Copyright 2001 FDCHeMedia, Inc. All Rights Reserved.  
FDCH Political Transcripts
September 19, 2001, Wednesday
TYPE: COMMITTEE HEARING

LENGTH: 67688 words

COMMITTEE: HOUSE TRANSPORTATION AND INFRASTRUCTURE COMMITTEE

HEADLINE: U.S. REPRESENTATIVE DON YOUNG (R-AK) HOLDS HEARING ON THE STATUS OF THE AIRLINE INDUSTRY

SPEAKER:
U.S. REPRESENTATIVE DON YOUNG (R-AK), CHAIRMAN

LOCATION: WASHINGTON, D.C.

WITNESSES:

JAMES HOFFA, PRESIDENT, TEAMSTERS UNION
LEO MULLIN, CHAIRMAN AND CEO, DELTA AIRLINES
FREDERICK SMITH, CHAIRMAN, PRESIDENT AND CEO, FEDEX CORPORATION
RICHARD ANDERSON, CEO, NORTHWEST AIRLINES
JOHN KELLY, CHAIRMAN, PRESIDENT AND CEO, ALASKA AIRLINES
DOUGLAS PARKER, CHAIRMAN, PRESIDENT AND CEO, AMERICA WEST AIRLINES
TOM HORTON, CFO, AMERICAN AIRLINES
KERRY SKEEN, CHAIRMAN AND CEO, ATLANTIC COAST AIRLINES
HOLLIS HARRIS, CHAIRMAN AND CEO, WORLD AIRWAYS
SUSAN DONOFRIO, DIRECTOR AND SENIOR ANALYST, DEUTSCH BANK
RAYMOND NEIDL, AIRLINE ANALYST, ABN AMRO
SCOTT GIBSON, SENIOR VICE PRESIDENT, SH&E
ROBERT ROACH, GENERAL VICE PRESIDENT, INTERNATIONAL ASSOCIATION OF MACHINISTS & AEROSPACE, WORKERS
SONNY HALL, PRESIDENT, TRANSPORT WORKERS UNION

BODY:

 
HOUSE TRANSPORTATION AND INFRASTRUCTURE COMMITTEE HOLDS HEARING
ON THE FUTURE OF THE AIRLINE INDUSTRY
 
SEPTEMBER 19, 2001
 
*** Elapsed Time 00:00, Eastern Time 11:05 ***
 
SPEAKERS:
U.S. REPRESENTATIVE DON YOUNG (R-AK)
CHAIRMAN
U.S. REPRESENTATIVE TOM PETRI (R-WI)
U.S. REPRESENTATIVE SHERWOOD L. BOEHLERT (R-NY)
U.S. REPRESENTATIVE HOWARD COBLE (R-NC)
U.S. REPRESENTATIVE JOHN J. DUNCAN, JR. (R-TN)
U.S. REPRESENTATIVE WAYNE T. GILCHREST (R-MD)
U.S. REPRESENTATIVE STEPHEN HORN (R-CA)
U.S. REPRESENTATIVE JOHN L. MICA (R-FL)
U.S. REPRESENTATIVE JACK QUINN (R-NY)
U.S. REPRESENTATIVE VERNON J. EHLERS (R-MI)
U.S. REPRESENTATIVE SPENCER BACHUS (R-AL)
U.S. REPRESENTATIVE STEVEN C. LATOURETTE (R-OH)
U.S. REPRESENTATIVE SUE W. KELLY (R-NY)
U.S. REPRESENTATIVE RICHARD H. BAKER (R-LA)
U.S. REPRESENTATIVE ROBERT W. NEY (R-OH)
U.S. REPRESENTATIVE ASA HUTCHINSON (R-AR)
U.S. REPRESENTATIVE JOHN COOKSEY (R-LA)
U.S. REPRESENTATIVE JOHN R. THUNE (R-SD)
U.S. REPRESENTATIVE FRANK A. LOBIONDO (R-NJ)
U.S. REPRESENTATIVE JERRY MORAN (R-KS)
U.S. REPRESENTATIVE RICHARD POMBO (R-CA)
U.S. REPRESENTATIVE JIM DEMINT (R-SC)
U.S. REPRESENTATIVE DOUG BEREUTER (R-NE)
U.S. REPRESENTATIVE MIKE SIMPSON (R-ID)
U.S. REPRESENTATIVE JOHNNY ISAKSON (R-GA)
U.S. REPRESENTATIVE ROBIN HAYES (R-NC)
U.S. REPRESENTATIVE ROB SIMMONS (R-CT)
U.S. REPRESENTATIVE MIKE ROGERS (R-MI)
U.S. REPRESENTATIVE SHELLEY MOORE CAPITO (R-WV)
U.S. REPRESENTATIVE MARK STEVEN KIRK (R-IL)
U.S. REPRESENTATIVE HENRY BROWN (R-SC)
U.S. REPRESENTATIVE TIMOTHY JOHNSON (R-IL)
U.S. REPRESENTATIVE BRIAN KERNS (R-IN)
U.S. REPRESENTATIVE DENNY REHLBERG (R-MT)
U.S. REPRESENTATIVE TODD PLATTS (R-PA)
U.S. REPRESENTATIVE MIKE FERGUSON (R-NJ)
U.S. REPRESENTATIVE SAM GRAVES (R-MO)
U.S. REPRESENTATIVE C.L. (BUTCH) OTTER (R-ID)
U.S. REPRESENTATIVE MARK KENNEDY (R-MN)
U.S. REPRESENTATIVE JOHN ABNYE CULBERSON (R-TX)
U.S. REPRESENTATIVE BILL SHUSTER (R-PA)
 
U.S. REPRESENTATIVE JAMES L. OBERSTAR (D-MN)
RANKING MEMBER
U.S. REPRESENTATIVE NICK J. RAHALL II (R-WV)
U.S. REPRESENTATIVE ROBERT A. BORSKI (D-PA)
U.S. REPRESENTATIVE WILLIAM O. LIPINSKI (D-IL)
U.S. REPRESENTATIVE PETER A. DEFAZIO (D-OR)
U.S. REPRESENTATIVE BOB CLEMENT (D-TN)
U.S. REPRESENTATIVE JERRY F. COSTELLO (D-IL)
U.S. DELEGATE ELEANOR HOLMES NORTON (D-DC)
U.S. REPRESENTATIVE JERROLD NADLER (D-NY)
U.S. REPRESENTATIVE ROBERT MENENDEZ (D-NJ)
U.S. REPRESENTATIVE CORRINE BROWN (D-FL)
U.S. REPRESENTATIVE JAMES A. BARCIA (D-MI)
U.S. REPRESENTATIVE BOB FILNER (D-CA)
U.S. REPRESENTATIVE EDDIE BERNICE JOHNSON (D-TX)
U.S. REPRESENTATIVE FRANK MASCARA (D-PA)
U.S. REPRESENTATIVE GENE TAYLOR (D-MS)
U.S. REPRESENTATIVE JUANITA MILLENDER-MCDONALD (D-CA)
U.S. REPRESENTATIVE ELIJAH E. CUMMINGS (D-MD)
U.S. REPRESENTATIVE EARL BLUMENAUER (D-OR)
U.S. REPRESENTATIVE MAX SANDLIN (D-TX)
U.S. REPRESENTATIVE ELLEN O. TAUSCHER (D-CA)
U.S. REPRESENTATIVE WILLIAM J. PASCRELL (D-NJ)
U.S. REPRESENTATIVE LEONARD L. BOSWELL (D-IA)
U.S. REPRESENTATIVE JAMES P. MCGOVERN (D-MA)
U.S. REPRESENTATIVE TIM HOLDEN (D-PA)
U.S. REPRESENTATIVE NICK LAMPSON (D-TX)
U.S. REPRESENTATIVE JOHN BALDACCI (D-ME)
U.S. REPRESENTATIVE MARION BERRY (D-AR)
U.S. REPRESENTATIVE BRIAN BAIRD (D-WA)
U.S. REPRESENTATIVE SHELLEY BERKLEY (D-NV)
U.S. REPRESENTATIVE BRAD CARSON (D-OK)
U.S. REPRESENTATIVE JIM MATHESON (D-UT)
U.S. REPRESENTATIVE MIKE HONDA (D-CA)
U.S. REPRESENTATIVE RICK LARSEN (D-WA)
 


*


YOUNG: The committee will come to order. First, Ranking (inaudible) Hawaii, to sit at the dais. Mr. Underwood, from Guam; sit at the dais. Mr. Doggett would sit at the dais. It does not mean they will participate in the questioning or comments at this time.

We are here today to address the threat to the continued stability and viability of our U.S. air transportation system.

The terrorists who attacked our country last week were trying to destroy our way of life and our economy. We must not let them do that. They have murdered thousands of innocent people, destroyed billions of dollars in property, and dealt a terrible blow to the air transportation system that is vital to the economic health of our country.

On September 11, 2001, the FAA grounded every airplane in this country within a two-hour period. This is necessary for the safety and protection of our country and our people.

The committee is not in order.

I want to commend the FAA and the air traffic controllers especially for their quick response and decisive action. I also want to commend the aviation industry for their cooperation and willingness to put the safety of others first.

Unfortunately, we are now facing this serious crisis in our air transportation system, which I recognized the day of this terrible tragedy. The reduction in schedules and flights have started, and layoffs have been announced. The capital markets are not coming to the aid of most of the airlines. We're seeing the ripple effect in our economy as layoffs occur in other related industries. Our economy is at risk.

My colleague Mr. Oberstar and I, introduced H.R. 2891, to keep the U.S. air transportation system viable as we work with all the effected parties on other legislation. We expected and wanted to pass that last week and were unable to do so.

In the coming weeks, we intend to address other issues, such as safety, security, economic impacts on other affected businesses, and how to address the future liability and insurability of this industry. Certainly, the airports and the general aviation sector, and the air cargo industry, and the manufacturers all have valid concerns which need to be considered in the future.

I'm sure that Chairman Mica and the Aviation Subcommittee will thoroughly review all of these issues as their hearings continue this week and next week.

H.R. 2891 authorizes the president to provide loans, loan guarantees and other assistance to air carriers, and also to compensate those carriers who can document direct losses because of the action of our government to protect our national security.

This assistance is intended as a short-term emergency response to keep the air transportation system operating for the benefit of the American people. We'll take further action in the near future to address solutions for other airlines and airport functions such as further upgrading airport security.

I know many of you are concerned about airport security and the losses sustained by other businesses. However, I urge all of the members of this committee to focus today on the issue of how best to ensure the continued operation of our air transportation system.

We have additional hearings and, I'm sure, additional legislation next Friday and next Tuesday on airline security issues and other issues. I urge you to participate in those hearings to learn what is being done right now using the emergency funds already appropriated to increase security for the flying public.

The current crisis requires this bill to become law as quickly as possible to protect the well-being of all Americans by preserving a functioning air transportation system. I urge the members of this committee to fully support the effort to pass this legislation, this week. I know that some would like to delay and also add to, and I understand that. But keep in mind, this is the beginning of a product. This is a two-way street. We have to go to the Senate. The Senate has to act, administration has to act. And we have to get this done as soon as possible or we will not have an air transportation system.

I believe this is an important hearing and we need to hear from these witnesses. I want to bring this bill to the attention of the House floor as soon as possible. Therefore, in the interest of moving quickly, and to ensure that all members have an opportunity to have their questions answered, I would ask that we refrain from lengthy opening statements and would ask unanimous consent that members limit their opening statements to no more than two minutes. And if you can see your way, do not use those two minutes. We will welcome written statements, which will be introduced in the record for the proceedings.

At this time, I recognize the gentleman from Minnesota, Mr. Oberstar.

OBERSTAR: Thank you, Mr. Chairman, first of all for recognizing the urgency of the situation and scheduling the hearing, in the aftermath of last Friday's unfortunate circumstance on the House floor.

We meet at an extraordinary moment in aviation history, under the most inconceivable scenario for commercial aviation, a confluence of forces that has put this industry -- a $6 billion sector of our national economy, 10 percent of our $6.5 trillion gross domestic product -- teetering on the edge of an economic abyss.

Our challenge is to restore public confidence in air travel and to revive airline finances so that this cornerstone industry, which represents American mobility and economic growth can recover in the shortest possible order. But if we address only the dire financial circumstances of the industry and do not at the same time elevate the security, air travelers will have little confidence that they can fly safely and airline load factors will not improve.

But if we elevate security without addressing airline financial liquidity, there will be no aircraft for passengers to board. The industry's current dire circumstances resulted directly from the September 11 terrorist attack and the U.S. DOT ground stop order, ordering all aircraft not to fly. There is no comparable precedent. Not the Lockheed situation, not Chrysler, not New York City in the 1970s, not natural disasters, not even the Gulf War wreaked such havoc on one industry.

Today's hearing will focus on the industry's financial problems. There are three essential points. A strong airline industry is essential to our national economy. The airline industry has suffered immense and unprecedented financial damage from September 11 and its aftermath.

Third, unless substantial financial assistance is made available immediately, a major portion of the industry will fail over the next several months. We will come out of a recovery period if we do, with at best, a noncompetitive, weak industry of only a few carriers, no viable survivors, no low-far competitors, and the prospect of government re-regulation or government take over. Higher fares, less service will be the result.

We can invest now and try to restore a sound aviation system, or we can ignore the problem and incur greater costs, severe economic damages and the loss of our aviation system.

There is no doubt in my mind that a healthy commercial airline system is vital to the U.S. economy and to our national defense. Last year, 1,200,000 U.S. airline employees served 670 million passengers traveling 700 billion miles, carrying 25 billion ton miles of freight.

Aviation, 10 percent of the gross domestic product is the cornerstone upon which all other elements of our society rely for economic growth. The opportunity in the U.S. and abroad to travel by air for business has fostered enormous economic growth in electronics, manufacturing of aircraft, communications and tourism, which itself is a $1.6 trillion economic sector. Leaders at every level are emphatic that the pivotal element in expanding business is aviation.

In addition, the credit markets have over $150 billion of exposure to U.S. airline debt and lease obligations. The federal government benefits from a robust aviation sector. Last year, this industry generated $30 billion in government revenues in the aviation trust fund, airport charges, user fees, $10.2 billion in employee and federal and state income taxes and federal Social Security taxes paid by airline employees, $2.2 billion in federal corporate income and property and other taxes.

The primary aircraft and engine manufacturers are also major U.S. defense contractors. If this industry slides into bankruptcy liquidation, our defense sector will be seriously undercut.

The catastrophic offense of events of last Tuesday have left this industry reeling. This industry each day incurs expenses of $300 million, whether they operate or not. Each day that aircraft were grounded, they are losing operating expenses of $120 billion a year, which translates now to $300 million a day.

OBERSTAR: Not only have load factors dropped to 40 percent with flights flying at 80 percent, pre-September 11, but yields are also down. That's a reduction of almost 50 percent of revenue.

If this industry is operating at daily revenues of $150 million, the losses are colossal; cannot sustain those losses for long. Witnesses will go into more detail.

I just want to emphasize that a failure to act will drive the airlines into bankruptcy and liquidation.

Final comment. The frontline against terrorism is not airport security positions. The frontline of security is our national intelligence and counterintelligence services.

I am haunted by an observation made in our presidential commission on aviation security and terrorism: "Commission recommends a specific unit within the intelligence community whose principle function will be long-term strategic thinking and planning on terrorism. The object is to anticipate future terrorist strategies and tactics, rather than simply react to incidents as they occur." That recommendation has never been put into effect. That, I think, is the reason we are here today.

