Airline bailout criticized

Free-market supporters and at least one political party have come out in opposition to Congress’ $15 billion airline industry bailout plan in the wake of the terror attacks in New York and the Pentagon.

“We sympathize with the plight of the beleaguered airline industry,” said Libertarian Party National Director Steve Dasbach on Wednesday. “But this bailout is an affront to other industries that suffered from the terrorist attack, further squanders the dwindling budget surplus and increases the power of the federal government to meddle in the free market. In short, it was a $15 billion mistake.”

Last Friday, the House and Senate passed the airline industry bailout bill, authorizing $5 billion in cash and $10 billion in loan guarantees, and President George W. Bush signed it into law on Saturday.

The airline industry has suffered devastating financial losses and massive layoffs since the Sept. 11 terror attacks. Yesterday, Delta Airlines became the latest casualty, announcing it would cut 15 percent of its staff – or 13,000 workers, including pilots – in an effort to trim costs.

In total, U.S. airlines and the world’s largest aircraft maker, Boeing, have announced job cuts totaling more than 100,000 people.

“The direct aid granted by the government helps Delta meet its immediate financial obligations, but with passenger demand forecast to remain depressed for at least a year, the need to reduce costs remains a financial imperative,” Delta spokesman Tom Donahue said.

Officials added that the airline had lost about $1 billion since the attacks. The company will get about $600 million from the $5 billion cash relief approved by Congress last week, Donahue said. An industry spokesman said yesterday that airlines expect to lose at least $7 billion this year.

Dasbach said Libertarians understand the compassion behind wanting to help the ailing airline industry out of its jam. But he warned that by doing so, other industries may follow.

“If Congress bails out the airline industry, who’s next?” Dasbach said.

Other groups also shared the Libertarian Party’s concerns that related industries would appeal for government funding.

“The whole thing is so transparent. There are so many groups and interests lining up, wrapping themselves in the flag, arguing they need to be rescued,” said Ron Utt of the Heritage Foundation in Washington yesterday.

“It’s pushed as either disaster relief or national security, or if those arguments don’t work, it’s being pushed as economic stimulus,” he told Reuters.

The travel and insurance industries, along with railroad and steel companies and thousands of workers who have lost jobs because of the attacks, are seeking federal aid, tax breaks, import quotas or loan guarantees.

Bush administration officials say they are discussing a new package for hoteliers, rental car agencies and travel companies. Also, the administration says it may support proposals to curb the liability of insurance companies for terrorist attacks. And President Bush has personally expressed support for providing assistance to airline industry workers who have lost jobs because of the attacks.

According to Dasbach, television networks are already claiming to have lost some $500 million in advertising revenue in the week following the attack. And investors lost an estimated $1.4 trillion when the stock market went into a historic free-fall last week.

“There is not a single American, nor a single American company, that has not felt the personal or economic impact of the horrific events of Sept. 11,” he said. “But we shouldn’t give politicians the power to decide who gets taxpayers’ dollars to deal with that impact.”

Some groups support the bailout, however, largely for national security reasons.

“I don’t have a problem with this bailout because of the circumstances surrounding it,” Alan Gottlieb, president of the Center for the Defense of Free Enterprise.

“Our feeling is that, since airlines were ordered out of the skies by our government, we don’t have a problem with the intent of this, philosophically,” he said. “This act of terror – you could call it a war – used the airlines’ property as a weapon,” and they should not be made to suffer financially for that, he added.

Also, he said, “the commercial air fleet in this country is the reserve military air fleet at the same time, under federal law. So I understand the importance of the commercial air fleet to our national defense system.”

And Gottlieb agreed with airline liability limitations, so that the industry “won’t be sued for all these acts, since it wasn’t their fault.”

Experts differ on what type of help would have been more effective.

Gottlieb said he was “sure that something better could have been drafted,” but “Congress was under the gun” in that lawmakers were pressed to pass some sort of relief quickly.

The Libertarian Party, however, recommended several things the federal government could do to help industries recover, without costing taxpayers a dime.

Congress could declare the airline industry a “tax-free” zone and remove federal taxes from every aspect of the business – jet fuel, workers’ salaries, airline tickets, corporate profits, passenger facilities charges and so on, the party said. Also, lawmakers could “redirect” money “from other corporate welfare programs, instead of spending new money.”

“Libertarians don’t support corporate welfare. But if Congress is determined to spend our money, they should spend it for something they consider to be a genuine emergency – rather than for their usual assortment of handout-hungry corporate clients,” Dasbach declared.

The national director also said Americans could help “bail out the airline industry” simply by flying.

“Airlines aren’t hurting just because of the two-day shutdown; they’re hurting because of the huge drop-off in air travel that followed,” he said.

“Bailouts are a dangerous strategy for addressing economic distress. They create an expectation that Congress will intervene again if another crisis arises,” David Skeel, a law professor and expert on bankruptcy at the University of Pennsylvania, told Reuters.

“Moreover, there is a tendency to try to save every company in an industry, even those that would have failed if the crisis had not occurred,” he said, noting that a special case could be made for the airlines because of their vital role in commerce.

Gottlieb said he had “a hard time going further” than offering aid to industries other than the airlines.

“Insurance companies, for example, already exclude coverage for terrorist acts or acts of war,” he said. “If they didn’t do that, I guess that’s going to be their loss.”