Is Bailout The Best Remedy?

Gattuso Op-Ed in The Washington Times<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />


Before the tragedies of Sept. 11, the airline industry was one of the most politically unpopular in America. Complaints about delayed flights and poor service were staples for magazine covers, and every politician seemed to have their own favorite list of new mandates they wanted to impose on the industry.Today, that same industry is in a tailspin. With Americans reluctant to return to the skies, airlines are in crisis mode – reducing schedules and laying off employees. Congress, racing to do something, anything, about the problem, is rushing through a bailout for the industry. While this is understandable, policymakers should be cautious – simply throwing massive subsidies at the airlines isn't the answer, and could do more long-term harm than good. Instead, policymakers should take more targeted steps, while focusing on eliminating the fundamental threats to air travel that have caused this crisis. The airlines' financial problems began well before Sept. 11. Due largely to a weak economy, the record airway congestion predicted for this summer never occurred. Instead, air travel sagged, and industry revenue steadily slipped. By summer's end, losses exceeding $3 billion were forecast.With the World Trade Center disasters, the wheels really came off. First, all operations were stopped for several days, resulting in hundreds of millions of losses. Now, after flights have resumed, many are taking off nearly empty, airlines and others in the air travel industry are losing money fast. Many have reduced their schedules, and most are announcing layoffs – including some 12,000 at Continental and 10,000 at USAirways.Congress has been considering a variety of proposals, some with subsidies totaling $15 billion or more.With barely a week's deliberation, many troubling questions remain. How are losses to be defined? Will taxpayers end up paying airlines for economic losses they were already sustaining? How about lost business from a general economic slowdown? Moreover, how will the money be distributed? Will it go to those most in “need,” rewarding airlines that were badly managed before the tragedies? Or will it be divided among firms without regard to need, raising other troubling issues?Moreover, claims for assistance are unlikely to stop with the airlines. Many others in the travel industry, including travel agents and hotels, already are lobbying to be included. Extending the circle farther, what about the insurance industry, automobile industry, shipping industry or others sure to suffer in the coming months? What about firms and investors hurt from falling stock prices? Once this Pandora's box is opened, can Congress draw the line?Lastly, it is unlikely any bailout would come without strings – explicit or implicit. This industry has successfully resisted economic re-regulation for 20 years. And the result – despite the many naysayers, has been a revolution in air travel – millions more able to fly on the most efficient and (still) safest airline system in the world. But, after a bailout, the politicians are unlikely to show such restraint. It'll be hard to say “no,” and consumers, as well as airlines, will be the worse for it.Congress should act to provide relief to airlines, no question. And some compensation, such as direct losses due to the FAA-ordered grounding of flights, may be appropriate. But Congress should concentrate on lightening the load government itself has placed on airlines. Among the potential steps:• Repeal the tax on jet fuel, saving close to $1 billion a year. This tax, originally imposed for deficit-reduction purposes, is no longer needed, if there ever was. To amplify the effect, repeal it retroactively to last year. • Allow delayed payments of ticket tax revenues. These payments support air traffic infrastructure, but like any good creditor, the government can and should allow its debtors time to recover.• Protect airlines from unfounded liability claims for terrorist-related acts. There is no sensible legal theory under which the airlines are responsible for these terrorist actions.At the same time, no amount of financial relief will be effective unless confidence in air travel is restored. Americans are not flying as they did, and the air travel system will not be righted until they do. That means government should focus its efforts on its core function: protecting the safety of its citizens. That not only means sensible steps to restore air travel security, but effective action to stop international terrorism. Until that is done, all else is secondary.James L. Gattuso is vice president for policy at the Competitive Enterprise Institute. He previously was associate director of the President's Council on Competitiveness.


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