Thank you.

YOUNG: I thank the gentleman.

I'm using my prerogative as chairman. Mr. Hoffa, if you would come on the first panel, I'd deeply appreciate that. There is room down at the end of the table. If you can get a chair or sit right at the end of that table.

James Hoffa is the general president of the International Brotherhood of Teamsters.

At this time I recognize Mr. Petri for two minutes if he wishes to use it.

PETRI: Thank you. I'd like to commend you, Mr. Chairman, and the ranking member for promptly addressing this urgent situation and scheduling this important hearing.

The tragic events of September 11 have touched us all, and in particular the airline industry has been devastated by the terrorist attacks and by their aftermath. Just yesterday Midwest Express Airlines, from my home state, announced that it was cutting its operations by 15 to 20 percent in October, which will, obviously, have a significant impact on jobs.

The devastation that has reaped so much havoc in the airline industry has ripple effects throughout our economy. It's appropriate that the airline industry, which has been directly impacted and is so important for our economy and to our way of life, receive assistance under these circumstances.

However, I'm also concerned about where we draw the line for assisting those industries affected by these tragic events. Many industries and businesses will surely have credible claims that they, too, have been adversely impacted by these attacks and deserve government assistance.

So I look forward to working with my colleagues, as we finalize an appropriate package to assist the devastated airline industry.

And I thank you, Mr. Chairman.

YOUNG: I thank the gentleman.

You're up, Mr. Borski.

BORSKI: Well, thank you very much, Mr. Chairman. I want to compliment you and our distinguished ranking member for holding this hearing.

This committee room, Mr. Chairman, has been the scene of many great successes, because we work so well together in a bipartisan fashion. And I have great confidence that you and Mr. Oberstar will lead us through this crisis, as well.

I spent a couple of hours yesterday in Philadelphia meeting with our airport director and his close staff. And I just want to echo what Mr. Oberstar had mentioned in the beginning of his statement, Mr. Chairman.

I know this hearing is on the viability of the airlines, but there's no question in the people running the airport in Philadelphia that the viability of the airlines will never be complete until people feel secure that they can fly safely. I know we'll have hearings coming up in a day or two on security, but again, I think it is a crucial piece of anything that we move to go forward to make sure that security is dealt with in an even manner.

I'm also extremely concerned, Mr. Chairman, that while there is little doubt that we need to step up to the plate and to help the airline industry in a significant fashion, there are also many questions that I have, however. We have heard recently the staggering numbers of layoffs that are to be taking place. Will they happen even if we are able to come up with a significant financial package? If not, what is the money that we are being asked to going to go for?

So again, Mr. Chairman, let me thank you for having this. And I really look forward to hearing from our witnesses.

YOUNG: I thank the gentleman.

Mr. Boehlert?

BOEHLERT: Thank you, Mr. Chairman.

And while we continue to struggle with the reality of last week's attacks and the unimaginable toll these events have taken, we are here today to face yet another crisis: the stability of our nation's airline industry. And we have reason to be greatly concerned.

One need only to look across the Potomac at Reagan National Airport to comprehend the economic devastation inflicted upon our air carriers: planes grounded, silence in the terminals, local unemployment lines packed with many victims of the veritable breakdown experienced by the service industry. Similar scenes are playing out all over the country.

Major carriers are operating at only a fraction of their capacity. This is not a sustainable condition. Airlines are of critical importance to our nation's mobility and economy.

This hearing is an important first step -- and I emphasize, first step -- in averting a tide of economic havoc. We need to start with a comprehensive and responsible stimulus package to revive our air carriers. This should include an immediate stop-gap (ph) cash infusion.

Although financial stability is our primary focus today, the safety of our nation's air service is and should remain our primary concern, and that will be the subject of other hearings.

I, for one, wish to give serious consideration to the federalization of airport security. Let me add, though, that we must be mindful of the additional funding that will likely be required to meet these critical mandates. In this instance, let me suggest it is not as important to count the cost as it is to consider the cause.

Thank you, Mr. Chairman.

YOUNG: Thank the gentleman.

Mr. DeFazio?

DEFAZIO: Thank you, Mr. Chairman.

First, my condolences to the representatives of the airlines here today for the direct losses suffered by members of the airline family.

You know, the terrorists will win if they destroy our vibrant aviation industry, so it's appropriate this committee take action.

But we also have to look to precedence in doing this, and there are ample precedence. We've got Chrysler, Lockheed, New York, most recently steel. Everyone of those has a model, and the model is not followed in the proposed legislation.

You set up an emergency loan guarantee board, made up of Federal Reserve, Commerce secretary, Treasury secretary and others. They audit the request. They go through a process to follow. We don't just take and handout $2 or $5 or $10 billion. So we need to look to those sorts of precedence. We need to build in those sorts of procedures.

I'm looking for a shared burden here. I've already heard an awful lot about the tens of thousands of employees who are losing their jobs. In these past assistance packages, the burden has been shared by management, by stockholders, by other creditors and most assuredly by the insurers. And we need to make certain that we are not preempting those responsibilities and that shared burden in this legislation.

There are others that are directly related. I've heard they're going broke already -- travel agents, general aviation still suspended for VFR, hotels, airports, airport businesses. You know, we cannot just restrict ourselves to this one part of the industry if we're going to have a vibrant and comprehensive travel-tourism- transportation sector.

And then finally, security. And this is a precondition with me in supporting anything. I introduced my first bill on enhanced aviation security, screening at airports and baggage in 1987. And everytime I've raised those issues over 14 years, the ATA and representatives of the industry have come in and said, "It costs too much."

YOUNG: The gentleman's time is...

DEFAZIO: I want to know that we will get wholehearted support for measures like a ticket surtax and others to pay for needed security measures before I vote any assistance.

YOUNG: I thank the gentleman.

At this time, Mr. Duncan.

DUNCAN: Thank you very much, Mr. Chairman. And I certainly appreciate your calling this hearing and the attendance here today by members and all of the people who are here and, certainly, indicate the gravity and seriousness of the problems with which we deal.

And I think Mr. DeFazio has made several good points, and I believe that whatever package we craft out of this situation will have a burden of this shared by all.

I, too, am concerned about other parts of the industry. Just yesterday I had a call from the owner of a travel agency who said he was about to go under. I had a call from an owner of a car rental agency and he said he was about to go under. Just as I left Knoxville this morning, an airline employee can up to me and told me he'd been given two weeks notice on being laid off.

And so, this is a tremendous problem. I don't believe that -- I'm already starting to work with you, Mr. Chairman, and others in coming up with some proposals. And I think we can come out of this with a good package. We do need to help the aviation industry in the strongest way we possibly can, because it affects everything else that we do in this country.

One last thing that I would say is, I certainly hope that we open National Airport back up as soon as possible. We need to remember that the most serious losses were in New York City and the Pentagon attack came from Dulles Airport. If we're going to keep National Airport closed, we might as well close down every major airport in this country. So we need to get things back to normal as quickly as possible.

And your calling this hearing and the actions that you've demonstrated thus far, Mr. Chairman, are big steps in that direction, and I salute you. And I want to work very closely with you and Ranking Member Oberstar in coming up with the proposals that we need to enact at this time.

Thank you very much.

YOUNG: I thank the gentleman.

Mr. Clement?

CLEMENT: Thank you, Mr. Chairman.

I agree with Mr. Duncan, we should open up Reagan Washington National Airport again; as well as our concern for general aviation, as well, that's really suffering.

The stunning acts of terrorism committed against our nation last Tuesday have forever altered our country's consciousness. As we all watched with horror, two great symbols of American prosperity and strength were severely damaged. The World Trade Center collapsed in the rubble and the Pentagon sat torn, scared and burning.

But another great symbol was damaged as well. The weapons deployed against us were not foreign missiles or homemade bombs, but our own aviation industry. Four hijacked commercial jetliners, symbols of American mobility and freedom, were turned into machines of destruction.

As this happened, our entire transportation network came to a shuddering halt. Our economy stopped and our freedom of travel was suspended. One of our most essential industries had become the third target of the terrorists' aggression. Today, the industry reports that it has sustained upwards of $3 billion in losses following Tuesday's tragedy.

The future looks even worse with a sluggish economy and an anxious and grieving public. Air travel demand is expected to severely decline at levels up to 60 percent within the next few months. Already airlines have cut thousands of workers. And the continuing hemorrhaging of cash, as well as the impending liability issues, stand to throw several carriers into bankruptcy and even eventual liquidation.

Tuesday's act of terrorism is directly responsible for the current economic crisis facing the U.S. airline industry. If we do not come to the assistance of this essential sector, we will have let such terrorist attacks claim hundreds of thousands of more victims.

CLEMENT: Collectively, our nation was unprepared for the sophistication and scope of these attacks. We must not let them also destroy our mobility, our workers' livelihoods and the economic solvency of our great nation.

Thank you, Mr. Chairman.

YOUNG: I thank the gentleman.

Mr. Gilchrest?

GILCHREST: I thank the chairman.

Sixty years ago, Franklin Roosevelt said, I quote, "This generation has a rendezvous with destiny," and it has now happened again. This generation, the one we are a part of, has a rendezvous with destiny, and it is time for the collective heart and mind of America to be focused to meet the challenge.

Thank you, Mr. Chairman.

YOUNG: I thank the gentleman.

Mr. Costello? He's not here.

Ms. Norton?

NORTON: Thank you, Mr. Chairman.

The September 11 terrorists have already scored a short-term victory with the closedown of National Airport. You close down National Airport, you're one of these terrorists, for them that's the functional equivalent of closing down the nation's capital, because many, many Americans cannot get there to here.

We must not give them another victory in the closedown of major airlines and the effect that would have on countless workers and communities.

Yesterday, members of the Virginia and D.C. delegations met with Jane Garvey of the FAA on her way to the National Security Council. You can imagine, we gave her an earful.

We also discussed everything you've been hearing about federalization and locked cockpits. We said, you ought to make this region the pilot for the rest of the country because if you can show you can keep National Airport open you'll be able to keep every airport open.

At Dulles, some pilots had to go out the window last night. We thought there was another hijacking because we still don't have it together. Of course, that was a false alarm.

But we stressed to her not only the need to open National Airport, with its huge symbolic and economic ramifications for our country, but the domino effect. First, you close National Airport, or you leave it closed for too long. Next, you cripple the airlines that use National, with radiating effects on other airlines. And finally, you have major, long-lasting effects on the American economy itself.

All of these effects are vitally linked to security. Saving our airline industry is a two-sided problem. First, it is a financial problem, so they'll be able to fly, but that is vitally linked to the security problem so people will want to fly, especially to National Airport.

Finally, may I say that I think our Congress, beginning with this committee, has a separate problem: Can we get our act together in time to save aviation as we have known it? It starts with this committee. I have already felt the effects here where I live. We got to take care of this right now before the rest of you feel the same effects.

Thank you, Mr. Chairman.

YOUNG: I thank the good lady.

Mr. Horn?

HORN: Thank you, Mr. Chairman. Let's get going. I yield back my two minutes so we can get to work with the...

YOUNG: I thank the gentlemen his wisdom.

Who's next? Mr. Menendez?

MENENDEZ: Thank you, Mr. Chairman.

I think it's important to say at the start that everything we do in dealing with this tragedy we need to keep foremost in our minds the families who lost their loved ones -- many from my district -- including the passengers and employees of our airlines. The human tragedy is our largest toll.

But make no mistake, we need to make sure our nation's air carriers survive this crisis. Air travel is critical to us all. It's no longer a luxury, it's a necessity. Our airlines are the arterial vein of American commerce. They're essential to our travel and tourism industries. They bring our people together, making sure families spread across the vast nation can stay connected. They employ hundreds of thousands of people, such as Continental Airlines in my own district in Newark.

Part of pulling together as a nation is rallying behind those sectors of our economy that are hurt by this tragedy. And as we do this, the safety of the flying public needs to be job one.

It's clear to me that you can have all the high-tech devices in the world, but without well-trained people operating and monitoring them, and without a comprehensive security plan of which technology is just one part, they are of little value.

It may be time for the federal government to step in and take over the security function, but we're still going to need the industry's full participation and cooperation.

Lastly, I strongly support providing aid to the airline industry to help them through this rough period. But I do not support signing a blank check. I think it's fair to ask some things in return that in the end will ultimately benefit us all, things like taking proactive responsibility for safety issues, guarantees for labor, and considering limitations on executive pay and management bonuses.

I know you can agree that it's not fair to lay off employees and ask the American people to use taxpayer dollars at a time like this if that money is used for executive compensation. Sacrifices need to be made by all.

There's no doubt in my mind that the airline industry will thrive again, just as America will.

Thank you, Mr. Chairman. Yield back the balance of my time.

YOUNG: Thank you.

Mr. Mica, chairman of the subcommittee, will also conduct a hearing as time goes by.

Mr. Mica?

MICA: Thank you, Mr. Chairman.

And let me announce to the members that the Aviation Subcommittee will meet in this room at 10:00 on Friday, and we will begin the hearing process on security issues. Next Tuesday at 10:30, we will take up other issues and others affected by this tragedy.

I want to take a minute just to thank you, Mr. Chairman, for the leadership, not only today, but the work you did last week behind the scenes and on the floor trying to get this measure to the Congress immediately.

I also want to take a minute and thank the ranking member and others who worked tirelessly the last week in trying to get our aviation system back to normal, and also the staff. Staff have been working round the clock to try to get, again, us back flying and in place.

My colleagues, never before in the history of American aviation has our air service industry faced a disaster of this magnitude. In addition to the unprecedented loss of life and property from the terrorist acts of September 11, the economic damage to the United States will have both a short- and long-term impact on all of us.

Without our aviation industry returning to normal, business, industry, and tourism and travel have no hopes for recovery. Aviation accounts for nearly 11 percent of our gross domestic product in the United States. It impacts every part of our economy.

I also want to say that I've been contacted by hundreds, literally thousands of folks about general aviation. I'm pleased that the administration will probably announce today the restart of some general aviation on an incremental basis, we've been informed. Hopefully, that will take place today, because I know that thousands of small businesses that rely on our air system are in danger of closing their doors.

Finally, Mr. Chairman, again, I want to thank you for your leadership and others and look forward to working with you in the days and weeks ahead.

YOUNG: Thank the gentleman.

Ms. Brown?

C. BROWN: Thank you, Mr. Chairman, and thank you for holding this hearing.

First of all, if there's a roll call vote on opening Washington National Airport, I'd vote to open it. We cannot let the terrorists win.

Last Tuesday's terrorist attack crippled the airline industry, which is the heart of the American economy. US Air, which is my carrier, has already been laying off large numbers of employees and cutting operations. Without this legislation, most airlines will be forced to file for bankrupt by the end of the year.

Even more unfortunate, this slowdown affects not only the airline carriers, but the airports, the vendors, cab drivers, rent-a-car companies, manufacturing and many other business.

Today's hearing will set how Congress can assist. There are many questions, and I am looking for how we can assist in making sure that what happened on September the 11th never happens again.

Thank you, Mr. Chairman.

YOUNG: I thank the lady for her shortness of her statement, too.

At this time, Mr. LaTourette?

LATOURETTE: Thank you, Mr. Chairman.

Mr. Chairman, last Friday I was heartened when we left the Republican Conference to know that you intended to bring forward a piece of legislation that would have addressed the ailing nation's airlines and send a message when they opened on Monday that the markets, things were going to be OK, help was on its way. I was also gratified, but not surprised, that the distinguished ranking member of this committee was fully behind the effort.

