Delta chief says security costs will sink industry
By Leslie Miller
Associated Press
WASHINGTON — The head of Delta Air Lines said yesterday the entire airline industry could go bankrupt if the government does not pick up costs for aviation security.
Bloomberg News Service
Leo Mullin, Delta's chief executive, said Congress ought to pay for aviation security and eliminate the $2.50 tax levied on each segment of a flight.
Passengers line up to check in at a US Airways ticket counter at Fort Lauderdale-Hollywood airport in Florida. US Airways Group and its pilots tentatively agreed on $100 million more annually in cost savings.
"Without these steps, the government will by default come to own the airlines," Mullin said at a lunch sponsored by the Aviation Safety Alliance. He said he expected the airline industry to lose about $10 billion this year because of higher security costs and fewer passengers.
Airlines paid for passenger screening before Sept. 11, but the government took responsibility after the attacks, and airlines agreed to reimburse the cost.
Mullin said revenue lost to security restrictions, new bulletproof cockpit doors, seats taken up by federal air marshals and the $2.50 tax cost Delta $670 million last year.
Congress has twice helped the airlines since Sept. 11. In November 2001, President Bush signed into law a $15 billion aid package that included $5 billion in cash assistance and a $10 billion loan guarantee program.
Last month, Congress enacted a law to extend government-issued war-risk insurance and limit liability against companies for the terrorist attacks. Rep. John Mica, R-Fla. — chairman of the House aviation subcommittee — said the law would save airlines $1 billion.
Pia Pialorsi, spokeswoman for Sen. John McCain, R-Ariz., incoming Senate Commerce Committee chairman, said it was too early to tell whether Congress would agree to more aid for airlines. "Senator McCain will look at the financial state of the industry," she said.
Mullin said one element of the aid package — the $10 billion loan guarantee program — had outlived its usefulness. He said he had no reason to disagree with the loan board's recent decision to reject a request by United Airlines for a $1.8 billion loan guarantee, and no more loan guarantees should be issued.
"We ought to call it quits on that," he said.
Meanwhile, Delta said yesterday it also planned more cost cuts to fit lower travel demand. The "massive, across-the-board-effort" includes new technology to manage financial and technical operations, along with a review of competitors' costs, Mullin said.
Delta is targeting $2.5 billion in cost cuts annually from 2003 through 2005, and has lowered costs by $1 billion this year.
US Airways Group Inc. also announced a new round of pay cuts for its pilots yesterday and is negotiating with other employee groups.
US Airways said it negotiated $100 million more in savings from its pilots, and needs $100 million from flight attendants, baggage handlers and mechanics to gain a U.S. loan guarantee and emerge from bankruptcy.
The seventh-largest U.S. airline raised its cost-cutting target to $1.6 billion from $1.2 billion because low air fares and weak demand prevent it from meeting revenue forecasts. The carrier has lined up most of the savings that will help it gain a $900 million federal guarantee.
UAL Corp.'s United Airlines is trying to cut more than $5.2 billion in labor expenses after filing for bankruptcy protection this week.
"We're watching what everybody does," Mullin said. "All steps are on the table."
Delta previously said it would scrap 15,000 jobs, trim flight capacity by 15 percent, lower travel agent commissions and change its retirement plan.
Mullin said he was not currently considering "any across-the-board, wage-type considerations."
Analysts have said the Chapter 11 reorganizations of United Airlines and US Airways would pressure Delta and other competitors to cut jobs, drop routes and switch to smaller planes.
Bloomberg News contributed to this report.
