Airlines Seek Second Bailout

Posted March 11, 2003 at 6:44pm

The U.S. airline industry, already struggling to stay aloft, has launched a massive lobbying effort on Capitol Hill to prevent carriers from falling into a tailspin if the nation goes to war with Iraq.

Beginning last week, senior executives from the nation’s largest carriers began meeting privately with key policymakers at the White House and on Capitol Hill to promote a multibillion-dollar package of tax relief and federal support to keep the industry flying when war drives up the costs of fuel and discourages American from purchasing seats.

“We are going to talk to anyone who will listen and look for help from any quarter we can get,” said Jim May, the head of the industry’s trade association, the Air Transport Association. “We’ve made a pilgrimage to the administration. We’ve made a pilgrimage to the Hill.”

According to industry executives, the airlines would like to suspend nearly $10 billion in aviation taxes, require the federal government to pick up a $4 billion tab for recently installed security measures and extend subsidized rates for insurance coverage for another two years.

The proposal, the industry’s second massive aide package since the terrorist attacks of Sept. 11, 2001, would take effect when military action begins in the Middle East. It would expire one year from its conclusion.

“We know from the first Gulf War that there will be serious economic consequences for the airline industry,” said May. “Without government action, the outlook for the airline industry is bleak.”

On Capitol Hill, key Senators welcomed the proposals but cautioned that the industry would not get everything it wanted.

“The airline industry is going to need some sort of help,” said Sen. Trent Lott (R-Miss.), the new chairman of the chamber’s aviation subcommittee. “We can’t have the whole industry in bankruptcy.”

Lott said the most pressing pieces of the proposal could catch a ride on the emergency supplemental spending bill that would fund the war with Iraq. The remainder of the plan could be attached to legislation to reauthorize the Federal Aviation Administration.

Others were more skeptical. “We already bailed them out once,” said Sen. John McCain (R-Ariz.), the chairman of the Commerce, Science and Transportation Committee.

Added Sen. Chuck Grassley (R-Iowa), the chairman of the Senate Finance Committee: “I think it would be fair before they come ask for help from the taxpayers, that they get their costs down to where Southwest Airlines is.”

Industry experts estimate that an Iraqi war will pump up the price of jet fuel while discouraging one in 10 passengers from hopping on domestic flights, costing the industry about $4 billion. The losses would come on top of a $6.7 billion shortfall already predicted.

To counter the effects of war, the chief executives of the nation’s largest airlines gathered in Washington last week to approve a plan that would keep the airlines in business.

After settling on their plan last Thursday, executives from American Airlines, Northwest Airlines, Southwest Airlines, JetBlue and Delta traveled to the White House to make their pitch.

May, who discussed the plan with reporters on Tuesday, said the industry executives also met with key Members of Congress to discuss the plan.

“We will focus on the Treasury. We will focus on Commerce. We will focus on the domestic policy side of the OMB. We will focus on all 535 Members of Congress,” he said.

The industry will formally unveil the package today at a House aviation subcommittee hearing.

According to aviation officials, the four-part plan could cost the government as much as $15 billion a year.

The costliest provision would suspend nearly $10 billion in federal excise taxes on airline tickets, including a $2.50 surcharge that passengers pay for each segment traveled.

Eliminating the taxes, which make up about one-fifth of the cost of the ticket, would dramatically reduce fares and — the industry hopes — encourage more Americans to fly during war.

Further, the airlines also want the government to cover the $4 billion annual cost of upgrading security on airplanes, such as paying for first-class seats now occupied by federal air marshals.

The package also would extend for two years a federal program to subsidize terrorism insurance for airlines. Finally, the industry wants the administration to lower jet fuel prices by releasing hundreds of thousands of barrels of oil each day from the Strategic Petroleum Reserve.

According to industry sources, executives at one point considered asking Congress to suspend antitrust laws for two years so that the airlines could cut routes in a coordinated fashion. However, the plan was mocked as too controversial.

Airline lobbyists described the bold package as a “wish list” intended to serve as a starting point for legislation.

To move the package through Congress, the airlines are expected to follow the same route they used after Sept. 11, when the industry secured $5 billion in cash payments and a $10 billion loan guarantee program.

To succeed then, the industry flew its top executives to Washington to meet personally with lawmakers.

“When it’s life and death, the CEOs will do it themselves,” said one aviation lobbyist.

Nevertheless, the industry employs scores of Washington lobbyists and contributes millions of political dollars.

Continental Airlines’ lobbying shop is piloted by Rebecca Cox, the wife of Rep. Christopher Cox (R-Calif.). On the other side of the Capitol, Linda Daschle, the wife of Senate Minority Leader Thomas Daschle (S.D.), is a senior lobbyist for American Airlines with Baker & Hostetler. Daschle says she does not lobby the Senate.

Still, aviation lobbyists concede that moving the massive package though Congress in a time of burgeoning budget deficits will be difficult.

“Any time you go to the Hill,” said May, who has spent three decades as a Washington lobbyist, “it is uphill.”