AS THE United States continues this week to deal with the loss of life incurred Sept. 11, it also is beginning to calculate the economic impact of what happened. With a recession almost guaranteed, the government understandably is looking to help out.
However, the nation's lawmakers shouldn't rush to judgment. The airline bailout is a bad idea not only because it privileges airlines over other industries, but also because it isn't economically sound.
Several airlines suffered from poor economic health long before the Sept. 11 events. US Airways and United signed a merger deal earlier this year motivated by the problems both had suffered in the summer of 2000. When regulators refused to allow it, United predicted cutbacks, layoffs and possible bankruptcy.
Any structural weakness airlines were suffering obviously worsened when the government grounded planes for two days. Losses for each day the planes were grounded are estimated at about $120 million.
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After seeing how quickly Congress passed other spending bills, airline representatives cried out to the government for help, and it looks like they'll get it. As of press time, Congress is planning to give the airlines $5 billion in cash and $10 billion in loan guarantees. However, the expenses won't stop there, because the government also is considering establishing a fund to pay non-punitive damages to families of the victims of the Sept. 11 crashes to take the burden off the airlines.
This may sound nice to those people carrying airline stocks, but it begs the question of what is so special about airlines. Sure, they've lost money, but they are not the only industry by far.
The insurance industry is still tallying up the amount of claims it will pay out, but the most recent estimate has climbed to $40 billion, a tab that some insurance companies may not have the cash on hand to pay up. Manhattan firms that had to relocate because they no longer have offices will lose money even if their insurance money comes in.
The real reason the airlines have been so privileged is most likely the superior scare tactics of their lobbyists. The president of the Air Transport Association thanked the government for ensuring that "airlines will not become the first economic casualty of this war" ("US Bailout will Keep Airlines Flying," The Wall Street Journal, Sept. 24). With rhetoric like this, it's hard for government officials, particularly a pro-business president, to resist.
But this is a bit of an exaggeration. The word "casualty" implies that somehow we no longer will have an air transportation system, or at the least that several air carriers will go under. This is not going to happen.
Airlines have weathered tough times before and will to continue to do so. The Wall Street Journal points out that airlines are one of the first sectors to be affected in a slowdown, as their problems over the last few months shows, and that the industry has at times even gone several years without turning profits. It's not that unusual for airlines to declare bankruptcy, and it doesn't stop operations. Trans World Airlines had filed for Chapter 11 bankruptcy protection before the attacks, and Continental and America West Airlines have done the same in the past decade.
Giving money to airlines probably also will take much-needed money away from plans to improve the nation's train system. Airline delays due to security problems have made train travel a more sensible alternative for shorter distances. When planes were grounded, Amtrak served as a safety valve in the Northeast corridor. But to fulfill its potential, Amtrak needs infrastructure work in other areas of the country. Scarce federal monies would be better spent on this than the airlines.
The over $15 billion cost to the taxpayers for an airline bailout actually might be beneficial if it would reduce the massive number of layoffs announced by all major airlines except Southwest Airlines, currently totaling over 80,000. But this isn't happening. Executives for major companies confirmed that the layoffs still will go through.
Employed consumers, not airline investors, have kept the economy out of recession up to now. Increasing the number of unemployed people decreases consumer confidence and makes a recession more certain. Using some of these loan guarantees to decrease layoffs should be a condition of the airlines' receiving the money.
The airline bailout unfairly privileges the industry over others and is a waste of government money. At a time when costly military operations loom over the horizon and there is a future need for economic stimulus, Congress needs to be more careful with passing out expensive favors.
(Elizabeth Managan's column appears Wednesdays in The Cavalier Daily. She can be reached at emanagan@cavalierdaily.com.)
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