- The Washington Times - Wednesday, September 14, 2005

The U.S. airline industry, with three of its four biggest companies operating in bankruptcy after record-high fuel prices, yesterday urged Congress to pass a temporary fuel tax cut to help lower carriers’ costs.

“If the price of oil stays high and our taxes along with it, I expect more jobs lost, more flights cut and more airlines in crisis,” James May, chief executive of the Air Transport Association, told the Senate Commerce, Science and Transportation aviation subcommittee.

Mr. May suggested Congress grant a one-year “holiday” to allow carriers to escape the 4.3-cent-per-gallon tax on aviation fuel.

The tax, enacted in 1993 as a temporary deficit-reduction measure, now goes to the aviation trust fund, which supports airport infrastructure. It raises $600 million a year, a small fraction of the carriers’ current multibillion-dollar annual losses.

Mr. May said Congress should approve a supplemental appropriation to keep the trust fund whole during the tax holiday, and then overhaul all aviation taxes. Roughly one-fourth of the average ticket price reflects taxes and fees, he said.

A fuel tax break is “only a small step in the right direction,” Mr. May said. “I think Congress needs to revisit the entire tax-and-fee equation.”

But so far, few key lawmakers appear to agree, despite the bankruptcy filings of Delta Air Lines Inc. and Northwest Airlines Corp., the third- and fourth-largest U.S. air carriers, yesterday afternoon.

UAL Corp., the parent of United Airlines, U.S. Airways Group and ATA Airlines’ corporate parent already are in bankruptcy proceedings under Chapter 11 protection.

Earlier this week, Senate Finance Committee Chairman Charles E. Grassley, Iowa Republican, told reporters he doubted a fuel tax break would have a big enough effect to help the beleaguered industry.

At a news briefing hours before Delta and Northwest filed for Chapter 11 protection, House Speaker J. Dennis Hastert, Illinois Republican, deflected a question about aid for airlines.

“We did provide assistance to the airlines after September 11,” Mr. Hastert said.

Shortly after terrorists hijacked four airliners on September 11, 2001, Congress gave airlines $5 billion in direct cash assistance and another $10 billion in loan guarantees.

Nevertheless, the industry’s finances crumbled because of travelers’ fears about terrorism, global recession, a respiratory disease outbreak in Asia and violence in the Middle East.

After the economy turned up in 2003, soaring fuel prices and fierce competition combined to crush hopes for profits.

Last year, the industry group estimated that for U.S. airlines to break even, oil prices would have to stay below $31 a barrel. Since then, prices have shot as high as $70 a barrel. During the decade between 1992 and 2001, the median price was $20.

After Hurricane Katrina struck, a gallon of jet fuel rocketed to $2.36, up from $1.89 the previous week. Prices have since retreated to prehurricane levels, but much financial damage has been done.

Mr. May said that, between 2001 and 2004, the industry lost $32 billion, and this year it will lose nearly $10 billion.

“Suppose that Congress and the federal government do nothing, what’s going to happen to the airline industry?” Sen. John McCain, Arizona Republican, asked Mr. May. “Consolidation? Airlines going out of business? Limp along and go in and out of bankruptcy?”

Mr. May said he expects to see more mergers. A bankruptcy judge in Alexandria today is expected to approve US Airways’ reorganization plan, which includes its purchase by America West Airlines.

Delta and several other carriers have been asking Congress for help with their massive pension-funding shortfalls. Since July, two Senate committees have approved legislation that would give major airlines 14 years to pay off their underfunded pension plans, up from roughly four years.

Sen. Johnny Isakson, Georgia Republican, a primary sponsor of the measure, said he spent yesterday meeting with key senators, trying to get the legislation to the Senate floor next week for a vote.

The two latest bankruptcies show “it’s more important than ever” for Congress to act, he said.


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