained they are forced to pay for security measures ordered by the government.
"Airlines are not asking Congress to assist with economic or competitive challenges, but we do request that the government relieve the industry of government-imposed security costs stemming from the nation's war on terrorism," said Leon Mullin, chief executive officer of Delta Air Lines.
This year, Delta will incur about $660 million in additional costs to comply with government security mandates and higher insurance, he said. The mandates include a new security tax of up to $10 added to ticket prices, restrictions on freight and mail, cockpit-door fortification, passenger screening and giving seats to federal air marshals.
Delta's terrorism insurance rose from $2 million a year before September 11, 2001, to $150 million a year now, Mr. Mullin said.
One year ago, Congress approved a $15 billion aid package of grants and loan guarantees for airlines intended to tide them over until revenue returned. The airlines predicted they could return to profitability in the second half of this year.
Instead, "Our industry today is at a point where its viability is seriously in question," Mr. Mullin said.
A big factor in any recovery depends on the willingness of labor unions to make concessions, said Philip Baggaley, managing director of Standard & Poor's Ratings Services, an organization that rates the financial solvency of corporations.
Among an airline's costs, "Labor is by far the largest item, at 41 percent of the total," Mr. Baggaley said.
US Airways, the Arlington-based airline that filed for bankruptcy last month, has made big strides toward regaining solvency by winning concessions from labor unions, he said. The concessions are a condition by the Air Transportation Stabilization Board for giving US Airways $900 million in loan guarantees.
Unless United Airlines wins similar concessions, it would be forced to file for bankruptcy "probably this autumn," Mr. Baggaley said.
He warned that the fortunes of airlines could change dramatically in another war.
"If the United States takes military action against Iraq, passenger traffic is likely to fall off again," Mr. Baggaley said.

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