The government has granted a $15 billion bailout ($5 billion cash, and $10 billion loan guarantees) to the airline industry. Predictably, it will necessarily accrue to only the most sclerotic and mismanaged entities, since they're the ones that need it. Surprisingly, the bailout is probably the least costly part of the government's reaction to 9-11. And it's certainly the only thing that can actually be justified on some basis.

Since the government mandated a shutdown of flights for several days following the 9-11 murders, it amounted to what is known as a "taking," by preventing airlines from using their property. Maybe that amounts to a billion dollars … the rest is a pure subsidy to airline shareholders at the expense of taxpayers.

These things may be in the back of the minds of people who want the government to bail out the airlines. Is there, in fact, a good argument for doing so, since the airlines are so important to the economy? Well, actually, no. Who cares if United, American and some other biggies disappear? Their planes won't disappear, nor will the people who make them fly, nor the gates, nor the technology. They will just change ownership. And, able to buy assets at bankruptcy prices, the new owners may actually be able to make money – something the current industry has never been able to do.

And it would disabuse all the beggars in a half-dozen other "vital" industries (insurance, car rentals, hotels, etc.) of the notion that their owners should be party to the profits while taxpayers should pick up the losses. Of course, I can halfway understand their rationale, in that the government expropriates half their profits in good times. But I can't condone it. It's just one of a myriad of ways the state corrupts the very nature of everything it touches.

Predictably, while they're subsidizing the shareholders of the airlines, congresscritters are introducing bills to provide scores of billions to create competition for them by building more railways. But if passenger trains are what people want, the railroads can pay their own way. At least they should – although we can never be sure, since after driving the industry to bankruptcy with a morass of regulations, taxes and subsidies to competing industries, the government has been forced to subsidize it for decades.

Airline stocks

Indeed, if you look at UAL Corporation, which owns United Airlines (UAL, $14.42), the second largest airline after American, there's some theoretical appeal. At the current price, its total market capitalization is only $785 million, which isn't much in today's market. And selling at only 5 percent of sales, when most corporations sell for a multiple of sales in today's inflated market. An old economy stock is historically considered cheap if its market cap approximates total sales. At .25 book value (when one times book is considered cheap), it passes that test as well.

That, and I've always been a bit partial to United for two reasons. One is that I fly them enough to have 1K status, and therefore merit treatment almost approaching civilized norms. Another is that my mother used to be a stewardess with them during World War II, a time when stewardesses were all not only young and pretty, but had to be RNs as well. Today, most are almost my mother's age, and not only lack her maternal instincts, but are members of the Teamsters to boot.

The problem with United, of course, is that they're losing a lot of money – not quite $2 billion in the most recent 12 months alone. On a per share basis (54.5 million out), they're losing $36.54 this year, and are projected to lose $24 next year. The most they ever earned was $6.83 per share in 1998. Considering their total cash at the end of the September quarter was $2.75 billion, you can do the arithmetic … unless things get better soon. The fact that their debt/equity ratio is 3-to-1 (total debt out: $5.27 billion) isn't good. What makes it worse is that most of their aircraft are leased, and those leases amount to that much more off-balance sheet debt. United is worse than most, but the total market cap of the entire U.S. airline industry – as important as it is, and as long as it's been around – is just more than $10 billion. Excepting, I should add, Southwest Airlines (LUV, $18).

Southwest, although with sales of $5.8 billion only the seventh biggest airline, has a market cap of $14.2 billion, considerably larger than the rest of the industry put together. It has earnings, dividends and limited debt. I attribute that to the fact it's still run by the entrepreneur who founded it in 1971, Herb Helleher, rather than some suit who's mainly in it to play big shot with someone else's money. It underlines the fact that, far more important than a company's business, or finances or anything else, is the man running it. It's why successful investing is much more a poker game than a numbers game. It is, in great measure, a question of assessing the character of the players.

What is to be done with this data? At this point, I'd say the answer is nothing. The airlines are cheap. But the economic and stock market environments are likely to get considerably worse, and to do so for some years. The airline business needs a real crisis, one that will result in radical changes in management, labor, the imbedded cost structures – everything. Maybe 9-11 will provide the impetus for that restructuring. As bad a business as airlines are, Southwest is evidence they actually can make money.

Would I buy Southwest? No hurry, that's for sure. Why not wait until Newsweek runs a cover picturing a golden bear tearing down the NYSE?

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