Airlines call for war aid - Industry lobbies for relief on tax
www.gomemphis.com By Jane Roberts robertsj@gomemphis.com March 12, 2003
An airline industry trade group predicts "chaotic industry bankruptcies" if war in Iraq cannot be avoided.
In a report designed to encourage Washington to grant as much as $9 billion in tax relief and other financial aid, Air Transport Association president James C. May said that even though airlines have slashed costs since 2001, a war will hurt them further.
"The prospect of a forced nationalization of the industry is not unrealistic," May said. "It would be a last-ditch effort, but it is not impossible."
Under a "most likely Iraqi war scenario," May outlined a host of grim assessments, including that the workforce - already down 100,000 workers since 2001 - would be cut another 70,000.
He predicted that flights would drop by 9.5 percent - or 2,200 a day - and that in a war that lasted 90 days, passenger load for the year would drop by 52 million people - more than in the 1991 Gulf War.
Fuel costs will only rise, May said, due to a low inventory heightened by the strike in Venezuela. During a war, supplies from the Middle East would be disrupted.
Darryl Jenkins, head of George Washington University's Aviation Institute, said those forecasts are reasonable but that Congress is unlikely to help any distressed industry twice.
Shortly after Sept. 11, 2001, the government reimbursed the airlines $5 billion for revenue lost when the airspace was closed immediately following the attack. It also set $10 billion aside in loan guarantees.
But the requirements were so stringent that very few airlines were eligible beyond those in bankruptcy, said Larry Cox, president of the Memphis-Shelby County Airport Authority. Less than $1 billion was used.
Steve Hansen, spokesman for House Transportation Committee chairman Don Young (R-Alaska), said the size of Congress's previous industry bailout dampened lawmakers' appetite for giving the airlines the tax cuts they say they now need. "It's not to downplay the problems the aviation industry is having, but at what point do you set a limit to how much you can give to one industry?" he said.
ATA represents most major passenger and cargo carriers.
Asked about May's nationalization scenario, ATA spokesman Michael Was com said, "We hope it never comes to that. But in these tough times, we risk the industry ceasing to exist as we know it today without some intervention."
Cox said that nationalizing aviation "will be like the post office running the airlines. I don't believe that is in the best interest of the United States.
"I certainly have to agree that the future in aviation, even without war, looks bleak," Cox said. "Obviously, there are going to be some major impacts. It's hard to gauge how deep and how long they would last, but it certainly is not good."
Cox and Wascom said the government could start helping the airlines by reducing their tax load.
"The airlines are the most taxed industry in the United States. They are taxed more than cigarettes, more than alcohol," Cox said.
One option would be a tax holiday - from the start of the war to one year after it ends - from six taxes airlines pay into a trust fund. The taxes include user fees on cargo and passengers, a $2.50-per-passenger security surcharge and a 4.3-cent-a-gallon jet fuel tax. That would save the airlines about $9 billion.
Cox and Wascom also cited security and other regulatory costs the airlines have had to absorb since Sept. 11, 2001 - about $4 billion worth. "For an industry that supposedly was deregulated in 1978, it isthe most regulated deregulated industry in the nation. They certainly need to remove the unfunded mandates,"Cox said.
Security measures alone cost Northwest Airlines, the major carrier at Memphis, $40 million to $60 million a year, Cox said. Screening the catering services costs NWA $11 million, he added.
Plus, Cox said, Northwest and other airlines are being penalized because they cannot carry U.S. mail under the heightened security, but they must offer federal air marshals room in first class.
Wascom suggested that the government take over passenger and property screening, and intervene with insurance coverage, perhaps by extending permanently a policy it offers now through the FAA.
Jenkins, Aviation Institute director, said the industry needs long-term restructuring. "I'd rather see that happen than government get involved" by nationalizing the airlines.
- Jane Roberts: 529-2512