Posted on: Wednesday, March 12, 2003
Airlines seek tax breaks
By Leslie Miller
Associated Press
WASHINGTON — Airlines are slashing costs but still need billions in tax relief to avoid chaos and bankruptcy if the United States goes to war against Iraq, the Air Transport Association said yesterday.
Congress gave the airline industry $5 billion in cash when many people stopped flying after the Sept. 11 terrorist attacks.
The size of that relief package, which included a $10 billion loan guarantee program, dampened lawmakers' appetite for giving the airlines the $9 billion in tax cuts they say they now need, said Steve Hansen, spokesman for House transportation committee chairman Don Young, R-Alaska.
"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?" Hansen said.
The airline association predicted that during a new war, passenger traffic would fall more sharply than in the 1991 Persian Gulf War. Airlines would lose $10.7 billion, nearly 10 percent of daily flights would be canceled and 70,000 airline jobs would be cut, the association said.
That scenario was based on recent bookings, data from the last war and assumptions about the economy and passenger behavior.
Hawaiian Airlines, which has been battling to survive by negotiating labor concessions, raising fares and cutting unprofitable flights, would not reveal how much it might lose or the number of flights it could cancel in the event of war. Aloha Airlines had no immediate comment.
The government's decision to raise the nation's terror alert status to orange last month produced a 20 percent decline in advance bookings despite fares that are at 15-year lows, according to the association, which represents the largest air carriers. The alert has since been lowered to yellow.
"We're in a crisis," said James May, the association's president. He said the airlines weren't asking for a bailout, but for help in withstanding the consequences of war.
If the worst happens — a major terrorist attack occurs when war breaks out — the biggest airlines could collapse, May said.
Darryl Jenkins, head of George Washington University's Aviation Institute, said those forecasts are reasonable but Congress is unlikely to help any distressed industry twice.
A war will simply accelerate the inevitable shrinking of airline capacity and leave the survivors stronger, he said.
The Gulf War led to the liquidation of Eastern, Pan American, Midway and Markair airlines, the association said. Now, United Air Lines and US Airways are in bankruptcy and all others except Southwest Airlines are losing money.
Shares in American, the No. 1 airline, fell 34 percent yesterday on reports that it's lining up bankruptcy financing.
"We can let the forces take over," Jenkins said. "If we lose a carrier, if somebody else has to file for bankruptcy, even if it's American, let's do it, let's get it over with."
The airlines want a holiday, beginning with the start of the war and ending one year after it ends, from six taxes they pay into a trust fund. They also want the government to pay for security improvements at airports, on the grounds that they are a matter of national defense.
The taxes include user fees on cargo and passengers, a $2.50-per-passenger security surcharge and a 4.3 cent per gallon jet fuel tax.
Lawmakers may be willing to extend war-risk insurance, which protects airlines from liability claims for injuries resulting from war or terrorism, Hansen said. Congress authorized the government to issue the insurance, which got too expensive after the terrorist attacks on New York and Washington.
Sen. Kay Bailey Hutchison, R-Texas, said Congress may consider moving air marshals into tourist class from first class, freeing up seats so airlines can capture more revenue. She also said a holiday from the fuel tax is possible.
"We need to look at some short-term measures to get the industry over the hump," said Hutchison, whose district includes American's headquarters.
White House spokesman Ari Fleischer was noncommittal on whether the administration would consider new breaks for the industry. "We'll of course continue to talk to the airlines about various issues," he said.
Major airlines lost $7.7 billion in 2001 and more than $10 billion in 2002. The airlines blamed security requirements for $4.1 billion of that loss, including indirect costs such as background checks and aircraft inspections, as well as direct payments to the federal government for security.
Since the Sept. 11 attacks, major airlines have cut 100,000 jobs, slashed in-flight food service, hedged fuel costs, closed reservation centers, installed automatic check-in kiosks and changed flight schedules at hubs to use planes more efficiently.
