Airlines play a crucial role in facilitating commerce, providing jobs, and bringing the people of geographically distant communities closer together. Specifically, proponents’, such as Scott C. Gibson, Sr. VP and Managing Officer at SH&E, arguments include these key points. The industry employs hundreds of thousands of American citizens. Assistance would avoid shut down cost of unemployment benefits, welfare payments and tax loss; The Industry impacts businesses that feed off of the airline industry. The airline industry spends upwards of $100 billion annually on goods and services.
The industry is the most reliable and cost effective on earth and is considered key to the competitiveness of the American economy. Aid would ensure strong competition in the airline industry with consequent benefits to the American people. Prior to the 9/11 attack, the outlook for the airline industry was not good. Losses had been forecast in the billions of dollars. The 9/11 events exacerbated the problems within the airline industry. The industry had moved from a “troubled” industry to an “endangered” business, as noted by Gibson. In light of this situation, Senator Kay Bailey Hutchinson (R-TX) asserted, “Clearly, we need to take action that would shore up this major industry, not just because it’s one industry that is important, but because it has such ramifications throughout the economy”.
The federal government’s aircraft grounding order during 9/11is reason enough to compensate airlines for the loss accumulated as a result of the order. Additionally, since airlines could not have foreseen the attacks and the resulting drop in flight demand, airlines should not be responsible for the costs associated with it.
Arguments against the Federal Government Providing Support to the U.S. Airlines Merely giving U.S. airlines money “does not guarantee business success” is an argument against federal support, from which the majority of arguments stem from. Aiding airlines prop up weak and insufficient airlines at taxpayer’s expense even though they will eventually fail. Additionally, providing an airline bailout will not make more people fly. Demand for flying has to do with decreases in leisure and business passenger spending due to economic slowdown and alternative methods of doing business because of technology.
Funds will come out of taxpayer’s pockets. The bailout transfers wealth from taxpayers to air carrier shareholders while ignoring airline’s underlying problems. Assistance prevents airlines from addressing underlying problems of their firms and slows recovery of the industry by reducing the incentive to adjust to new market conditions. Stiff competition from competing airlines within the industry naturally forces troubled airlines to make necessary changes to cut costs, renegotiate with their unions, improve efficiency, or suffer additional losses in passenger traffic.
Bailouts distort the market by promoting poorly run airlines to the detriment of well-managed ones depriving more profitable airlines of their competitive advantage. Bailout paves the way or sets more precedence for future bailouts. Federal support does not make more people fly. Demand has to do with the public’s perception of the safety and security of air travel, less spending due to economic downturn, and less need to meet in person for business due to technology such as video conferencing. Funding the airline industry would limit public funding for competing alternatives to air travel, like trains and video conferencing.
Federal funding forces an airline to maintain unprofitable, scheduled routes prior to 9/11. This condition was set in the name of getting airlines back to “business as usual.” Airlines faced difficulty before 9/11. The major carriers were struggling against increased competition from smaller, more efficient, cost-effective competitors.The FAA’s order to ground all airplanes came after major airlines grounded their own planes at their own volition. Other air carriers most likely would have followed suit without
the FAA’s order.
Compensating airlines for reduction in passenger demand due to 9/11 is no different than the risks the airlines face every day. The potential business risk of terrorism had been known for years prior to 9/11. Executives understood that highjackings and crashes tend to promote negative perception about safety and air travel. The airlines, not the government, should pay the consequences when the terrorists breached security. Reimbursement to airlines is an unwarranted transfer of wealth from taxpayers to airline shareholders. An Airline could conceivably file chapter 11 after taking government money, and the taxpayers’ equity stake would likely zero out. The government is essentially forcing Americans to invest in the airline industry for a rate of return not commensurate with the level of risk. Also, if the government has an equity stake, it may feel obligated to protect the taxpayer’s investment by pouring more money into failing airlines.
In the Event Federal Financial Assistance is Provided to the Airlines, the Carrier Should be Expected to Repay the Government
There are many ways air carriers repay the federal government for its assistance. Perhaps the most import way is by the recipient carrier restructuring its organization to operate efficiently and cost-effectively. Another way is for the recipient carrier to work diligently to pay off any guaranteed loans as soon as economically possible.
Yet, another way air carriers can repay the government is to ensure superior training of its employees in areas of safety, security, and customer service. Provide compensation (in any form that would give workers a sense of ownership in the company) to airline employees sufficient enough so as to enable them to live well above poverty level, to retain skilled workers, and reduce employee turnover. Air carrier stock warrant should be issued to the Government with airline profits going into, for example, SS trust fund.
The purpose of the foregoing forms of payment is for the air carrier to work on strengthening their firm. To have each airline address underlying problems of their firm in order to better compete in changing market conditions. The best form of repayment by the air carrier is to be placed in a position where they will not need another bailout.
A more tangible benefit, as suggested by Gerald Norlander in his article titled, What Do We Taxpayers Get for Our Airline Bailout? How About 15 Billion Federal Flyer Miles?, would be “federal flyer” miles for the public that cannot afford to fly. Particularly those receiving some sort of public assistance, such as, SSI, Earned Income Tax Credit, or Temporary Assistance for Needy Families. Norland further explain his rationale for this form of repayment by the air carriers in the following excerpt from his article, “Spending billions for the welfare of the airlines limits the pool of funds potentially available for the needy.
As a matter of equity, the airlines should provide beneficiaries of federal aid programs a credit of $15 billion worth of “federal flyer” miles. Such new travel may provide “federal flyers” who otherwise cannot afford to fly with once in a lifetime opportunities, reuniting their families, broadening their experience, and expanding social interaction. This would reduce economic waste by half-full airplanes. Idle airline capacity filled this way would not displace paying traffic or invite destructive fare cutting on those routes where several airlines now compete for less traffic.
A lottery to fill empty first class seats could stimulate communication and perhaps better understanding among various social groups. CEOs suffering multi-million dollar losses in their stock options would have new opportunities to commiserate with adjacently seated SSI recipients who must struggle nobly to live on just a few hundred dollars per month.