U.S. airlines may need to be nationalized -- total collapse predicted if Iraq war

[Dave Farber <dave () farber net>]

Monday, Mar. 10, 2003
U.S. Airlines: From Bad to Nationalized?
Could it get bad enough for the airlines to nationalize? A new report from
the Air Transport Association raises the idea.
By SALLY DONNELLY

It certainly hasn't been a breeze for the airlines lately. But things could
get a whole lot worse. Tomorrow (Tuesday, March 11th), the Air Transport
Association, a powerful Washington lobbying arm of the major U.S. airlines,
will release a grim report on the industry ‹ and the prospects for an even
darker future. TIME has obtained a copy of the 34-page report, "Airlines in
Crisis: The Perfect Economic Storm," which lays out four bleak scenarios for
the industry. 

Of course, the airlines are already in the midst of a pretty bad scenario,
as the report notes. A few causes of the pain include a frail underlying
economy, high fuel prices, fear of terrorism and war, and increased security
costs. The moribund combination leads to gushing red ink for the airlines.
But there has been a silver lining for consumers: airfares are lower than
they were in 1988 in nominal, not inflation-adjusted dollars.

Now lets return to the ATA's stated scenarios. They range from a 'no war'
situation, where the airlines would still lose an estimated $6.7 billion in
2003, to the worst case ‹ that's a war plus a major terrorist incident. And
that, says the ATA, would result in a $13 billion loss. "Under this case, a
total industry collapse is virtually certain," says the report. Such an
event would ripple throughout the economy, since the US aviation market is
huge: it is valued at $800 billion and employs 10 million jobs. The ATA's
study concludes by raising the specter of a dire proposition: "...it becomes
starkly clear that...the forced nationalization of our airline system" is
one of the risks the country confronts.

The report does not offer a specific proposals for government assistance,
but the airlines have been making the case in private meetings on Capitol
Hill and even with the White House. TIME has learned that last Thursday
several airline CEOs met with the key members of the Bush Administration
economic team, including Treasury Secretary John Snow and Office of
Management and Budget chief Mitch Daniels, in the Roosevelt Room to lay out
the heavy tax burden they face and the $4 billion in government-ordered
security mandates they have had to pick up. According to those familiar with
the conversations, the Administration officials listened, but offered no
commitments. 
http://www.time.com/time/nation/article/0,8599,431213,00.html?cnn=yes


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