I have to tell you, I was stunned and I was saddened when that measure was blocked by the failure to receive unanimous consent, and instead of sending a message that the House was ready to help and the Senate would be back this week to help consider as well, we've sent nothing. The airline industry and anxious investors heard the silence of the House loud and clear.

Continental Airlines, which has a hub in the great city of Cleveland, Ohio, announced layoffs of 12,000 people in the face of this inactivity by the House. It's lost $30 million a day, and the value of its stock dropped $20 on Monday alone. Our major airlines have slashed flight schedules and employment rolls and still teether on the brink of bankruptcy.

Those who blocked this legislation are shortsighted. It's not just the airlines and its jobs on the line, there are thousands who build, supply, service and support the industry that are suffering. From Boeing, GE, Pratt & Whitney, to the small machine shop, the repair stations, and even the King Nut Company in Solon, Ohio, that puts the peanuts in the bags that you get when you get on the plane, jobs are in jeopardy.

And it's not, Mr. Chairman, because of bad business decisions -- the government ordered the planes out of the sky last Tuesday. And failure to act on our part will take our domestic airline industry to its collective knees.

Thank you.

YOUNG: I thank the gentleman.

Mr. Filner?

FILNER: Thank you.

And I thank Mr. Young, Mr. Oberstar, for their leadership in making sure that we do get the airline industry back on its feet. My city of San Diego, of course, relies on this as much as anybody. And we need to pass legislation, and we will pass legislation.

I think we ought to heed Mr. DeFazio's call for a shared burden here. And I want to add a couple of comments to his, which I subscribe to.

We have to make sure as we go through with legislation to keep in mind the needs of the industry's working people and the passengers. After all, they're the two most important cogs in the machine that keep the airline industry moving.

We must have some assurance of job security. And I hope that when these negotiations take place we don't have just Mr. Hoffa sitting symbolically at the table with the industry, but we have at the real table Mr. Hall and Mr. Roach and Mr. Witkin (ph) and the other leaders of the labor movement there to make sure that we do assure the working people their jobs and, if necessary, pass some sort of disaster adjustment assistance for airline workers, which would include taking into account their health benefits and other benefits.

There is legislation that we passed with regard to NAFTA that we could extend, but there are other approaches that any final package ought to make sure that we are looking to these protections for our airline workers.

And I think, while we are doing, this the passengers have certain needs beyond security. Security is the first concern. But we have tried, many of us, to get a passengers' bill of rights passed in this house; the airlines resisted it. You now are coming to us for need for a bailout. Well, I think we need to give our passengers, now more than ever, the assurance of information and compensation if things are not done in the right way.

And I hope, Mr. Chairman and Mr. Ranking Member, that we incorporate some sort of the legislation such as incorporated in H.R. 1734, a bipartisan airline passenger bill of rights.

YOUNG: The gentleman's time has expired.

FILNER: So let's go forward with this legislation, and let's make sure that we meet the needs of the working people and our passengers as we do this.

YOUNG: I thank the gentleman.

I believe Ms. Kelly. We're going on seniority, my friends, because some people switched around here, and I watch this very carefully. You're not going to get ahead of the bus, no, sir. You have it coming.

Ms. Kelly?

S. KELLY: Thank you very much, Mr. Chairman.

We've all been shaken by last week's events. Those of us in the New York City area have obviously been particularly hard hit. We're coming to terms with our loss. We're still grieving and still working to console our friends, still worrying about how to care for our new orphans and those whose lives have been totally devastated by this terrorist act.

But New Yorkers are strong. Even in these days filled with sadness, we know that the work of America must continue, that we must do what is necessary to keep critical businesses and transportation systems viable during difficult times.

Our first priority ought to be providing assistance for emergency efforts in New York, Virginia and Pennsylvania. The emergency appropriations package that passed last week was a great achievement, but it's only a downpayment on the amount that will be needed to restore New York City and the Pentagon.

The potential collapse of the airline industry puts our economy and, indeed, our national security at risk. The airlines are a vital component of our national transportation infrastructure, and every aspect of the national economy is going to be impacted by this terrorist act. Jobs will be lost, and average Americans will be the hardest hit.

Stewart International Airport in my district has already felt the impact of the events of last week. Carriers are eliminating flights, with more cuts expected. New York ought not to have to absorb yet another blow to its economic viability. Such cuts will do that. America cannot afford the loss of hundreds of thousands of jobs, as is being predicted.

Though I do not want to give the airline industry a blank check, it is clear federal assistance may be required. While the dollar amounts are high, the cost to America and American workers will be incalculable if we don't take action.

I look forward to the testimony of today's witnesses.

Thank you very much, Mr. Chairman.

YOUNG: Thank you, Ms. Kelly.

Ms. Johnson?

E. JOHNSON: Thank you, Mr. Chairman. And thanks to your leadership and Mr. Oberstar's for having this hearing so quickly.

I represent an area that has as its airport the economic engine, and so clearly I'm very concerned about the airlines succeeding, as well as all of the workers that go into making this whole airline industry successful. They include the workers at the airports, as well as all of the support systems. This will affect immediately about 50,000 people at our airport, but it affects close to probably 1 million people directly because of the meaningfulness of the Dallas- Fort Worth Airport.

I've got and my office has been inundated by calls from American airline employees, as well as persons who own concessions within the airport. It spans the whole gamut.

I do think it's an emergency. I stand ready to assist the airlines. I am concerned how we're going to address all of the job loss. In addition to aiding the airlines, I want to know what's in the picture to assist those other families that will lose their income as well.

Thank you. And I'll file my full statement.

YOUNG: I thank the gentlelady.

And I know I shouldn't say this, but I am the chairman. I would suggest one thing, with all due respect, if we can try to speed this up a little bit.

YOUNG: We're at just about an hour now. We have a panel sitting, and we have a lot of questions to ask.

So at this time, I'll recognize Mr. Simpson.

SIMPSON: Mr. Chairman, thank you for observing the seniority system first. I appreciate that, and I will be very quick.

I want to just note that I am one who has some reservations about this package because, as others have said on this panel, there are more than just the airline industry that was affected by this. There are many, many, many businesses throughout this country, and I think we have to look at a complete package of how this has affected our economy in total.

Besides that, I'd like to look at and see how this package, bailout if you will, how much of that is due to decisions that were made by management prior to September 11, and how much of it is due to because of the acts of terrorism that occurred on September 11? If we are bailing out bad decisions that were made prior to September 11, then I have some concerns. So I want to look at the total package and see how this is going to affect us and our economy as a whole.

I thank the chairman. I look forward to the testimony.

YOUNG: I thank you for that short statement, too.

Mrs. Millender-McDonald?

MILLENDER-MCDONALD: Thank you, Mr. Chairman. And I would like to thank you and the ranking member for convening this in such a swift and deliberate fashion.

I'd like to also thank you for bringing Mr. Hoffa to the table because hopefully this is the beginning of this industry working with the labor industry, because we have now joined in partnerships, and I think it's only fitting that we see this type of partnership at the table.

I will not continue, in that I do have a statement for the record, but I will simply say that as we listen to your testimony, I hope that we hear airport security. I have talked with all of the airport folks throughout California, and that is one critical issue -- airport security -- so that we can restore the confidence of those who are the traveling public, along with members of Congress who travel each week back and forth.

I'm also concerned about job security, as we look at oft-times the skycaps, those travel agencies and others. Bear in mind that as chair of the women's caucus, 82 percent of travel agencies are headed by women. I do hope all of this represents this particular financial package that we're speaking to.

Thank you, Mr. Chairman.

YOUNG: I thank the lady.

Mr. Isakson? I believe you're next.

ISAKSON: Thank you, Mr. Chairman.

In the interest of time, I'll submit my statement for the record, but make one comment for all of us on the committee.

As much as I and everyone are concerned with many of the ancillary issues and industries that have been discussed, our concern for them will be magnified greatly if we fail to immediately deal with the problem before us, which is the financial stability of the industry.

And secondly, shared responsibility is critical. We should not look totally to New York or Lockheed or Chrysler to be a model for that because in part those difficulties were self-imposed or economically imposed and business-decision-imposed. The crisis we face now was imposed by causes almost totally out of control of the industry and anybody else in this room. And I think we need to keep that in our consideration as we address the issue before us now.

I yield back the balance of my time.

YOUNG: I do thank you.

Mr. Cummings?

CUMMINGS: Thank you very much, Mr. Chairman. I'll be very brief.

I want to thank you for calling this hearing, and certainly all of us mourn the deaths and all that has happened as a result of September 11.

Mr. Chairman, I might add that I am 100 percent for this package. I realize that we must not let the terrorists succeed. What they want is fear and for us not to continue, for us not to be the country that we are. And I think that if we don't lift up the airline industry, we play right into their hands.

On the other hand, my colleagues have made it very clear that we want something from the industry, too. We want employee guarantees. On my way down here from Baltimore, I listened to C-Span radio, and out of about 25 callers, I'd say 23 of them said, "We don't mind helping the airline industry, but those executives making all that money, what about the little guy? We want to make sure the little guy gets their break and their opportunities and are able to take care of their families."

The other thing that certainly we are concerned about is airport safety. And while the people at Baltimore-Washington International Airport told me that they have never seen as many congressmen and - women come into our airport, we are anxious to see National Airport reopen. I think it's very, very important that we do that, consistent with not letting the terrorists get away with what they are hoping for, and that is placing fear in our hearts.

And so with that, Mr. Chairman, I look forward to the testimony of our witnesses.

YOUNG: I thank the gentleman.

Mr. Hayes?

HAYES: Thank you, Mr. Chairman.

We have the obligation as Congress to support America's best interests. A strong, viable airline industry is unquestionably in the best interest of America. That strength comes from this committee. Job security flows from that. We must have the public return to its normal flying habits.

And in conclusion, America at work, showing our resolve to meet the needs of our people and freedom-loving people around the world is the other crucial component. This is being done with courage, conviction and magnificent resolve. The American people are doing their part. We as members of Congress must show similar resolve and an appropriate response.

Thank you.

YOUNG: I thank the good gentleman.

Max Sandlin?

SANDLIN: Thank you, Mr. Chairman, for calling this meeting. Thanks to the ranking member and for the leadership of both of you.

First, we sincerely thank the invited witnesses for being with us today. Aviation is a critical part of our infrastructure and commerce, and affects our entire economy. Congress cannot and will not allow terrorists to destroy our system.

We're reaching out to the industry. I think it's important that the industry work in partnership with us toward these common goals. The executives within the industry, I think, that are making millions of dollars in earnings, pointing fingers at Congress and saying that Congress is responsible for the layoffs, is irresponsible. I hope that we can work together.

Even before last week's attacks, there were problems within the industry. There were projected losses of $3 billion for the year, and I know that the losses as a result of this will be much higher. And we certainly want to work with you.

We have short-term and long-term problems. We need to act immediately and decisively to make sure that our families are taken care of. We want to keep the planes flying, the workers paid and the public assured that flying is safe. That's why we're here today, and I'm sure that we'll accomplish that goal.

Long term, I would like to follow the lead of the president of the United States and say that we need to be patient, we need to be focused, we need to get all the facts, and we need to do some long- term planning. And we can do some long-term planning to bring stability to the industry. And I would support the president in his approach in making sure that we do that.

I know that you will have questions. We need to include the lenders to make sure we have new capital. We're not addressing problems from the past. We want to make sure that employees are rehired, that people feel safe. And I think, working together, we can do that, and we pledge as a Congress to do that.

Thank you, Mr. Chairman. I yield back the balance of my time.

YOUNG: I thank you, Mr. Sandlin. And Mr. Sandlin, may I personally apologize to you for my shortness of temper. You and I are of the same ilk.

SANDLIN: I will take that as a compliment, Mr. Chairman.

YOUNG: Thank you. I appreciate that.

(LAUGHTER)

We had a difference of opinion, and I publicly will apologize.

SANDLIN: That's no problem. Me too, Mr. Chairman. I appreciate it, and we're working toward the same end.

YOUNG: Mr. Simmons?

SIMMONS: Thank you, Mr. Chairman.

Three points. My nephew is a flight attendant with the airlines, flying in and out of New York City. So my heart and prayers go to all of those who work in the industry. It's been a difficult week.

Secondly, I've flown three times in the last five days. The flights were safe, secure and on time. And I think it's important that as members of Congress and as public officials, we get back in the air. I think that's a personal testament that we have to make.

Finally, I represent Connecticut. Connecticut is the insurance capital of the world. I know there are some issues involving insurance and the airlines. It would be my hope that through this testimony and through the work of this committee that we will not point fingers, but make sure that the insurance industry and the airline industries work together so that we can keep these industries vital and get America back into the air.

Thank you, Mr. Chairman.

YOUNG: I thank the gentleman.

Again, some of the witnesses have to be at other places in the congressional body to also testify, and I'd deeply appreciate it if we can expedite this process as fast as possible.

Ms. Tauscher, you're up next.

TAUSCHER: Thank you, Mr. Chairman.

Gentlemen, thank you for being here.

I think it's very clear that our economic security and national security have been inextricably intertwined for quite a long time, as we lived in peace and prosperity prior to September 11.

I'm for a bunch of things. I'm for the $5 billion cash infusion to get you back to September 10, which is a place where many of us can never go again. I am for working on the liability issue so that you can have access to the capital markets.

My concerns in the short term about the loan guarantees are that I believe that we should not be in the government bailout business and we should not be doing things that will create another board where we're in your knickers and reading your books, and frankly, we don't have time for that.

I would much prefer that we let the capital markets take the lead and at least have some commitment from the capital markets for these loan guarantees up to maybe 20 percent and then the government could step in. That way, we have a litmus test for viability for you and a security test for the money that we're going to be putting in from the American people.

I look forward to working with you, and thank you, Mr. Chairman.

YOUNG: I thank the good lady.

Friends on my side, do we have to talk?

Mr. Brown, if you want to talk you can, but I'd deeply appreciate it -- you get a lot more brownie points if you...

(LAUGHTER)

(CROSSTALK)

I apologize for that.

BROWN: If I might make one statement that I don't think has been covered here today. I know I left home this morning -- I woke up this morning at 3 o'clock to catch a 6 o'clock flight out of Charleston to come here today. And on this plane was 10 people. It had a capacity of 50.

And, Mr. Chairman, I would just hope in remarks today that we would have some kind of a management plan to try to bring back the people to fly again. I think this would help our problem. I certainly applaud you for the financial support, and I'm certainly supportive of that effort. But I certainly would like to see a management plan that would bring the people back to the airways.

YOUNG: I do appreciate that.

Mr. Kennedy?

KENNEDY: I would just like to thank you, chairman and ranking member, for having these; to welcome our fellow Minnesotan, Richard Anderson, and say that we need to make sure that our airlines stay strong. It's vital for our economy. It's vital for our small businesses.

YOUNG: Thank you.

Mr. Rehlberg?

REHLBERG: Thank you, Mr. Chairman.

Real quickly, I haven't heard anybody mention this. We're talking about short-term and long-term solutions. I wholeheartedly support you on the short-term solutions.

On the long-term solution, I want to hear something from the CEOs specifically to service guarantees, especially for rural states such as, Mr. Chairman, you in Alaska and me in Montana, because we're already starting to see cancellations over and above what is normal, I believe. So when it comes to guarantees, let's take a look at the rural states as well.

YOUNG: I thank the gentleman.

Mr. Pascrell?

I do apologize. I jumped.

PASCRELL: That's OK, Mr. Chairman.

