Aid for Airlines
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JEFFREY KAYE: After September 11, America’s airline industry, already suffering from record losses, went into an economic free fall. Air travel was suspended, then fear of flying cost carriers billions of dollars in lost revenue. Airlines laid off nearly 100,000 employees and grounded 20% of the nation’s commercial aircraft fleet. Airplanes sitting on the tarmac, instead of flying, have burned money for the companies that operate them, says Darryl Jenkins, the director of George Washington University’s Aviation Institute.
DARRYL JENKSIN: If that plane is on the ground, you’re still having to pay $300,000 a month to lease it. And if you have 600 planes in your fleet that you are paying $300,000 to $500,000 a month to lease, that’s a lot of cash going out the door. And that’s the picture that we faced right after 9/11.
JEFFREY KAYE: With the survival of some of America’s largest airlines at stake, industry executives set a course for Washington, D.C. Behind closed doors and in public hearings, airline representatives pleaded with Congress for money– lots of it- – to keep the airline industry aloft. Leo Mullin is chief executive and chairman of Delta Airlines.
LEO MULLIN, Chairman, Delta Air Lines: Our proposal is only intended to stabilize the financial condition of this industry. It is not a bailout, but rather a package designed solely to recover the damages associated with the heinous acts of September 11. And it gives the airlines a chance to continue to serve as the economic engine, and offer the public service it is our duty to provide.
JEFFREY KAYE: Arguments like this resonated on Capitol Hill. Ten days after the terrorist attacks, Congress passed a $15 billion aid package for the airline industry: $5 billion in direct cash handouts and $10 billion more in government- backed loan guarantees.
DARRYL JENKINS: Well, the truth is, if we hadn’t had that assistance after 9/11, probably three or four of the top ten airlines would have had to file chapter 11 bankruptcy by Christmastime.
JEFFREY KAYE: The goliaths of the industry are getting most of the money: $644 million for United, $583 million for American, and $528 million for Delta. America West, the nation’s eighth largest carrier, is getting $98 million in direct federal aid. After 9/11, the phoenix-based company was headed for chapter 11. Hemorrhaging $5 million a day, it cut nearly 2,000 employee positions. America West’s chairman, president and CEO is W. Douglas Parker.
W. DOUGLAS PARKER, Chairman, America West Airlines: We most certainly would have filed bankruptcy. And in today’s economic environment, it’s unclear as to whether we could have made it through a bankruptcy. So I don’t think it’s an overstated situation to say, it’s certainly unclear as to whether America West could have survived without this cash infusion, without the loan guarantees.
JEFFREY KAYE: For America West, getting the cash assistance was one thing; obtaining the loan guarantee with a web of government strings attached was a much tougher proposition. Since the federal government exposes itself to financial risk by backing a loan, it wants steep concessions from airlines that apply for loan guarantees. America West, the first carrier approved for a guarantee, had to provide the government with a sizable claim to the company. In return for a $380 million in loan guarantee, the airline agreed to give the government a stake in a third of its stocks at the bargain price of $3 a share. The company’s stock hovered at just above $10 a share for most of 2001, before plummeting to below $1.50 after September 11. If America West’s fortunes improve, the government can sell its stake at a profit. For America West, the U.S. Government is now both a business partner and a regulator.
W. DOUGLAS PARKER: Time will tell how active a role they want to play. I believe the role, at this point, will be one of other creditors. They will want to see the financials. They will want to be apprised of what’s going on at the airline. But there are covenants in the law that preclude us from doing certain things that have been negotiated. And that’s, I think, how they manage it. And it’s now for America West management to manage the airline; for the government, like other creditors, to remain apprised by us reporting back to them on how we’re doing, but not to have an active role in the management of the airline.
JEFFREY KAYE: And what if America West goes under despite the loan guarantee?
W. DOUGLAS PARKER: Well, if we don’t survive, the U.S. taxpayers will end up being on the line for whatever we have not yet paid back under the loan, because the loans are guaranteed by the U.S. taxpayers. Again, we don’t believe that to be the case, but that is the risk.
JEFFREY KAYE: Besides America West, only two small regional carriers– vanguard Airlines of Kansas City and Alaska’s Frontier Flying Service– have applied for federal loan guarantees. Why are there so few takers? Industry analysts say even cash- starved carriers are troubled by the terms of the America West deal, fearing government meddling in their business.
DARRYL JENSKINS, Aviation Industry Analyst: That thought is so worrisome that the other airlines will stay away from it, and only the truly desperate will go to the loan guarantee board after they saw their terms.
JEFFREY KAYE: Thousands of sacked airline employees have other concerns. After September 11, organized labor fought unsuccessfully for federal aid to laid-off workers. William McGlashen is president of the flight attendants’ union local for America West.
WILLIAM McGLASHEN, Association of Flight Attendants: We would have hoped that Congress would have done the right thing and put some protections for employees who lost their jobs after 9/11 — For instance, an extension on unemployment benefits, health care coverage for the duration of their furlough. Those are things that Congress should have stepped in right away. They had the opportunity to put them on the direct aid and the loan guarantee bill; they had it that night, and then Congress refused to accept those amendments. So that’s disappointing.
JEFFREY KAYE: Now that America West has received its loan, many of its workers are worried. They point to a provision in the loan guarantee agreement that requires the airline to control future labor costs. It’s a provision that employees fear could be used as an excuse to delay future salary and benefit increases. America West workers are already among the lowest paid in the industry.
WILLIAM McGLASHEN: If they use this stabilization board– a condition of controlling labor costs– to just guide their negotiations without recognizing any other facts and figures, that’s going to cause trouble. It means that you have to struggle more to get every nickel and dime out of the company during negotiations. And it may actually invoke some very acrimonious talk, and it may invoke some strikes.
W. DOUGLAS PARKER: The industry has allowed its labor cost to get well above where they should be; what a free market would have them do. We simply are paying more as an industry than it takes to attract and retain qualified professionals.
JEFFREY KAYE: But even with billions of dollars in federal assistance, U.S. carriers might not recover.
DARRYL JENKINS: This is aspirin and it’s not surgery, and the thing that I think… That we’ve removed ourselves now from 9/11 is that these are going to make the incentives for solving our long- term problems go away.
JEFFREY KAYE: Darryl Jenkins says even before September 11, U.S. airlines were in trouble. Major airlines suffered record losses last year, thanks to the recession, too many planes serving too few passengers, and mounting labor costs.
DARRYL JENKINS: This has not played out yet. In the next two years, the probability of one of the top ten airlines, or maybe even two or three of the top ten airlines still filing for bankruptcy is, right now, very, very high.
JEFFREY KAYE: As America’s airline industry attempts to navigate an economic comeback, the journey is unlikely to be smooth. (Plane engines roaring)