U.S. lawmaker rules out heavy subsidies to keep airlines afloat
John Mica, R-Fla., chairman of the U.S. House of Representatives’ aviation subcommittee, told airline executives at a hearing in Washington Thursday they should not expect a large infusion of subsidies to keep ailing airlines afloat.
“While Congress may assist the airlines with mandated security costs and war risk insurance, let me make it clear that Congress is not going to underwrite losing airline operations,” Mica warned. “Some of our airlines must either reduce their costs dramatically or they will not survive.”
Airline executives and industry experts spoke before Congress during hearings on the health of the U.S. aviation industry.
The Air Transport Association, representing airlines, asked Congress to bear the full cost of new security measures imposed on the industry. “Congress and the administration must act on the recognition that protecting the airline industry, like any other segment of our population or economy, is a federal responsibility and fund it accordingly,” the Air Transport Association said.
Since Sept. 11, 2001, the U.S. airline industry has lost more than $24 billion, as it struggled with an economic slowdown, a downturn in business travel, the SARS epidemic, international conflicts, bankruptcies and soaring fuel prices.
But Mica stressed that Congress has provided significant assistance to the airlines. This included more than $20 billion in the form of “cash, loan guarantees, direct reimbursements for security, tax holidays, defined benefit pension reform and war risk insurance coverage,” he said. Some $5 billion was provided to airlines that suffered losses from Sept. 11. In addition, $3 billion was provided to airlines for security mandates and $10 billion in the form of loan guarantees.
“Despite this amount of assistance, the financial condition of some of our airlines is precarious at best,” Mica noted at the hearing. “We’ve had 10 airlines file for bankruptcy since 9/11 and it appears that more may soon follow.”
Eleven of the 12 U.S. passenger airlines are rated “junk bonds” by Standard & Poor’s. Only the bonds of low-cost airline Southwest are considered as “investment bonds” with a quality rating.
“Legacy airlines, burdened by significant costs of labor contracts and pension plans negotiated during profitable years and an extensive and costly network infrastructure, have found it difficult to reduce costs quickly enough to become cost competitive and restore profitability,” said JayEtta Hecker, of the U.S. General.Accounting Office.
“The airline industry is being transformed into two industries, profitable low-cost point-to-point airlines that continue to grow and extend their reach into ever more markets, and the major network legacy airlines that account for the vast majority of the industry’s losses,” Hecker added.
Lawmakers said the airline industry must take steps to ensure its own survival
Spokesmen for the Air Transport Association said several Department of Homeland Security programs under way will have “significant operational and cost impacts on U.S. airlines.”
The Air Transport Association said that these include:
* The Advance Passenger Information System, which requires manifest information on passengers arriving in the United States to be transmitted prior to their arrival.
* The related passenger name record program that requires certain data to be transmitted prior to arrival.
* The U.S. Visit program, which when fully functional will track the entry and exit of airline passengers arriving in this country.
* The crew manifest program that requires crew manifest information to be transmitted prior to arrival.
* The advance cargo manifest program that requires cargo information to be transmitted prior to arrival.
* The known shipper program that imposes certain information requirements on carrier cargo acceptance practices.
The Air Transport Association also stressed the soaring cost of oil, which rose to about $31 per barrel in 2003 from $26 in 2002.
“We now expect the average in 2004 to exceed $38 a barrel, with the price at present hovering around $40 a barrel,” the airline lobby group said. “The expected $7 increase from 2003 to 2004 amounts to $3 billion in additional expense to the industry.”
In a separate development, the International Air Transport Association of airlines will start its annual general meeting and world air transport summit in Singapore Monday.
Speaking before the gathering, IATA director general Giovanni Bisignani said: “While record high fuel prices challenge our profitability, it is time to put our efforts towards rebuilding the industry.”
“But it is no use rebuilding a structure that we know is weak,” he added. “At this annual general meeting we need to achieve consensus on a stronger, streamlined and lower-cost industry structure. And we need to convince our industry stakeholders of the need for change.”