Three points, three quick points, if I may. Number one, anytime unions and CEOs at the same table without negotiating contracts is a good sign for America, and a lot of good is going to come out of this horrible tragedy. And I congratulate all of you and our chairman and ranking member.

Number two, we could go back over what the airlines did or didn't do over the last five or six years to secure passengers and products. I think that's really counterproductive right now. I want to come to our senses and do something by the time we leave, whenever we leave, this week.

And three, Mr. Chairman, yesterday I know the resolve of Americans. No problem is too big for us. I was at Fresh Kills yesterday, put a mask on, and saw the resolve of all of those volunteers going through the debris, going through everything. And we know what they were looking for. No problem is too large for us. We can address it. And we can do it smartly and quickly and deal with the minutiae later on.

So God bless you, and let's solve this problem today.

YOUNG: I thank the gentleman.

Mr. Boswell?

BOSWELL: Thank you, Mr. Chairman. I'll try to give part of my time back. I appreciate your calling this meeting. You've assembled a very knowledgeable group of witnesses.

We have CEOs, CFOs. We have the general officers, if you will. We have the generals. Mr. Hoffa, you're at the table. We've got the troops. I've never seen any operation take the hill without having the troops as well, so congratulations for having the troops here as well. I appreciate that very much.

Today, we're confronted with the very future of our aviation system -- commercial, general aviation; aircraft manufacturing; many thousands of Americans employed by the industry. We've said it, that businesses of all kinds depend on moving with this type of mobility.

Now, I don't want us to see a newspaper ad some years hence that says we failed to act. If we do not move quickly to approve a financial assistance measure, and I mean this week, we'll lose either all or certainly a significant part of our aviation system.

And this includes general aviation. We still have IFR ground. I have an airplane. I fly it frequently. I can fly VFR. I do. I fly short legs VFR. As soon as I get close to a terminal, I contact them, of course, as we're required to do. But I could have done that this weekend. I could have flown to Des Moines or Kansas City. There's no security out there.

BOSWELL: So why are we penalizing these operations of fixed- based operators when it accomplishes nothing?

So anyway, let us hear this testimony today that will document the perilous condition of our sector of aviation, and approve this assistance by the end of the week. We'll see if they can't wait.

I'm drafting legislation for security. Others are, too. I applaud that. Together we'll have something good which will federalize all security operations on national aiports. And after dealing with the financial aspect of this crisis, we must promptly turn to dealing with the security aspect.

This morning, just before I walked in this room, the police department of Des Moines, Iowa, called me and said, "We're ready to be trained an extra couple of hours, whatever it takes. We're already trained to assist on our free time to be sky marshals or whatever we can do to help the airlines, because we want the airlines to continue to function, and we're ready to step forward."

And I applaud them. I bet they're that way all across the country. Last night I boarded...

YOUNG: The gentleman's time has expired.

BOSWELL: I boarded an airplane to come back here. My message is: Let's keep doing what we have to do and to tell Americans we're not going to let bin Laden or anybody else disrupt our American life.

Thank you for being here.

YOUNG: Does anybody else wish to be heard?

Mr. Lampson?

Just a little bit, guys. We're ...

LAMPSON: I'll give you my statement, Mr. Chairman, but I do want to make at least the statement that on Monday and Tuesday of this week I talked with airline officials and employees that work at airports in my district, such as Houston's Bush Intercontinental and Southeast Texas Regional Airport in Beaumont and Port Arthur.

While they were terribly saddened by the events, they are working with the FAA and other government officials to instill confidence in the flying public, which we all know is so critical. A significant component of restoring this conference will be addressing the issue of aviation security which, as has already been said, several us will attempting to do, including myself, including federalizing the baggage screening process and other airport security. This committee, I know, will expeditiously plan to get onto that.

We must address today the financial stability of our airline industry. There's no doubt in my mind that Congress and the White House must approve of a relief package which includes a new number of tools including direct aid and loan guarantees, and I'm ready to get down to work to do it, Mr. Chairman.

YOUNG: Thank you, sir.

Mr. Baldacci?

BALDACCI: Thank you very much, Mr. Chairman, and I appreciate the opportunity of -- sometimes democracy is not easy, and opportunities to speak to the issues are important. And I think that the amount of money that we're dealing with here and the circumstances warrant a little bit more of a discussion. I appreciate that opportunity, and I appreciate the opportunity that our subcommittee is going to have on this issue.

These attacks not only claimed the 5,000 innocent lives, but they also dealt a blow to the U.S. economy. These tragic events also demonstrated the importance of the aviation industry to the proper functioning of the U.S. economy. Many companies across Maine and the nation rely on the major airlines to ship their products to domestic and international markets. In addition, some businesses -- even hospitals -- rely on just-in-time delivery to keep their shelves stocked with critical components and emergency medical devices.

Accordingly, many businesses in Maine were negatively affected as they were across the country with this disruption in service. We all recognize the financial damage the airlines are experiencing at the moment, and I commend the chairman and ranking member scheduling this hearing. The U.S. economy would not be well-served by rising airline tickets and a string of airline bankruptcies.

I'm eager to work with this committee.

And also, Mr. Chairman, I'd like to point out that what good did come from all of this is the outpouring of pride, courage, unity and good will across America that demonstrates the strength of the American spirit.

Mr. Chairman, I'll put the rest of my remarks in the record, and thank you.

YOUNG: I appreciate that.

And at this time, again, I'm going to use the chairman's prerogative. Mr. Hoffa is going to testify first. His testimony is short, and as he does have to go to another meeting immediately. And I apologize to the rest of the CEOs.

And by the way, he's not symbolically sitting at this table. He asked to be at this table because he knows the importance of the workers of American airlines and the contribution they make.

And so, Mr. Hoffa, you're up.

(UNKNOWN): Mr. Chairman, I just wanted to announce that Mr. Nadler and Ms. Berkley are not able to attend today because of their commitment to the Jewish holiday.

YOUNG: We believe that.

Go ahead.

HOFFA: Thank you, Mr. Chairman and members of the committee.

My name is Jim Hoffa, and I'm appearing on behalf of the 1.5 million members of the International Brotherhood of Teamsters. Thank you for inviting me to testify today on behalf of the 50,000 teamsters who work for the airlines and the more than 100,000 teamsters who work in the airline-related industries such as engine overhaul, food catering, car rental, and parking -- all of which are adversely affected by the terrorist attacks in New York and here in Washington.

The Teamsters Union is deeply concerned about the impact of the recent shut-down on the airline industry. From an economic perspective, it is a disaster for the airlines as well for the supporting vendors, and of course, most of all for our members. The attacks have fueled fear of flying that translates to reduced business travel, leisure travel, and the desertion of customers on the short segments and the long segments.

As the one congressman said today, "Ten people on the flight -- eight people on the flight" -- that's what I'm hearing about people coming into Washington today. And it's amazing that so few people are traveling because of the fear that has come over this economy.

This, in turn, affects supporting vendors, airport business and leisure markets such as hotels and restaurants in places like Las Vegas, Hawaii, Disney World, just to name a few. Even rental car companies, where we have most of the people, are affected in these areas.

Unfortunately many of these workers are hard-hit and can least afford this displacement. The layoff of thousands of workers only undermines consumer confidence and accelerates the downward trend of our nation's overall economy.

Regional carriers such as Allegheny, Great Lakes, Horizon -- where we represent the pilots and flight attendants and ticket agents -- serve communities that are also on the long-haul and short-haul segments of this industry. In order to preserve service in these smaller communities, an immediate subsidy program should be initiated to both sustain such operations and help restore consumer confidence in our air transportation system.

Major passenger carriers have already began reducing operations, and 20 percent across the board is heard commonly. That affects our members as much as anybody else. Aircraft are grounded for a lack of business, and may result in a cancellation of new aircraft orders which will affect Boeing.

Cargo carriers like UPS and Airborne, where our members work, have also suffered a financial setback from the grounding and should be included in any financial package.

Job losses in the air transport industry can well exceed over 100,000 members. These are not the results that we need for our nation.

The International Brotherhood of Teamsters therefore recommends the following actions affecting air transportation financial assistance.

One, provide protection against the liquidity crisis through a combination of tax holidays, tax repeals, rebates, cash infusion and grants, loan guarantees and other instruments on a proportional basis for air carriers demonstrating a need. Among these are major passenger carriers such as Continental, Northwest and Southwest; cargo carriers such as Airborne and UPS; regional carriers such as Allegheny, Horizon and Great Lakes; and supplemental carriers such as Air Transport International, Champion Air and World Airways.

Two, provide subsidies for regional carriers on those routes made non-profitable by the consumer lack of confidence following the September 11 tragedy, particularly where these are performed as essential air services.

Three, provide guarantees of whole and liability insurance against disproportionate increases. That's basically stop the increases in the insurance.

Support legislation for liability protection regarding damages to persons and property on the ground arising from the terrorist acts.

Five, provide antitrust protection for airlines to discuss scheduling concerning national airspace for up to six months.

Six, expand the air mobility command civil reserve air fleet program to support national defense needs.

And seven, restrict foreign ownership of U.S. airlines at the current rate of 25 percent.

Transportation labor stands ready to support emergency aid to the airline industry. We do not feel, however, that our members alone should bear the burden of management decisions designed to overcome the hemorrhaging occurring in the air transport and associated industries as a result of this disaster.

This committee should give strong consideration to including a financial relief component for displaced workers to any airline package. We have to make sure that the workers are the ones that have been hurt perhaps the most.

There has to be an equality of sacrifice in any program we come up with. Everybody should have to tighten their belts with regard to what we're going to be doing with regard to this crisis. That could the form of longer-term unemployment benefits and job placement and job training for those who have been displaced.

We should also consider that the workers have their health care considered when they're not -- when they don't have their jobs or drawing on unemployment to make sure they continue to have health care. After all, we are helping the airlines survive. We should do no less for the employees that work for the airlines.

I urge the airline management to tighten their collective belt and to stand shoulder to shoulder with our thousands of members to reestablish our airline industry as the most profitable one in the world. To that end, consideration should be given to curbing bonuses and other management perks until those companies return to profitability.

In addition to financial help, we must take other steps to restore confidence in airline travel if the airline industry is ever to recover. That means beefing up security and safety at the airports of America to prevent further terrorist attacks.

In the interest of time, I have included several security recommendations, but I have put that in another cover, and I will not take up your time with that.

I want to thank you, Mr. Chairman and other members of the committee, for the opportunity to testify here today and especially to thank you for accommodating my schedule.

YOUNG: I thank you, Mr. Hoffa.

And at this time I want to announce that the first panel, Mr. Mullin, I believe, is going to speak for 15 minutes approximately. Is that correct from my understanding?

MULLIN: Yes, sir.

YOUNG: And then the rest of the panel is available for answering question. Is that correct?

MULLIN: That is correct, sir.

YOUNG: And Mr. Smith will make a short statement, too.

So at this time, Mr. Mullin, you are up.

MULLIN: Mr. Chairman and members of the committee, thank you for providing the opportunity to testify here today on behalf of the Air Transport Association and its member airlines.

I am joined here today with John Kelly, chairman, president and CEO of Alaska Airlines; Doug Parker, chairman, American West; Fred Smith, CEO, FedEx Corporation; Richard Anderson, CEO, Northwest Airlines; Tom Horton, chief financial officer of American Airlines; and I'm pleased to be on this platform with Mr. Hoffa also. Thank you.

We are extremely grateful to you, Chairman Young, and to you, Congressman Oberstar, for convening this hearing. We look forward to working closely with all of you in the important work of rebuilding from enormous tragedy and, just as importantly, the work of restoring our nation's confidence in the future.

On Tuesday morning, September 11, the unthinkable happened and our lives were changed forever. The passing of a week has done little to lessen the shock and the grief of so many deaths and so much destruction. The airline industry offers our heartfelt sympathy to the families and friends around the world. We join them in mourning the victims including passengers, crews and innocent bystanders on the ground.

On that horrendous day, as soon as we could move through the initial shock waves, the first priority for the U.S. aviation system was to bring all passengers and crew safely to the ground, through exemplary cooperation between the airlines, airports, and the air traffic control system. Our 2,000 domestic airplanes landed safely at the nearest airports within two hours. And those were followed shortly thereafter by the safe landing of all international flights.

Once every person in every flight had been accounted for, the nation's airlines joined forces once more with our government to tackle the awesome task of rebuilding the aviation security system. By Wednesday evening, the foundation for a new system was established, and the job of training airline personnel to implement these more rigorous security measures was under way.

By Thursday afternoon, a trickle of scheduled and ferry flights began to restore the flow of people and goods across our nation. By Saturday, major portions of the U.S. aviation system, which had been geographically scattered and stopped completely for the first time in history, was back up to as much as 70 percent of service. This stunning recovery would not have been possible without the capable leadership and cooperative collaboration of so many here in Washington and the incredible employees who serve this industry.

I believe today many Americans share our industry's sense of pride in having so ably proved once more that no catastrophe can bring our nation to halt for long.

It is also true, however, that while the operational recovery of our air transportation system has been phenomenal, the financial damage is and continues to be devastating. The initial shut-down of operations, plus the severely reduced schedule over the next few days, has cost the U.S. airline industry dearly. Passenger demand since restart has been weak, with many industry analysts predicting that reduced travel patterns are permanent, and with all agreeing that the total-revenue hit in the coming weeks and months will be steep.

Many insurance companies have notified airlines of astronomic premium increases. And in addition, the cost of heightened security measures, which we all agree are absolutely essential, will substantially increase the cost of doing business.

These financial blows are coming fast and furious to an industry that even in good years faces intensive capital demands and razor-thin profits, and was already projecting losses this year.

Mr. Chairman and members of the committee, under current circumstances and without immediate financial support from the government, the future of aviation will be severely threatened. For many airlines, there are no private sources of capital available. Financial liquidity in the industry is poor. Already airlines have announced layoffs of 51,000 airline employees and that number is expected to grow. And even with the self-help that airlines have already said will be taken, almost no airline is strong enough to survive for long facing the upcoming challenges.

Therefore, on behalf of the industry, I am here to ask your help in the development and approval of a package of transition aid so that, as Transportation Secretary Mineta said recently, we do not allow the enemy to win this war by restricting our freedom of mobility.

As airline operations began to return on Friday, the CEOs of the industry under the aegis of the ATA, turned their attention to the looming crisis. Under the leadership of Chairman Young and with the assistance of members such as Congressman Oberstar and others, this committee had quickly realized the importance of swiftly addressing this deteriorating situation. This committee introduced legislation to provide the industry with much-needed help. We deeply appreciate that effort.

And the proposal we want to discuss today builds upon your legislative effort for the same purpose, which is to develop a recovery program that ensures the security, safety and stability of this critical industry.

Our program has three key components. The first addresses the necessary financial underpinning required to maintain our capacity to serve. The second relates to liability issues arising out of the tragic role cast on aviation in this brutal attack on America. And the third deals with the need to provide resources for the enhanced aviation security programs our nation has undertaken.

Let me outline first the very serious financial issues we face. Our first task, Mr. Chairman, in developing this piece of the proposal was to properly assess the magnitude of the financial impact to establish the financial need. In effect, we as an industry experienced roughly four days of near-zero revenue, while, due to our largely fixed cost, we continued to accumulate all expenses. Since the airline industry spends around $340 million a day, the direct cost of a four-day halt in operations was approximately $1.36 billion.

Looking beyond those four days, we have used the actual number so far, as well as projections based on the PanAm 103 and Gulf War tragedies to estimate the revenue kind of shortfalls that we expect in the September 15 to September 30 period. And that will likely reach only 40 percent of what we had expected prior to the events of September 11. Based on that, our estimated daily losses for that period, related directly to the September 11 events, totals $3.36 billion.

