Sun, May 04, 2003 - Page 11 News List

Airlines poised to battle over government relief funds

CLIPPED WINGS Terror attacks, war, SARS and chronic labor disputes all add to the woes of airlines, which in the US have yet to embrace the reality of their deregulation


Breaking up may be hard to do, but it appears especially tough for the government and the airline industry.

Since deregulating the industry a quarter-century ago, the federal government has struggled to map out a consistent approach for handling it. Should it let market forces dominate, even if that means a decline in the number of flights and an increase in fares as airlines fail or consolidate? Should it take a role in the industry's usually fractious labor negotiations? Should it let foreign investors own controlling interests in domestic airlines?

These questions have taken on added urgency in the last few months as airlines have sought wage and benefit concessions from their employees and made cutbacks in an effort to reduce their costs. Two major airlines, United and US Airways, sought bankruptcy protection and a third, American, is still struggling to avoid it. Arguing that assistance was needed to avoid financial disaster, the industry persuaded the government to come up with a US$3.8 billion aid package.

What has contributed to the crippling of the airlines is the inability of the government and the industry, like heartbroken lovers, to let go of each other, according to economists, executives and lawmakers.

Few agree on what the government's policy should be, but they generally contend that officials should take a more sanguine view toward market forces. Government policy should remain consistent through downturns and boom years, they say, and avoid treating companies differently, whether they are reaping profits or in danger of collapsing.

"It is largely start and stop right now," said Representative James Oberstar, who is the minority ranking member on the House Transportation Committee.

Clifford Winston, an economist at the Brookings Institution who studies the industry, said that "the idea would be these policies would be harmonized along with what deregulation was expected to do; the fundamental criticism is that government has failed to do that."

The government's "residual presence" in the industry, he added, has created "a mindset that you can use the government for your own purposes" and "has diverted the carriers' attentions from working out their problems themselves."

Last month, US President George W. Bush approved, as part of the supplemental spending budget for the war in Iraq, the US$3.8 billion in aid, with US$500 million of that coming in the form of a suspension of security taxes for four months ending in September. The Transportation Security Administration is now working to split that money among 71 airlines by May 16. But the debate over how much aid to hand out -- and whether to give any at all -- has been heated and could intensify as the government tries to figure out what to do about the taxes after September.

The industry already received one aid package, when Congress approved US$15 billion in cash and loan guarantees after the Sept. 11 attacks in 2001. Then, in the last six months, it began to look as if federal officials were slowly coming around to adopting a liberalized attitude toward the airlines. Last December, they denied United Airlines a US$1.8 billion loan guarantee, saying United had to repair its broken business model. On March 31, the Transportation Department approved a marketing partnership between Delta Air Lines, Northwest Airlines and Continental Airlines, after easing stringent conditions it had initially required for the partnership.

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