Bankrupt Carriers Face Turbulent Future

Posted September 16, 2005 at 6:11pm

If the past experiences of bankrupt airlines are any indication, lobbyists for ailing carriers can expect a more harried pace now that two of the nation’s biggest have filed for Chapter 11 — and could wind up with pink slips, unpaid bills or salary reductions for their troubles.

On the Congressional front, the agenda is more pressing but little changed for Delta Air Lines and Northwest Airlines, both of which declared bankruptcy last week. They joined United Airlines and US Airways (though last week, US Airways won a judge’s approval to emerge from Chapter 11).

The industry wants Congress to pass pension legislation that would ease one of its biggest financial burdens. It also has called for a one-year holiday from a 4.3 percent fuel tax. And it wants the Transportation Department to allow airlines to list separately the price for fuel surcharges.

United Airlines, which has been in Chapter 11 reorganization for almost three years, defaulted on its pension plan.

Benet Wilson, a spokeswoman for Delta, said the company’s bankruptcy will not translate into a weakened lobbying presence.

“We are still trying to pursue pension reform,” she said. Wilson added that the airline is working with the Air Transport Association of America, the main industry group, on the fuel tax repeal and the issue of listing fuel surcharges separately.

Linda Daschle, a lobbyist with Baker, Donelson, Bearman, Caldwell & Berkowitz who represents American Airlines, served as deputy administrator of the Federal Aviation Administration.

“I’ve worked in this business for 30 years, and it’s clearly unprecedented to have four of the world’s largest airlines in bankruptcy,” said Daschle, whose husband, Tom Daschle (D-S.D.), was a Senate Minority Leader. “I think Congress and the federal government can help. I’ve seen it in the past, and I just hope that’s the case this time.”

Ed Faberman, an aviation lobbyist at Wiley Rein & Fielding, whose clients include low-cost carrier AirTran, said that without the recent bankruptcies, the chance of the industry getting Congressional approval of a one-year pass on the 4.3 percent fuel tax would have been nil.

When it comes to pension reform legislation, Faberman said, the new bankruptcies “certainly put a different spin on it.”

He said that a number of carriers, including Delta and Northwest, were “running around on Capitol Hill saying if we don’t get this relief we’ll have to go into bankruptcy.” Now that they’re in bankruptcy, the message has morphed into: “If we don’t get this [pension] relief we’ll never get out of bankruptcy,” he said.

Airline employee unions also are sensing how critical a time this is for the industry. Duane Woerth, president of the Air Line Pilots Association, which represents pilots for 41 airlines, including all the majors except for American and Southwest, said the Delta and Northwest bankruptcies don’t change his union’s agenda.

“It just points out the need for speed,” he said. “What we have right now is a keen sense of urgency.”

In the meantime, outside consultants, while tirelessly advocating the policies their clients want, have in the back of their minds the possibility that they could wind up with unpaid bills, smaller retainers or a reduction of their client roster.

Some of the lobbyists registered for United ended up with unpaid bills, dropped contracts or both after the airline went into Chapter 11. And that came after lobbyists worked frantically to help the company get a federally guaranteed loan that eventually was turned down.

For lobbyists looking to receive back payment from any bankrupt company, they must get in line behind many other creditors with unsecured claims. If they’re lucky, they might get 5 percent of what they are owed.

An airline in bankruptcy “basically reaches out to every aspect of the company and says ‘What can be cut?’” said one airline lobbyist. Many lobbyists speculate that outside lobbyists and in-house advocates alike often take significant pay reductions, even though assistance with federal lobbying is, if anything, more critical during bankruptcy than out of it.

Even in bankruptcy, United spent $1.8 million on its federal lobbying budget last year. And this year, United farmed out work to the Palmetto Group, which reported $72,000 in fees for the first half of 2005, and $40,000 to the Singer Group during that same period. United’s in-house data is not yet publicly available, and a call to its Washington, D.C., office was not returned.

Northwest’s outside roster includes Cathy Abernathy Consultants, Bryan Cave Strategies and McSlarrow Consulting, among others.

Delta’s recent outside lobbying roster includes the National Group, which referred comment to Delta; Washington Council Ernst & Young, which was hired earlier this year and did not return a call seeking comment; and the Washington Group.

Contracts or not, K Street will most likely feel the pinch, Faberman said. “You can’t say the only people we’re going to cut are the baggage handlers and flight attendants,” he said.

And those cuts often aren’t entirely up to the company’s discretion. Says one lobbyist who’s worked for a bankrupt client, “All of a sudden you’re losing some degree of control because the court is looking over your shoulder.”

This lobbyist added that “in the last couple of days, so many Members have gotten so spooked. Those who had said no more handouts are now saying, ‘Give us a laundry list of things we can do to help you.’”

James Burnley, former Transportation Secretary who’s now a lobbyist with the firm Venable, said the cost of fuel is a key driver in the recent bankruptcies. Relief from the 4.3 percent fuel tax will be important, Burnley said. “Anything will help,” he said.

“Congress is not a monolithic entity, but I think there is a substantial degree of understanding about what the impact of fuel prices is on an industry that was already struggling mightily,” Burnley said.

Another former Transportation secretary, Rodney Slater, who now lobbies for the firm Patton Boggs, said the recent bankruptcies mean that the industry’s difficulties “are something that Congress will have to take note of now.”

Slater, who serves as a non-voting member of the Northwest Airlines board, said the company decided to file bankruptcy, in part, because of something Congress already has done: pass a new bankruptcy law that takes effect next month.