Adding together then, the four-day losses from September 11 to 14 of $1.36 billion, plus the expected September 15 to 30 losses of $3.36 billion brings the total losses to $4.7 billion for the ATA carriers. If we add $300 million or so for losses by cargo and other carriers to the $4.7 billion number, we arrive at a cash infusion amount of $5 billion, which would be required by the airline industry to take care of immediate-term damage associated with September alone.

MULLIN: We then applied the system of analysis to the full fourth quarter based on estimates traffic would grow to 60 percent of previous expectations by the end of December; to 75 percent of expectations by the end of the first quarter, 2002; and 85 percent of expectations by the end of the second quarter. We then made forecast of revenue expenses and cash flows associated with those revenue assumptions, and determined their effect on cash balances. This measure best reflects our need for funds to sustain and stabilize our industry.

Prior to the events of September 11, the industry had forecasted aggregate cash balance on June 30, 2002, a positive $8.5 billion. We have now revised that expectation to a negative $15.5 billion. Thus, the events of September 11, are forecast to have a negative $24 billion impact on the industry's cash position.

Our financial teams also ran projections for optimistic and pessimistic scenarios. The swing in cash balances over the period range from optimistic drop of just under $18 billion to a pessimistic $33 billion decline.

Now, none of us knows precisely what will happen in the upcoming period. These estimates pertain to a situation that has never occurred before. We therefore feel it would be appropriate to presume a set of numbers that could happen, but that would minimize the amount of government help needed. And thus, we are basing our request on our optimistic numbers. This implies some risks, but it is our job to do the very best to absorb that risk as part of our collaboration with the government.

Hence, we would recommend that the industry and government use the optimistic projection of just under $18 billion, minimizing the industry's request for financial aid relating to this tragedy. As mentioned earlier, we have recommended an immediate $5 billion cash allocation to address the immediate and devastating impact of September on the industry. As in the second part of the financial portion of this package, we ask the government to also provide us with access to $12.5 billion in loan guarantees.

This request totals, then, to a request for $17.5 billion in financial assistance. We hope with these resources in place, the industry will rapidly reach the point where we can return to the private financial markets to borrow as we have in the past.

Mr. Chairman, our need is urgent and immediate.

I would also like to emphasize that the industry is not asking the government to simply trust us on these arrangements. We fully expect under the administration of the DOT that we would fully document each and every claim received for both a cash infusion and a credit facility.

We are also suggesting that the formula for determining the availability of these programs to individual companies be allocated proportionately on the basis of their size. This calculation done under DOT supervision would allocate funds in the case of a combination of passenger carriers based on available seat miles, ASMs; or in the case of cargo airlines, on revenue ton miles, RTMs.

Mr. Chairman, we understand that these are large numbers, but we must also emphasize we face an enormous problem with potentially devastating repercussions for our nation's full recovery.

The second topic I must discuss pertains to the liability issues arising out of the tragic role cast on aviation in this attack on America. The events of September 11 are unique, with terrorists for the first time in history using a commercial aircraft as an instrument of destruction.

We believe, however, that the resolution of claims arising from the act of war should be resolved by Congress enacting appropriate federal laws rather than by resorting to the widely divergent principles of state common law. If that is not the case, then while American, United and other airlines named as defendants will necessarily defend themselves in litigation, the massive response time and uncertainty as to the outcome of litigation will almost certainly frustrate an airline's ability to raise needed capital in the short term.

In addition, it may well prevent airlines from purchasing necessary insurance until such time as the litigation is concluded. And what's more, some carriers are reporting drastic increases in premiums, and other carriers fear that insurance may not be available at any price.

Should access to capital markets be curtailed over concerns about liabilities in excess of financial resources, some carriers would not likely have any assets in excess of their insurance to respond, if liability for persons and property on the ground were ultimately found.

Therefore, we would propose as the second part of our program that legislation be passed by Congress preserving any existing rights of proper parties to bring claims against the airlines for the experience and deaths of the airline passengers, as is done now.

However, such legislation should also stipulate, based on the fact that this was an act of war, that the airlines would not be liable for the damage to persons and property on the ground. This seems the fairest way to ensure that proper parties have the right to pursue their legal rights, while airlines are not further victimized by these terrorists and can instead continue the work of rebuilding our nation's aviation system.

Mr. Chairman, it is absolutely critical that this issue be addressed in your legislation as it is a critical element of the overall financial impact of the tragedy on our industry. In the light of recent days, airlines are already confronting unprecedented increase in premiums (inaudible) war risk insurance and possible reductions in coverage. These increases in premiums could approach $1 billion for the entire U.S. airline industry. We simply don't have the resources to pay for such increases, which are a prerequisite for airline operations.

Therefore, we propose to Congress expand the war risk insurance program to include domestic operations, include in such an expanded program both hull (ph) loss and liability coverage, and employ the civil reserves aircraft fleet craft program wherever possible to assist in providing airlines with insurance coverage.

The third and final component of our program deals with the need to provide resources for the enhanced aviation security program which our nation is undertaking. While these measures are the appropriate, immediate first step, it is the strongly held belief in the airline industry that the events of September 11 marked a sea change in the way we, as a nation, need to think about security.

It's time for a unified federal security system, calling forth the government's extensive resources and expertise, including intelligence-gathering capability and relationships with foreign governments. Clearly, our industry stands solidly in support of the jointly developed security measures recently adopted by the airlines.

Just as clearly, enhancing the safety and security of the nation's air transportation system will significantly increase both the direct and indirect costs of air transportation, through increased staffing, additional equipment and changes to physical infrastructure.

Our proposal, Mr. Chairman, is that the government should, one, provide financial support for all mandated safety requirements, including reinforcement of cockpit doors and enhancement of screening devices; strengthen intelligence-gathering analysis and distribution processes; take over all security screening functions; and provide sky marshals on domestic flights.

The government's assumption of a stronger role in aviation security by assuming these responsibilities will be an important step that will go far in addressing the issues that are at the heart of public concern over the events of September 11.

In closing, Mr. Chairman and members of this committee, our proposal is only intended to stabilize the financial condition of this industry. It is not a bailout, but rather a package designed solely to recover the damages associated with the heinous acts of September 11. And it gives the airlines a chance to continue to serve as the economic engine and offer the public service it is our duty to provide.

The current industry situation is urgent. While the financial components of this recommendation are most directly related to airline viability, the issues of liability and security are also important factors in our industry's crisis.

Because of variations of financing cycles and other differences between carriers, several airlines are facing decisions in just the next few days that will dramatically influence their future course and, indeed, public perception of the industry.

Under ordinary circumstances, in ordinary times, Congress should not and would not make decisions of this magnitude without lengthy debate. These are not ordinary times nor ordinary circumstances. And as a result, the airline industry is requesting that you move decisively now.

Thank you, and our panel colleagues will be glad to answer any questions.

YOUNG: Thank you, Mr. Mullin. Also, thank you for summarizing on behalf of the other airline representatives that are with you. We're not going to get to questions just yet.

Let me give Mr. Fred Smith an opportunity to testify. He is chairman, president and CEO of FedEx Corporation.

Mr. Smith, you are recognized.

F. SMITH: Mr. Chairman, I'll be brief. The issues that confront the all cargo...

YOUNG: I don't think your mike is on, Mr. Smith.

F. SMITH: Thank you, Mr. Chairman.

I appreciate representing the interests of the all-cargo air carriers that are members of the ATA. Our all-cargo carriers transport about 95 percent of all cargo moved by U.S. carriers.

It's a very, very important industry and should be of concern to the Congress for two very important reasons. First, both domestically and internationally, the air cargo industry carries the vast majority of the country's high-value-added and high-tech goods. Air transportation now moves over 40 percent of the value of all U.S. imports and exports. And if you take out the value of agriculture and petroleum products, which move by sea, it's well over 50 percent of all U.S. trade now moved in air transportation.

The second reason that it should be of interest to the cargo, is that our industry is an indispensable part of the national defense of the United States. FedEx alone, which I am pleased to represent our 200,000-some-odd employees, has committed to the civil reserve air fleet over 100 wide-body freighter aircraft. In the Desert Shield and Desert Storm operations, 10 years ago, civil reserve air fleet carriers moved over half of all air cargo moved into the operation, and FedEx alone moved over 60 percent of that. So we moved almost 30 percent of the cargo in support of the U.S. operations in Desert Shield and Desert Storm.

Our issues going forward are far less significant than the passenger carriers because, obviously, there is no issue of people being afraid to fly on all-cargo air transportation companies.

F. SMITH: But there are three issues which are extremely important. The first is the significant losses incurred by the air cargo industry as a result of the government shut-down due to the September 11 situation.

In the proposal that the Air Transport Association has made, I would point out to you that the vast majority -- I think about 90 percent -- of all the funds recommended go to combination of passenger carriers, based on the formula. But those losses were significant, and they're not inconsequential, and they certainly are not important, given the huge, important role that the all-cargo industry plays in the national defense.

I'd say parenthetically, I was a little disturbed today to see in the left hand column of the Wall Street Journal an article about the U.S. military transformation. And they noted that a recent war game at the Pentagon took place with the supposition that terrorists attack my headquarters due to our importance to the national defense.

So the second area that we're concerned about, obviously, are the security issues that come out of this crisis. Our airplanes are perfectly capable of being used as a military missile, the same way the passenger carrier's equipment is capable of being used. Although the risk is less, because we have better control to the access of that equipment, and have increased that substantially.

And the third issue that affects us, and this is very, very important. We are all in the same insurance pool, whether you carry passengers or cargo, and both the availability and the cost of aviation insurance, particularly as it applies to third-party incidents -- God forbid an all-cargo airplane being used as a military missile, as well -- will create very, very serious issues for our industry. And so, that needs to be addressed as part of the overall package.

That, Mr. Chairman, I think sums up our position in the all-cargo sector of the industry. And I'm happy to answer any questions as the come down the pike.

YOUNG: I thank you, Mr. Smith.

And I may remind the members, if possible, because if you make your questions very short and very concise, and if the panel can make their questions short and concise, it would be very helpful. You have a five-minute question and five-minute answer, because I am going to use the five-minute rule, so if you want to ask more questions -- and I will use my first question myself.

The cargo industry you just talked about it, Mr. Smith, you believe that they're faced with the same problem as the passenger industry?

F. SMITH: No, sir, not at all. I think the cargo industry's issues are the significant losses incurred as a result of the 9-ll incident and the subsequent shut-down. The go-forward issues are significantly less in the all-cargo sector than in the passenger sector.

YOUNG: Along those lines, will the reduction in airline belly- cargo capacity, how will it affect or will it benefit the cargo carriers?

F. SMITH: Well, in the very short run, Mr. Chairman, there's probably some short-term pickup. Our expectation is that very shortly that cargo transported in passenger aircraft, at least from known shippers, will resume, so I don't think that'll be a factor.

YOUNG: That's very important to me, because I believe that's one of the crucial parts of the commerce. Without your ability to carry cargo in those bellies -- and by the way that was not the problems on the 11th. It really hits into the economy of your area. And I don't think there's a capacity for FedEx or UPS or Evergreen or...

F. SMITH: No, not at all. I think the risk there is manageable, provided that the cargo tendered to the combination carriers and put on passenger airplanes comes from known shippers with good security programs themselves.

YOUNG: And this is for the rest of the panel. The question has been brought by the members -- for post-cash infusion (ph) grants or loans to be distributed among the airlines, how would it be distributed amongst the airlines? Will they be provided the airlines proportionally and according to each airline's available seats, miles, in August of 2001?

And those are the things that we have to get into this package. How is this going to be handled, in your points of view? I know you've been negotiating with the administration and everybody else right now. How do you visualize it? Whoever would like to address, I'd gladly...

MULLIN: I'll take that. First, I'll speak to that first, Mr. Chairman.

We have a unanimous recommendation, really, by the representatives from the Air Transport Association that that mechanism, based on available seat miles, be used as the fairest way. It proportionally distributes it by airline size. So in Delta's instance, representing about 17 percent or so of the domestic traffic, we would get roughly 17 percent or so of the money. And each airline's percentage would be calculated accordingly, audited by the DOT. We think it is a fair method.

YOUNG: How does it affect the low-cost versus high-cost airlines and the regionals versus the majors?

(UNKNOWN): Yes, Mr. Chairman. The money would be allocated on the basis of capacity. And in the course of our conversations with the administration, we've had involvement from the associations representing each of those segments of our industry. And I believe in every instance, Mr. Faberman (ph) and others have supported an allocation based upon the capacity that each carrier had in the industry immediately prior to the terrible events on September 11.

YOUNG: All right. Thanks, gentlemen.

(UNKNOWN): Mr. Chairman, may I add to that? Also, as Mr. Mullin said, this is simply at pool of money that we get and have to justify. So every carrier would have to, at some point in time, justify why they received that allocation. So that makes it fair across the board.

F. SMITH: Mr. Chairman, I might point out here that the formula anticipated that 80, 85 percent be based the available seat-mile production, which is filed with the DOT on a regular basis, for the passenger operations and for cargo operations; that 15 to 20 percent be based on the revenue ton-mile production, whether in the underbellies of the airplanes or on all-cargo airplanes. So the vast majority was for passenger airline system as it existed.

And the reason that that formula was selected is because all of that information is filed on the Form 41s with the DOT, and it's a pretty good surrogate, if you will, for the air transportation system that existed on September the 10th, the day before. And then, I think, it was further tested -- it pretty well approximates what the known losses are of the various components as a result of 9-11. And finally, it makes no difference whether you're a big carrier or a small carrier, it's proportional based on your production.

YOUNG: I thank you, Mr. Smith. I appreciate the answer.

Remember what I said about short answers.

My time is up.

Mr. Oberstar?

OBERSTAR: Thank you, Mr. Chairman.

Excellent statement of the case, Mr. Mullin and Mr. Smith, as we expect from both of you. You've always delivered.

Just to recapitulate, Mr. Mullin, you are limiting the first portion of the package, the $5 billion to the four-day losses, 11 through 14, of $1.36 billion estimated, and expected September-15- through-end-of-month losses of $3.36 billion. Is that correct?

MULLIN: That is correct, sir.

OBERSTAR: And the additional $12.5 billion, that we understand is being crafted by the administration, would cover losses extending from end of September on through the coming year of revenues that may -- losses that are substantially high, but losses that may decline as service picks up.

MULLIN: That's correct.

OBERSTAR: Do those estimates include reductions in cost, as well?

MULLIN: They do include some reductions in cost. And in addition to that, as mentioned, our best estimate was a need of $24 billion, which we took the optimistic assumptions to reduce our estimate down to just under $18 billion. In order to hold that to that $18 billion number, we are going to have to manage our cost extremely aggressively.

So that is our commitment, as an industry, to work in collaboration with the government to essentially absorb the risk of finding where that other roughly $6 billion or so is going to come from over that time period. And so, we do anticipate, unfortunately, that we are going to have to reduce our costs quite aggressively as we move ahead.

OBERSTAR: Cargo is not in the same position. Cargo, however, was shutdown, as all of aviation was, with the ground-stop order of the secretary. Is that correct?

F. SMITH: Yes, sir the go forward issues are not as extreme in the all-cargo sector as they are in the passenger sector.

OBERSTAR: Has the limitation on belly cargo and mail been lifted for passenger aircraft?

(UNKNOWN): Yes, Mr. Congressman. On mail, the mail has to be certified by the postal facility at a given airport, and it must be under 16 ounces.

