Loading ...
Sorry, an error occurred while loading the content.

sunspot.net - business.htm

Expand Messages
  • Bill Koumarelos
    sunspot.net - business Search/Archive Site Map About Us Contact Us Home Delivery Advertise Jobs • Cars • Homes • Apartments • Coupons
    Message 1 of 1 , Oct 1, 2001
    • 0 Attachment
      sunspot.net - business
       
      Search/Archive   Site Map   About Us   Contact Us   Home Delivery   Advertise

      SunSpot Neighborhood Guide

      JobsCarsHomesApartmentsCoupons

      Talk about it
      Discuss this story
      E-mail it
      Send this story to a friend
      Print it
      Printer-friendly version




      * News
      red arrow Business
          Technology
          Investing
          Real Estate
          Stocks
          News releases
          Archive
      * Sports
      * Arts/Life
      * Opinion
      * Marketplace

      Other services
      * Print Edition
      * Wireless Edition
      * Corrections
      * SunSource Store
      * Search/Archive
      * Site Map
      * About Us
      * Contact Us
      * Home Delivery
      * Advertise
      * Map/directions
      * FAQs

      Quick search
      Type search term(s) for articles, places or events, then hit return

      Bailout pays airlines for years of bad management
      Jay Hancock

      Originally published Sep 30, 2001

      AS HE pursued his doomed merger with United Airlines earlier this year, US Airways chief executive Rakesh Gangwal said "there is no Plan B" if regulators were to block the deal.

      Thank goodness, then, for Plan C: Using the terrorist attacks in New York and Washington to justify a $15 billion airline industry bailout, courtesy of taxpayers.

      Maybe there's a case for giving airlines liability protection or modest loan guarantees, but you didn't hear it in Washington the other day. Congress approved a large-scale corporate handout with less investigation than you might undertake to get your transmission fixed at Aamco.

      Led by Continental Airlines boss Gordon Bethune and Delta's Leo Mullin, the industry did a nice impression of being pushed to the brink solely by the World Trade Center and Pentagon disasters.

      The first thoughts of a grieving Congress were for airline solvency and symbolic defiance of the murderers, and the heck with cost. But major airlines have been mismanaged for years, bulking up on mortgaged jets and caving in to unions.

      Legislators gave the airlines almost everything they sought, including $10 billion in loan guarantees and an amazing $5 billion cash grant, without getting some basic answers and commitments.

      Where is the upside for taxpayers? The 1980 Chrysler bailout allowed the government to share in the appreciation of the automaker's stock. Washington eventually made money on the deal.

      Incredibly, in the latest handout there was no discussion of taxpayer warrants or options on airline shares. This one's a freebie.

      Are airlines collecting insurance benefits that Congress doesn't know about?

      Corporations typically carry business-interruption policies, and a four-day government-imposed shutdown would seem to fit the bill. The harm done to US Airways by the Reagan National Airport closure seems especially ripe for a huge claim.

      Business-interruption benefits could significantly change the grim financial picture painted by the airlines. If such claims are likely, Congress should have been told. But the airlines don't think it's anybody's business.

      "That's something that I don't think we would publicly discuss with anyone," said US Airways spokesman David Castelveter.

      Where are the employee givebacks?

      Before the deal was struck, Chrysler's bailout required executives and labor to contribute more than $600 million in pay cuts. The airline giveaway, by contrast, is subsidizing the $200,000 annual salaries of senior pilots, who will be the last to be laid off.

      The only rank-and-file contributions are involuntary, the 100,000 layoffs of lower-paid workers.

      Beyond a few cosmetic cuts for CEOs, the industry has said next to nothing about white-collar salary concessions. Asked about the subject in Congress, Mullin blew purple smoke about the Black-Scholes pricing model for stock options and vaguely suggested that no executives would make out better than their companies.

      "If we pass this package, I would be very concerned if I read in the paper a week later that some executive received $8 million," said Florida Democratic Rep. Corrine Brown.

      US Airways Chairman Stephen M. Wolf certainly won't earn that much this year, but he made $11.6 million last year, one of the busiest in airline history, and ran his company well enough to lose $269 million. Through June of this year USAir had lost another $195 million.

      Are the airlines as bad off as they claim?

      Airline executives estimated they lost $340 million per day during the four-day shutdown. But that's the cost of normal daily operations. When airlines don't fly planes, burn fuel, pay air and ground crews and serve meals, they spend as much as 40 percent less.

      New Jersey Democrat Rep. Robert Menendez tried to get an estimate for actual airline costs during the shutdown and was promised an industry response. That was 11 days ago. Last Friday he was still waiting.

      Projections of future losses are even more squirrelly.

      Before the rescue, airlines threatened to seek bankruptcy protection, citing lower passenger demand after the Pan Am Flight 103 bombing and the Persian Gulf war.

      But nobody knows what traffic will be. Somehow airlines made it through the Pan Am disaster and Desert Storm without a government rescue.

      Is bankruptcy for weak airlines a bad idea? "We cannot let U.S. airlines become the final casualty of last week's attacks," said Missouri Republican Sen. Christopher S. "Kit" Bond.

      But airlines won't be a casualty. Delta and Southwest are strong, and even in bankruptcy proceedings others would keep running. Ownership would shift to bondholders, who might end up hiring better managers and renegotiating union contracts.

      On Sept. 11 the industry had $10 billion in cash. That's enough of a cushion for Washington to have stopped, looked and analyzed.

      Instead, airlines flopped like 76ers' center Dikembe Mutombo, drawing the quick whistle from Congress and a huge penalty for taxpayers.

      This month's attacks were unspeakable horrors, but airline shareholders shouldn't be the first objects of our sympathy.

      Copyright © 2001, The Baltimore Sun

      From the archive


      Also see
       

      In Depth
      Attack on America: Sun columnists weigh in

      Recent columns
      Sun columnists
      Kevin Cowherd
      John Eisenberg
      Mike Himowitz
      Gregory Kane
      Rob Kasper
      Jacques Kelly
      Michael Olesker
      Mike Preston
      Susan Reimer
      Dan Rodricks
      Jules Witcover

      Top Stories
      Consumer spending rises
      August numbers reveal shoppers spending tax rebates but attacks changed that, analysts suspect (9:47 AM)

      Investing in uncertain times
      Last month's terrorist attacks changed everything, including financial planning; Is this a good time to buy or are there more troubling days ahead?

      U.S. companies ratcheting up security overseas
      Marriott turns to armed guards, other measures, in wake of attacks

      Americans flying again after attacks
      Flights fuller two weeks later but still not up to pre-attack levels (9:36 AM)

      From Cool Cow to cash cow?
      Objective: Two developers in Ellicott City take a light-hearted but serious approach to business with their new ice-cream shop.

       

      sunspot.netback to top

      Talk about it
      Discuss this story
      E-mail it
      Send this story to a friend
      Print it
      Printer-friendly version
       

       

      Technology | Investing | Real Estate | Stocks
      News | Business | Sports | Arts/Life | Opinion | Marketplace

      Contact us: Submit feedback, send a letter to the editor, submit a news tip, get subscription info, or place a classified ad.

      SunSpot.net is Copyright © 2001 by The Baltimore Sun.
      Terms of Service | Privacy Policy

      Powered by Genuity.

    Your message has been successfully submitted and would be delivered to recipients shortly.