With respect to cargo in the bellies of airplanes, we are restricted to known shippers. In the vast majority of cases at the airlines, that would cover about 95 percent. So I believe our cargo decrement will be in the 4 to 5 percent range, in terms of belly cargo.

OBERSTAR: There will be revenue losses to airlines from the downsizing of cargo. Don't need to quantify it yet.

Are lenders invoking their material adverse change causes, denying or limiting access to cash by airlines?

MULLIN: Generally speaking, the lenders are expressing grave concern. We are in possession of a Morgan Stanley opinion here that was delivered to us this morning that indicated the total essentiality of having help from the government in order to supply any kind of private sector financing going forward, it's an essential element.

OBERSTAR: Are your enhanced equipment trust certificates payments at risk by any carrier right now?

MULLIN: Yes, they are.

(UNKNOWN): If I may, Mr. Chairman, it might be worthwhile to read a letter that was sent by Morgan Stanley to the Honorable Paul O'Neill, secretary...

OBERSTAR: Could you summarize it, because I don't have time. I have one more question I need to get in here. You can submit that for the record.

(UNKNOWN): I will do so. Let me just read the last paragraph: "There will be no functioning capital markets for the U.S. airline until the uncertainty, with respect to both liquidity and liability, are eliminated. Even then, access is likely to be severely limited until the path to a more normalized airline system becomes clear."

OBERSTAR: That's very serious.

Final question. In dealing with security, I have proposed in years past, assumption of security by a federal government entity to be paid for by security surcharge affixed to tickets, which is done in Germany and in France and other European continental countries, of $2 to $3. That would generate $1.7 billion to fund the security costs. Do you see any problem with that?

(UNKNOWN): Well, we really believe that the security charges should be covered by the government. This is a government function to protect the security of the citizens of this country from terrorism. Security has fundamentally changed from screening bags to literally, as you said, an intelligence community screening of passengers.

Besides, which fact, one of the things we're dealing with here is an industry that has a real problem with supply and demand from passenger standpoint. And we can't add additional costs onto the ticket without -- from an elasticity standpoint -- a loss of passengers. So it really doesn't do us any good trying to pass along cost in the form of increased prices to our customers.

OBERSTAR: I appreciate that concern. I just want to make the point that I know from past experience that people won't fly if they're afraid.

YOUNG: I'm going to, at this time, recognize Mr. Boehlert on our side.

Mr. Boehlert?

BOEHLERT: Thank you, Mr. Chairman.

Because I see, Mr. Hoffa, you have to leave. I have a two-point question to you. In this package presented to us by ATA, were you and other leaders of labor consulted and considered in its development?

And part two of the question, how would your characterize the communications right now between labor and management? I'm operating under the theory that we're all in this together.

HOFFA: We are in this together. We've been advised of what they were doing with regard to this package; we have not had direct input.

HOFFA: We look forward to discussing it with the industry. This has happened very quickly, and it was put together, really, over the weekend.

We would like to have more input into and, of course, we would like to discuss and get guarantees with regard to coverage and protection for the people that can least afford this dislocation, which are the workers at all of the related areas in the airline industry, the people who are making $20,000, $30,000, $40,000, $50,000, who are having a very difficult time and would be -- suffer a great dislocation.

And what I would like to do is to make sure that in this package there is some coverage to make sure we have extended unemployment, that we -- benefits that we have an extension of health coverage for people that are laid off, et cetera. We should try and build in different types of coverages, so that this money doesn't go all in one way.

We should also have something in there that puts some limitations with regard to how this money is spent, with regard to bonuses and things like that. I think that it's important that there be an equality of sacrifice with regard to this. I think that all of us expect that. All of us know we have to tighten our belts.

And I know our people are going to suffer. We're talking to 2,500 flight attendants at Northwest Airlines being laid off in the near future, if not now. So there has to be some recognition of the sacrifice and that this be across the board that everybody who's involved in this. It's a crisis for all of us.

BOEHLERT: Thank you very much. That's something I think most of us up here share.

Mr. Mullin, would the ATA -- and I know -- I think you guys, quite frankly, have done a magnificent job. And I, watching you individually, as a spokesman for the industry, talk to the American people side by side with Secretary Mineta, gave me comfort.

MULLIN: Thank you.

BOEHLERT: But I would get added comfort if I felt confident that you were going to bring in the labor representatives for further consultation and partnership in this whole effort.

MULLIN: You have our assurance of that. I appreciate Mr. Hoffa's observations on the swiftness with which we've acted, but we absolutely will include labor in that dialog.

BOEHLERT: Thank you very much.

You mentioned, and everybody has mentioned, security, and that is so critically important. I have a question that, in view of the unfolding developments and tighter security, absolutely necessary, we're going to have more all agree absolutely necessary.

The fact of the matter is if this plan that we approve, and I think we will approve a comprehensive plan to assist the airlines to get up and running again -- but I question if we can ever look in the near term to 100 percent operational capabilities, simply because the system won't be able to handle it, in view of the new tighter security requirements.

I mean, I was there Saturday morning for a flight. They were very thorough, but it delayed things, and I understand that, and everybody was very responsive and cooperative.

But what is your best guesstimate, at this juncture and I know it's early stage of the game. What will be optimum? Are we going to go back to 85 percent of our capability? 75? Do you have any feel for it at this juncture?

MULLIN: Well, I think you had a couple of questions there. One is on security, and the other is on getting back to where we were in terms of just the capacity or service prior to the terrible events.

BOEHLERT: I guess my point is that, even if we gave you everything you wanted and, you know, you're ready, willing and able to go back to 100 percent, you just couldn't.

MULLIN: We couldn't.

BOEHLERT: All right. So that's the basic question.

KELLY: We, in fact, operate differently at Alaska Airlines than a lot of other carriers who have hub-and-spoke types of operations. They will have a much more difficult time -- you are absolutely right -- in accommodating all these security provisions and still having that network of hub and spokes operating properly.

But I truly believe that if we take all these measures, then it can get back to a new normal, and that would be the flight deck door, sky marshals and enhanced security on the ground.

All put together, I think that we can get people processed through the airport fast enough to get our operations back to, as I say, a near normal.

YOUNG: Thank you. The time of the gentleman has expired.

BOEHLERT: Thank you very much.

YOUNG: Let me recognize Mr. Borski.

BORSKI: Thank you, Mr. Chairman.

Mr. Mullin, let me also congratulate you on an excellent statement.

I would like to ask, however, if we were to give you everything you wanted, what would the situation be as far as the employees of the airlines are concerned?

BORSKI: Even if we gave you everything you needed, I assume, from your answer to a question with Mr. Oberstar, we'd still be looking at substantial layoffs. Is that correct?

MULLIN: That's correct.

BORSKI: We're hearing a number of about 100,000.

MULLIN: I think it could amount to that much. What is happening -- obviously we will fly airplanes in response to demand, and right now most of us have brought our flying up to about 80 percent of what it was prior to the September 11 situation.

And I think most of us are sort of stopping there to look around. Obviously, we're very much interested in flying more than that because we have tremendous fixed assets, primarily airplanes, that we want to fly. But if the demand isn't there, then it just won't make any sense to do it. And therefore, there would have to be some kind of proportional changes in the workforce that reflects the fact that we're only in 80 percent operation of what we were.

BORSKI: You asked in your statement to stabilize the industry, and I think, again, there's widespread bipartisan support for that. But we do need to understand that layoffs will happen even if you are given this...

MULLIN: That's correct.

BORSKI: ... and substantial. So, we are talking 100,000, even if you get this?

MULLIN: In terms of the ones that have been announced already, it's over 50,000. Several have not announced them yet, including my organization, Delta. I can assure you, we are working assiduously on a plan, and the input of this committee and this Congress and the administration is a very important variable in terms of signaling to us what kind of financial help we can have going forward. That's a very important variable.

But with that financial help, I mean, there will still be substantial layoffs. And the number that has been used of 100,000, I think, gives a good kind of rule of thumb approximation really, regrettably.

KELLY: If I may add to that, Congressman, our intent is to not lay off anyone. We truly do not want to do that, or if we have to get close to it, to be as creative as possible.

But what we really need to have, in addition to this stabilization, is the ability to get passengers back flying with us. To do that, we have to look at the security initiatives. I know you're going to do that separately. They are needed.

MULLIN: I would add, if I may, sir, just to give you one statistic from Delta. Our load factor yesterday was 29 percent.

BORSKI: All right. Is this something that you would envision would be forever? Are we talking of a thinning of the employees of the airlines at some point, do you think?

MULLIN: Absolutely not. I think that when we cited in my testimony the assumptions that we made pertaining to the return of appropriate traffic, we went into, as a best guess, into the second quarter of next year. And as you heard those numbers, we were getting back to closer to an operation that might have approximated what we had had prior to the events of September 11.

So implicit in that, I think, is a guess on our part that it will take at least a year to get back to those levels. But, clearly, when we do get back to those levels, we would anticipate, given the fact that we do think we run a good operation, that the employment levels would approximate what they are today.

(UNKNOWN): And I might add that in most airlines the employees that are laid off have certain recall rights. And our goal would be -- I mean, the hardest part of this, after watching what happened last Tuesday, is what you have to deal with with your people. And you would hope that over time, with this sustenance, we can get through this time period and begin ramping back up and have the opportunity to recall all those people.

BORSKI: Mr. Kelly, I wanted to address you particularly on the federalized airport security force that I think is universal from the airlines and probably has pretty strong support here as well.

You indicate, and I assume this is the position of the airlines, that that is a cost that should be bored by the federal government and not by...

KELLY: Yes, sir.

BORSKI: Why should the non-flying public pay for the flying public's security?

KELLY: Well, I think it's like any other security or police force that's provided throughout the country, whether it's federal buildings or parks or any other time that the public has the chance, the opportunity, to be affected by outside elements, in this case terrorists.

BORSKI: So you think it should come from general revenues of the Treasury of the government?

KELLY: I mean, I think the tragedy of September 11 proved that we are not protecting the citizens just in the air, but on the ground and everywhere. And that's why this truly should be a federal program.

YOUNG: The time of the gentleman has expired. Thank you.

BORSKI: Thank you, Mr. Chairman.

YOUNG: Let me recognize Mr. Petri.

PETRI: Thank you, Mr. Chairman.

As I indicated in my opening statement, I strongly favor our taking action to help stabilize the airline industry, but I think we need to also recognize that it's not the only industry that's been affected or the only group of Americans that has been affected by this terrible situation.

We will be setting precedents here, the first ones before us. We need to be careful that we handle this in a responsible way so that others are treated fairly as well.

And we have, as a member of our committee, a person who has spent years as an investment banker on Wall Street, Representative Tauscher, who has worked in a number of -- not quite as bad as this -- but similar areas. I'd like to yield the balance of my time to her for a question.

TAUSCHER: I thank my colleague.

I did spend 14 years on Wall Street as a very small child...

(LAUGHTER)

... but I'm telling you that this is a daunting challenge.

Mr. Mullin and gentlemen, I think that your presentation was very well put-together. And I think that the issue of the $5 billion to deal with the ground-stop, I think, at least in my mind, is settled.

I think, as I said earlier, returning us as best we can to September 10 is going to be very difficult, but I think that's essentially what we have to attempt to do.

I'm concerned about a couple of issues: One is, have you had any conversations preliminarily with the Street about what you would do, assuming we can solve the liability issues, about going to the Street and actually getting some deal done for short-term liquidity?

What will your burn rate be in the short term now that you're going to have these massive layoffs?

And thirdly, I think that the spill factor, the bleed factor, below your industry is probably 6-1. For every airline job, there's probably six other people that are going to be out. And I think that's a low number and that's a short-term number.

Clearly, if we return you to some form of September 10, we have a better opportunity of stopping that bleed factor. Can you answer those questions? And then maybe we'll have some time for others.

MULLIN: Well, I think we have a formal statement that has been placed in the record from Morgan Stanley indicating how essential it is that our government stand behind the aviation industry, or none of us will be able to access private capital markets.

I had one of the most difficult six hours of my business career on Monday. We had a $1.2 billion EETC equipment financing done on that day in the midst of this for which all kinds of guarantees had been supplied. And very fortunately we hung it together or I would be feeling an even greater act of desperation here as we speak with you here today.

I don't think that EETC financing, which has been the backbone of financing for the industry, can be done right now. I think that that Morgan Stanley statement indicates it.

So, certainly, the government actions and the package of steps that you take dealing with all of the elements that do include, very, very importantly, the liability issues. I mean, none of us can have financing done if we have a contingent liability of the kind of huge nature that would arise out of a catastrophe such as happened on September 11. These issues as a package have got to be drawn together in order to allow us to access private capital markets. It's a package.

HORTON (?): If I could add to what Mr. Mullin has said, American Airlines, within the market, with a $2 billion secured financing on the day of the incident. Obviously, that financing hasn't come to pass.

We've been talking with Morgan Stanley about what sort of financing we could do together. There is no secured financing market. If we would to do some sort of unsecured deal, their best guess, it would cost somewhere in the neighborhood of 15 to 20 percent today.

We have heard from all of the potential investors that this liability issue is first and foremost in their minds. Liability protection is probably the single-most important thing that the government can do to help us get back into the capital markets and help ourselves.

The capital markets correctly fear an avalanche of lawsuits which would bankrupt our companies. And until that cloud is lifted, I don't think we're going to have any access to the capital markets.

TAUSCHER: Well, I'm not looking for a letter of intent, but I certainly -- I think we would all be looking for the Street to step up. I think we need an affirmative response from Wall Street. Assuming we can get this liability issue cleared in the short term, we need the Street to be able to step up.

And additionally, as I said earlier, I believe that we shouldn't be putting American taxpayer dollars at risk unless the risk capital market is willing to step up on some of these loan guarantees. I think that we're never going to be able to be crawling into your books fast enough to understand who the winners and losers are. We should not be putting our funds on the scale.

Does this package, going forward, include at your recommendation, or would you be for or against, a board type of situation? Or are you looking for less of a government intervention in a board type of situation?

MULLIN: We would prefer to go forward with this, obviously, with as little government intervention. I mean, this industry has been deregulated since 1978 and, I think, has extremely admirably served the American public. And I think we want to get back to full private sector status.

But as mentioned, we recognize that when one asks for government money, there comes a special responsibility to report to the government and be responsible for how we do handle those funds. So I can assure you, we will want to get out of this situation as fast as possible and with as little call on the government as we possibly can.

TAUSCHER: Could part of the deal be a Treasury-Wall Street deal to essentially do a deal to do a capital infusion in not only loan guarantees, but in a secured debt situation?

MULLIN: We are very willing to consider all of those kinds of options.

But I would go back and make one fundamental point, which I have conveyed to you -- and you, in part, responded to it by your comment on the $5 billion: The need to deal with the situation is absolutely urgent.

I don't think I'm telling a tale out of school when I say that at least three of our major members of the ATA are on the brink with respect to their financial situations. And we certainly don't want to have to utilize the jurisdictions of the courts, you know, to settle these situations, thereby creating a further lack of confidence in an industry with these kinds of problems.

We have to have very, very fast action, and I appreciated Congressman Oberstar's comment earlier and Congressman Mica's comments that we will move swiftly on this. "Swift" is like Friday. I mean, that is the kind of time frame that we need.

MICA: The time of the gentleman has expired, and the time yielded to the gentlelady has expired.

Let me please recognize Mr. DeFazio.

DEFAZIO: I thank the chairman.

Mr. Kelly, you mentioned doing security separately. I share your opinion there. I don't think we should do it separately, and I think it should part of this package. I'm going to read you a statement here and then I'm going to ask you about something you said.

This is my statement, 16 March 2000, at a hearing on the insufficiencies of airport screening and the common practice of using the lowest-cost bidder for contracts: "I've got to tell you, when I'm flying, I doubt I could ever find one person on the plane who would say, quote, 'Gee, I would be really upset if I had to pay one half of 1 percent more for my ticket to know that the person who screened me was not convicted of various felonies and at high risk of allowing something to happen on this plane.'"

I'm not saying that's what happened in this incident. But what I am saying is that everything has changed, but nothing has changed. I have been hearing for years from this industry, if you charge $2.50 for PFC, people won't fly, they'll take alternate forms of transportation.

You're telling me after this incident, that a $3 surcharge is something that would trouble any flyer in your system? I don't believe that. I don't believe that.

If your ticket for me is $300 or it's $303, and I know I'm contributing to the security -- you know, the government is the people. The government is the people, and the people are willing to pay a little bit more for their airplane tickets. They do it in Europe, and they have professional screeners, and they have better security. We may have to throw in general fund dollars over and above the two or three bucks.

But, you know, we don't have a limitless supply of money. We're tapping into Social Security right now for the $40 billion last week. We're going to be tapping into it for what you're asking for here today. And to ask that we get some support for federalization, that's great, but let's have the support with the modest security surcharge.

And I would ask you, before you take that position again, poll all your customers and see if a single one will respond to you in a non-anonymous fashion that they aren't willing to pay an extra $2.50 or $3 for their ticket.

KELLY: Please don't misunderstand me, Mr. Congressman. I believe that the security provision should be part and parcel also. As Mr. Mullin said, there's a timeliness to what is needed from a cash standpoint, especially for some carriers. So that was my only reference to the differentiation as to the...

DEFAZIO: But you did raise the old saw of people -- you said directly to Mr. Oberstar that you did not support a surcharge. You said that. And that's what I'm responding to.

If I could go on to other questions, because my time is so limited.

KELLY: May I respond to that though?

DEFAZIO: Very quickly.

KELLY: The people do not respond to anything other than the total price, and that is strictly supply and demand.

DEFAZIO: Well, if you could, I thank you. I reclaim my time.

We can put a line on their ticket that says $2.50. We have a lot of lines on the ticket already, with really big letters, "security surcharge," and I think the people will be happy to pay it.

KELLY: I understand. But people still make decisions on whether to fly based on how much it costs to fly, just like they do everything else.

DEFAZIO: Right. So how many people turn down a ticket at $303 that they would have bought at $300?

KELLY: You know, it really, sir, is not that as much as the passenger...

(CROSSTALK)

DEFAZIO: OK, if I could reclaim my time. We disagree very, very much on this issue, and this is the same thing I've been hearing for 15 years since I proposed my first bill on this issue.

Now, if we could move on. If we're asking for these funds, I'm very concerned about the workers here. And I'd like to know, is there anything other than unemployment that is being considered by the airlines if this package is made available by Congress, if it doesn't include the workers specifically and some benefits to them? Is there anything that the airlines are thinking of beyond unemployment benefits? Paying for health insurance under COBRA or something along those lines? Is that correct?

ANDERSON: Mr. Congressman, in most situations at most of the majors, the provisions of collective bargaining agreements govern the layoff of employees in these circumstances. And in some cases, they have recall rights; they have the right to file for unemployment insurance. And in some cases, I know at Northwest, we're trying to offer unpaid leaves for people to voluntarily take a leave from the airline without pay so that others who are lower on the seniority list can keep their jobs.

I believe that the industry would be supportive of any other efforts on the part of this committee or the Congress to take any additional steps with respect to our employees. Like I said before, that's the hardest part.

DEFAZIO: OK. And I'd like to suggest one here. I know the airlines have pending plane orders; some are options, some are hard orders. I would like to suggest that if we put U.S. taxpayers' dollars into the airlines, that the first orders for planes canceled are for foreign-manufactured planes and preference is given to the American manufactured planes. Because the Boeing workers and all the workers who supply Boeing are going to take a really big hit here, and we've got to look at buying American.

MICA: The time of the gentleman has expired. Do you want someone to respond? OK.

Let me recognize the former chairman of the aviation subcommittee, Mr. Duncan.

DUNCAN: Thank you, Mr. Chairman. I won't take my full five minutes, but I first want to commend you for the good work you've done during this unprecedented situation. I think everyone knows that if we are able to come up with a good package that we can pass through the House, and I believe we can, that we can't do it repeatedly. And so I'll say that the key to recovery here, I think it's pretty clear, is to get people flying again.

And Congressman Brown first mentioned this, that he had 10 passengers flying from Charleston. Mr. Mullin mentioned a 29 percent load factor for Delta. Mr. Hoffa mentioned eight passengers.

I can tell you this, Knoxville, my home town, is not one of the largest cities, but it is one of the most rapidly growing areas in the country, and we have a very rapidly growing airport, now over 2 million passengers. I flew up this morning. There were five passengers on the plane. Now, those planes are almost always full. I've never seen a plane with just five passengers on it in all these -- this is my 13th year in the Congress.

And so I think that what we're going to have to do, none of us in this room can do this alone. We're all going to have to join together to help reassure the public that it is safe to fly. We've got to start getting the message out that we're doing more to make it safe to fly than probably any country in the world, with the possible exception of Israel. And it's probably safer to fly now than it ever has been. And yet that message is not getting out there.

And I think all of you have got to get campaigns going with all of your employees, telling everybody they possibly can. We all need to get that message out in our districts, because we've got to get people in the air again.

And I will say this, we've had all these briefings, and some of them have been pessimistic. And I don't have blinders on. I know this is a very bad time and a very difficult situation in many, many different ways. But I am hopeful and I really believe that we've seen the worst of this situation.

The people who are responsible for the actions that took place in New York City and Washington last week, I believe they've been shocked by the world reaction to what they did. It's been condemned even by people in countries that I'm sure they thought would praise them for it.

And so I think that even though we've heard some very pessimistic or very troubling things here in this hearing this morning, I think it's important to try as best we can to reassure the flying public that we are doing things on aviation safety and security that we've never done before. I'm very pleased that we're doing things that I and Chairman Mica and Mr. Oberstar and many others suggested right at the very first.

You know, the people of this country are accustomed to flying. They're used to flying. They want to fly. I think that they will come back very, very quickly if we really make a concentrated effort to reassure them at this point. And it's not going to be an easy task, but I am optimistic that we can get back, as Mr. Kelly said, to near normal very, very quickly. And it's extremely important. And I just want to say that, and if any of you have any comments about that, I certainly hope you'll work with all of your employees to get them out there doing this.

MULLIN: I would just say, Congressman Duncan, how must we -- I'm sure I speak for my colleagues on how deeply appreciative we've been of the sentiments expressed in that regard on the necessity for certainly all of us to market it well, but even your own roles in being very public about it. I think it's just terrific. Thank you.

DUNCAN: Thank you very much, Mr. Chairman.

MICA: I thank the gentleman.

Let me recognize Mr. Clement.

CLEMENT: Thank you, Mr. Chairman.

Good to have all of you here and present your testimony. This is a very difficult time for all of us. Who would have believed this could have happened? But it did. I think all of us were concerned in the past that it could happen, but we always watched it on television that it was in other countries, and now it's in the United States. I think the big question is, how fast are we going to bounce back?

We want to be helpful to the airline or transportation sector, because I know you all have been hit harder at the present time, more than any other sector in our economy. And we surely don't want it to spill out or spill off into other areas, and obviously it is. I know I hear from my folks at home, even in general aviation. And we all know that the VFR flights are not flying now. We know also that general aviation accounts for 80 percent of all takeoff and landings in the United States. And we've got to give them some relief.

But I know people at home are going to ask some questions, how much of this financial package should go to the major airlines, to our airlines in this country, versus others, because you have other sectors that are being impacted as well.

Mr. Mullin, I'd like to ask you. I know, historically speaking, looking at the financial numbers, you always lay off people around September and October and then you hire them back for Thanksgiving and Christmastime when things get a lot heavier. Shouldn't we take that into consideration about the size and the magnitude of the package?

MULLIN: Well, we will be obviously trying to minimize to the maximum extent the layoffs. I've been at Delta four years, and we haven't had a layoff at all in this time period. So I'm about to go through the unfortunate experience right now of having to deal with that effectively.

But I think what you've heard implicitly in all of our statements is that we are as eager as you could possibly be to get back to a more normalized situation. We just had to be candid with you and express the view that that is going to take us well into next year before that occurs. The damage is just going to be really huge in the short term. But we want to get back as fast as we possibly can.

All of these workers that we have, that are unionized or non- unionized, they're all highly trained, really great people. And we want them there when we need them. And so we will get them back as fast as we possibly can.

CLEMENT: Mr. Smith, you're our largest employer in the state of Tennessee. Worldwide, you've got over 200,000 employees. What assistance does Federal Express or, I might say, the cargo industry, require separate from the passenger industry to maintain its health?

F. SMITH: I don't think there are any separate issues, Mr. Clement, other than the ones that I mentioned -- the significant cost of 9-11; making sure the cargo security issues are closely intertwined with the go-forward security plan.

And then of great importance is the insurance issue, because we are all part of the same pool. And absent some sort of government resolution of the third party liability issues that result from potentially using an airplane as a missile, I think that many of the all-cargo carriers would be very significantly affected and some of them, quite frankly, put out of business just simply because they can't get insurance.

CLEMENT: What are the merits, in your opinion, of distributing funds granted to us by using the available seat-mile standard? And how do we ensure the money goes where it's most needed? For anyone who wants to comment on the panel.

(UNKNOWN): Yes, Mr. Clement.

The available seat-mile mechanism has been accepted by virtually every carrier in the industry as the fairest way to apportion the funds, because the funds would be apportioned on the basis of capacity immediately prior to the terrible events on September 11, and that capacity is a known fact because we all file data with the DOT under Form 41. So it's a well-known mechanism, and, I think, importantly, all the carriers agree with it.

As to your second point, the legislation that Congressmen Young and Oberstar proposed last week, and what we would support here, is a process for the DOT to be certain that the apportionment of those funds is done in an appropriate way, consistent with the methodology laid out by the legislation and consistent with the Form 41 data, and that all of the airlines would surely be subject to audit with respect to both the losses they state and the funds they acquire.

MICA: The time of the gentleman has expired.

CLEMENT: Mr. Chairman, I just want to say, I know Chairman Mica and myself and several other of our colleagues were in New York City, and we lost a lot of our good friends, all with the exception of one, that were so good to us from the Port Authority. Chairman Mica and I will never forget knowing them and how much we're going to miss them.

MICA: Thank you.

Let me recognize Mr. Gilchrest.

GILCHREST: I thank the chairman. Just a very short comment, and then I have a question about the optimistic and pessimistic projections for the cash flow by July 2002.

A comment about Mr. DeFazio's interchange with all of you. And I think, prior to September 11, the reality of the psychology of the American public is now significantly different post-September 11. And even though this might be a small part of this package, which I support, a $3 surcharge might be an incentive to fly for that particular airline given that the line item is for security. So just a thought about the changing nature of the psychology of the American public.

Mr. Mullin, you suggested that by 2002 the optimistic projection of your cash fund collectively will be a negative $18 billion.

MULLIN: That's correct.

GILCHREST: And the pessimistic projection would be about $33 billion.

MULLIN: Correct.

GILCHREST: Given the integrated nature of our economy and a major part of that being the airlines, in your calculations for the negative and optimistic projections, did that include in any way, or should we consider in any way, as far as the cash fund is concerned, the security measures that you recommended and the liability changes that you recommended and what those recommendations would do as far as their ramifications on the airline industry?

MULLIN: Relative to the security measures, we as an industry probably spend on the order of $1 billion or so per year now on security. And we have not gone through and really added up what these additional security measures will be. Secretary Mineta...

GILCHREST: That's a good point. I appreciate that.

I guess I'm partly dependent -- and there is no way to project this. But if we're looking at the reality of the psychology of the American public in their sense of security, or lack thereof, the security measures, I would assume, could have a significant impact on the public's view as to fly or not to fly.

MULLIN: Yes, and we support them all. We have developed them with the federal government, and we think that the federal government has really done a great job working with us very, very intensively to get this new package of security measures developed.

But we have not figured out what those costs. We just put them into place and said, you know, we'll figure all of this out later. And so that is not included in those estimates.

But certainly, in terms of our recommendation, we are recommending that the federal government pick up the costs of all security for the reasons I think Mr. Kelly addressed well before.

Relative to your liability point, we are making the presumption that, with this money, that we can continue to somehow function as we were before in terms of access to capital markets and so forth.

And the presumption before that, is that we do not have the liability threat that we have outlined. If in fact the airlines are under this cloud of potential insurance liability going forward, we'll never be able to access the capital markets. And hence, all of this whole paradigm that we presented to you here today would fall apart. So hence, the reason for the integrated package of recommendations as it includes this liability component is, I don't want to say almost as essential, but it's right up there as the actual infusion of the money.

(UNKNOWN): If I might add, Secretary Mineta has appointed two rapid response teams on the security issue, one for airport security and one for security on the airplanes. And there are members of the industry and the airline industry on both of those committees. I believe that Secretary Mineta is hoping to have reports back in a couple of weeks on specific recommendations.

As to the insurance issue, so long as the industry and our insurers are faced with insuring for acts of terrorism committed by terrorists with our airplanes, we will have very real difficulties both financing our planes and, in some cases, even having the insurance necessary to operate. Because the insurance industry, if it believes it will bear the cost, we may not be able to obtain war risk insurance.

Thank you.

MICA: The time of the gentleman has expired.

Let me recognize Ms. Norton?

Ms. Norton, too, let me just say that I was quoted as saying, by a spokesperson, that I favored a closedown of National. And, just for the record, I have done everything I can to get National open, and that was an error. I just wanted to reassure you and the Virginia members. Thank you.

NORTON: Thank you very much, Mr. Chairman. I appreciate that change for the record.

This hearing is about, as our documents say, on the financial condition of the industry. But you will recognize that, as many members are asking about security, as about the details of finances, and that's because, when you've had this kind of a hit, they really are the same thing. And anybody who thinks that they are not, ought to look at what the chairman has just referred to.

Until security is in place, the federal government is willing to let the airlines bleed to death at National. I objected at the meeting to the use of the word "indefinite" for the closing of National, because that sent a terrible message to the markets, to the industry, to the banks. And Jane Garvey said that they would take steps to correct the use of such a lethal language.

I have a question about not only the cost of security and how those costs should be allocated -- that's part and parcel of it -- but about rethinking security itself. I guess it was Mr. Kelly, and he responded as you might expect the industry to respond, that he didn't want security cost added to the price of tickets. And, of course, we are thinking about security in precisely the terms we were before, as well.

I'd like to press so that words like "federalization of security" are more than, you know, abstractions that have no meaning. At the moment, they have absolutely no meaning.

For example, I take it that if cost were borne by the federal government, there would be a radical rearrangement of security vis-a- vis the airlines. For example, although you are regulated, much of security remains in your hand. I mean, to take the most high profile notion, the pilot decides what'll be done ultimately on a plane if there is an emergency. He's the captain of the ship.

I don't know what federalization means. I'm kind of for it in the abstract, based on this notion of, you know, we got cops here, why not cops up there? That really doesn't get me very far.

I wonder how you think federalization would operate in light of the decision-making? Who makes the decisions about security, both in the air and on the ground? I'd like to know whether you've given any thought, if you don't think that the cost -- if you think that the cost should be borne by the federal government or by some sort of hybrid system? Are you thinking outside the box or are we into the way we were always thinking before?

Somebody says it should be paid for by the government. Somebody says we should not pass on the cost. And basically we've got the same kinds of opposites that we had before September the 11th. It seemed to me, September the 11th would jar us to think about cost and decision-making and security in an entirely different way.

And I'd like to ask any of you who'd like to answer whether you've given any thought to new thinking on security, both cost, perhaps some kind of hybrid, and how the decision-making would operate if it was not entirely in your hands but also had an important federal component to it?

MULLIN: Congresswoman Norton, we have rethought in the most fundamental out-of-the-box way the entire security approach to aviation last week, involving every single chief executive officer of the airlines in one of the most intensive examinations of that issue imaginable under fire, I might add. And we really do believe that we have put in place some dramatic improvements in security that can give the assurance to the American public that this industry is safe.

One of the great tragedies associated with this, among the many tragedies, is our own reputation for safety.

NORTON: Got to be more specific than that. We believe we put in place, so that, you know, what have you...

MULLIN: For example, in the introduction of sky marshals on the airplanes, which is one of our fundamental recommendations. The increases in the technological approaches, with respect to screening people through the computer-assisted profile system. The recommendation that we're making for new hiring and training practices, with respect to the people who do the baggage screening.

NORTON: All of this would be much more controlled by the federal government if the federal government were paying for it. Is that right?

MULLIN: We'd absolutely like it to be.

There's a long list of these that really do represent a tremendous increase and improvement in it, and with a heavy cost.

I made the observation that one of the great tragedies is our own reputation for safety. I mean, this industry has been unbelievably safe. If you look at the figures, for example, that I remember from 1998 and '99, this industry carried of the order of 650 million passengers in each of those two years without a single fatality. It is unbelievable when you look at the number of people who fly on our airplanes so safely. When you compare them to any other mode of transportation, this is the most safe mode of transportation known to mankind.

And part of the tragedy that we're facing here is that all of this is now suffering under the terrific attack that has arisen because we...

NORTON: As long as the federal government pays for it, you're willing to give the entire matter, the decision-making with respect to security in the air and on the ground, to the federal government.

MULLIN: We would absolutely be very comfortable and, in fact, enthusiastic about, particularly, on-the-ground security being done by the federal government.

NORTON: Well, the problem here occurred in the air, sir.

MULLIN: But we need to work on that.

Secretary Mineta has task forces going on this right now. It has a very short time frame coming out for the procedures. Many of these procedures are in place, as we speak. And it really represents a complete redo of security.

MICA: Time of the gentlelady has expired.

Let me recognize Mr. Horn.

HORN: Thank you, Mr. Chairman.

I'm very interested in what this panel is pursuing.

Let me ask you, in the next coming month, 30 days, are any of you going to file for bankruptcy?

HORN: I would like to ask Mr. Parker to speak to that from the standpoint of America West.

PARKER: Well, thanks.

Mr. Mullin mentioned in his testimony that several airlines are facing significant financial decisions in the next few days. What that means is several airlines are anxiously watching these proceedings, and if something can't be done, would very likely be forced to file bankruptcy in a number of days.

America West is one of those several airlines, and there are others much larger than America West. But I think we provide a representative case study of what's going on out there. America West is a product of deregulation. We're the largest airline formed since deregulation. We have $2.5 billion in revenues, 14,000 employees, and our low fares provide important price competition to some of the larger, older competitors.

And prior to September 11, we did not have a financial crisis. We had $80 billion in cash, we had strong operating performance, and our cash balances were remaining steady. Indeed, we had signed term sheets for $200 million of financing. We were a financeable airline.

Since September 11, the situation has changed dramatically. There is now a cash drain as a result of the decline in revenues that we've all talked about already. So the cash balance is not staying steady; indeed, we are draining off something on the order of $5 million per day.

Our financing of $200 million has obviously fallen apart. And our ability to obtain additional financing is nonexistent right now as this is all being discussed. So our access to capital markets is now on hold and looking for stabilization.

So what we need is, one, immediate cash infusion; and two, immediate access to government loans and guarantees to restore capital market access until stabilization.

HORN: And you think that will solve your problem?

PARKER: Absolutely. I think it'll...

HORN: Let me ask, because Mr. Mullin did mention it and I was planning to ask this, that three major members of your organization are on the brink. And America West I fly pretty regularly between Phoenix and Long Beach, California. Almost every seat is taken. So you look like you've got a darn good operation.

PARKER: Well, thank you, sir. We did, and we will again if we can get this stabilized. But today that flight, Phoenix to Long Beach, has load factors very similar to what Mr. Mullin said his were yesterday of 29 percent. And we need to stabilize this industry, we need to restore consumer confidence, and then we can move forward. But right now we need stabilization, and we need it now.

HORN: Well, do we have more than the three on the brink?

Mr. Mullin, you're the one that gave me these statistics.

MULLIN: I think it's safe to say that, among the top 10 airlines, that there are three who are on the brink. Obviously, we're uncomfortable speaking about somebody who isn't here. Mr. Parker spoke to his situation and he is here. But there are two other significant airlines that are close to it.

HORN: What about the ones that had their machinery taken over by these hijackers? And what are the numbers on the insurance? Have we figured all that out for American and United, about their planes and how many people were in it and what that will cost? And will it be done by the insurance you've got, or do you have to go and put a lot more money with all the suits that will be filing?

So I would think that we ought to put a law on the books that we don't give insurance to hijackers, if we can identify them. And it would just be outrageous, I think, for most Americans to give their relatives whatever if they're hijackers. And what do you think on that?

HORTON: I can comment from American Airlines' perspective with regard to insurance. We are well covered with respect to the loss of the aircraft. We are well covered with respect to the loss of life of our passengers and crew.

The issue that we've been discussing here this morning is liability for loss of life on the ground and property damage in both Washington and New York. So that's the issue that we need immediate relief from in order to access the capital markets.

MICA: I thank the gentleman. Time has expired.

Let me recognize Mr. Menendez.

MENENDEZ: Thank you, Mr. Chairman.

Gentlemen, as I said in my opening statement, I want to help the industry. But we need the American people's confidence in what we do, so I hope you'll understand the nature of the questions in that regard.

Please, yes or no, if you can. A hundred thousand layoffs, notwithstanding 20-some-odd billion dollars if we were to give you your package?

MULLIN: That number could materialize, yes, sir.

MENENDEZ: So that's yes?

MULLIN: Yes.

MENENDEZ: Second question. The $340 million a day you say that the industry spends, is that inclusive of items that you would not expend because you didn't fly -- fuel, food, other items?

MULLIN: That's a standard run rate expenditure, so it would include -- that pertains to a normal flying operation.

MENENDEZ: All right. So then we would deduct, there would be a refined -- a net item that you could provide the committee, is that correct?

MULLIN: That's correct.

MENENDEZ: Could you provide that to the committee please?

On page six you talked about a series of previous expectations for this last quarter and the first two quarters of next year. What were those expectations?

MULLIN: Well, we all had independent forecasts wherein we, I think routinely, as part of our management responsibilities in our companies, forecast out, say, for our board of directors, as to what our expectations out a year in advance. So each of us submitted those expectations -- for the first time, I might add -- to the ATA, who assembled the information to give the picture as to what those expectations were.

MENENDEZ: And collectively do you have that as an association here for the committee today?

MULLIN: The ATA has that, yes. We could supply that information.

MENENDEZ: Could you supply that? Because for us to understand what 60 percent of previous expectations, I think the flying public and the Congress is going to want to know what those expectations were to make sure they're reasonable.

MULLIN: Sure.

MENENDEZ: I don't doubt that they will be, but we want to know if they are reasonable.

You also, just for my understanding of this, you want the calculation for this assistance to be done on available seat miles, and I think in one of your answers you said that, in essence, is percentage of capacity. Is it percentage of capacity or percentage of actual flying that that particular airline may do? Because you can have capacity that is unused.

(UNKNOWN): Well, the capacity is an available seat mile, which is one seat flown one mile. It is a standard measure in form 41. So it wouldn't include capacity that wasn't flying, because it's the existing ASMs, which are the airplanes you actually flew in revenue service. It's a very defined term, and it's form 41.

MENENDEZ: So that in essence means capacity flown.

(UNKNOWN): Yes.

MENENDEZ: OK. That's fine.

Now, lastly, I listened to your answers as it relates to security, and I read your statement as you were delivering it. And on 11 and 12 you say, "Provide sky marshals on domestic flight. For the federal government to take all security screening functions. And to provide financial support for all mandated safety requirements."

And clearly that is an enormous shift not only of responsibility and money that you are presently to some degree providing yourselves to the federal government on a continuing basis, on a forever basis versus on a shared basis. And while, yes, security is about ensuring the flying public's safety, it also provides benefits to you as an industry. It guarantees the likelihood that your capital -- i.e., your planes -- will be preserved. It guarantees that your liabilities will be lessened. And there's a whole host of other ripple effects, including when you go to the market to borrow.

So what's your responsibility here? I hear your shifting but I don't hear your embracing of your responsibility. And I'd like an industry from the industry, what's your responsibility as it relates to your participation in security?

MULLIN: We embrace totally our responsibility for safety. There is nothing that is more important to any of us.

MENENDEZ: Including financially as part of it?

MULLIN: We have been embracing that financially. What we're talking about here today is that none of us would be here but for the September 11, referred repeated to how everything has changed.

I think that what we have seen here is that terrorism and national security issues have been introduced into the whole security equation for airlines to a degree that has never been present before. Nobody has ever seen anything like this before.

And so we need to think about this, as Congressman Oberstar and others have talked about going back to the very issue of how we treat this as a nation in terms of providing our security for all people. It truly is a governmental function. We as airlines just simply do not have the mechanisms to go forward and provide that...

MENENDEZ: Well, I understand clearly the responsibility...

MICA: Time of the gentleman...

MENENDEZ: ... but I'll finish, Mr. Chairman, just a moment.

But I think that you cannot expect an absolute and complete shift...

MULLIN: I understand.

MENENDEZ: ... and the industry not having a responsibility. And I hope at some point you'll respond to executive positions as it relates to what the industry is willing to do to tighten its belt in that regard.

MULLIN: I think, since a number of you have raised that, I should mention that the executives in this industry are going to pay an enormous price for this. The vast majority of us have performance- based compensation as our principal component of compensation. Most of us have it at 75 percent or so. All of that would be clearly wiped out by this. And for those who have had stock-based compensation in years past, you only have to look at what's happened to the stock market to understand the damage that has been done to that.

So there is going to be a tremendous sacrifice, shared sacrifice, which we believe is appropriate. It will happen, and it will happen big time.

MICA: Time of the gentleman has expired. Let me recognize myself for my allotted time of questions.

Let me continue in the line of questioning. It's my understanding that the screening process which the airlines now pay for costs you about $1 billion a year. Is that correct?

MULLIN: Yes.

MICA: I see. Is the airline industry willing to continue to pay that equivalent if the responsibility has shifted to someone else?

MULLIN: Well, we have built into those forecasts, Congressman Mica, the presumption that we will...

(CROSSTALK)

MICA: You'll continue to pay. OK. Because someone's going to have to help pay for that responsibility.

You said that $1.3 billion has been identified as the direct hit you took as of...

MULLIN: Correct.

MICA: ... the attacks on September 11. The balance of everything else, is that intended to be paid back and loans, either loan or loan guarantee or paid back?

MULLIN: Our package just really has two components: the $5 billion of immediate cash infusion that is based on...

MICA: That's not my question.

MULLIN: I'm sorry.

MICA: My question is, the direct cost that you're asking for reimbursement for is that $1.3 billion and the balance of everything else going to be paid back? Or is it a greater amount? Again, I want to know what would be the loan...

MULLIN: Presumption is that $5 billion will not be paid back.

MICA: $5 billion would not be paid back.

MULLIN: Would not be paid back.

MICA: That's what you're requesting? OK.

Have any of you been dropped by insurers?

J. KELLY (?): We have received a notice of cancellation, which means that, in effect, within seven days we have to renegotiate. That doesn't mean that we'll be dropped, but they will be renegotiated at different terms and different cost.

MICA: Renegotiating the premiums. OK.

One of the major questions we're going to be asked is -- and we have a long line of people, if we pass this legislation to assist you -- is why not help others who have been so affected? Maybe you could just give me a quick...

MULLIN: I think that has to do with the fundamental nature of airline service as the backbone of our economy. There have been studies that said that of the order of 10 percent of our gross national product is associated with airline travel.

MICA: Those are my figures.

Well, again, we're going to have general aviation in here, we're going to have small mom-and-pop businesses who literally have been devastated by this.

(UNKNOWN): Could I make one point on that?

MICA: Yes.

(UNKNOWN): I think this is the only industry in the United States that has been turned into an instrument of terrorism. It was a U.S. airplane operated by American and United, U.S. airplanes, and that we in fact as an industry have been particularly targeted as a vehicle for terrorism.

MICA: Thank you.

Let me ask you this. I only know from news reports and rumblings, are you going to other committees asking for other reductions, or is this the whole package? I'd heard reductions or suspension of some of the fuel taxes and others. Is this it, or are you shopping?

MULLIN: This is our package.

MICA: This is the...

MULLIN: No, no, we're not shopping. This is our package.

MICA: The other thing, too, is Southwest Airlines -- and I may be wrong, but I heard one of the airlines say that they had sat down and had worked something to keep people employed.

Why can't you work with labor and others? It didn't sound like, from Mr. Hoffa, you all had sat down with labor yet to discuss the alternatives to putting everybody on the street.

J. KELLY: I would just like to say that from our standpoint we met with our labor leaders, our master executive council chair, immediately when this happened. And we told them that we were not going to be precipitous in taking an action. We have not laid off people. If we move forward, we have said to our employees we will be as creative as possible in whatever way that means, job sharing or anything we can do to minimize the impact.

MICA: I'd like everybody from ATA to respond to the committee and let us know what you can do. This isn't the time to be laying people off, it's the time to be hiring people. Some people may have to evenly share the burden in all of this.

One final question -- my time's about up -- is cancellation of aircraft orders. I'd also like you to supply to the committee what aircraft have been canceled and why and what financial reason. And then, I want to know also, if we give you this money that those orders will be restored, because we have reports now of some 30,000 losing their jobs.

My time has expired. Let me recognize gentlelady from Florida.

C. BROWN: Thank you, Mr. Chairman.

And I think your testimony, Mr. Mullin, was very informative. I do have a couple of questions. And I think the first one is I note that all of the carriers are not here.

C. BROWN: US Air is not here, and as I told you, that's my carrier, and there are some fine men and women that work there. 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. So what kind of assurances do we have for people that participate in this program that we're going to safeguard the taxpayers' dollars?

MULLIN: We'd be happy to share with you our compensation programs so that it's well-understood.

C. BROWN: I'm not talking about Delta. I'm talking about everybody that participate in the program.

MULLIN: I'm sure US Airways would agree, also, to share with you the basis upon which they're compensated and see what happens as this happens.

ANDERSON: Those will all be publicly available, because our 10- Ks all include our salaries every year. And I can tell you at Northwest that we're going to take significant reductions in all management compensation, incentive compensation areas.

C. BROWN: And, you know, I'm not saying this is going to happen, but I'm saying I would not want to read this. And I want to see some safeguards to make sure it does not happen that some executive gives themself an $11 million bonus. We'll look pretty bad to the public.

ANDERSON: Well, we would look ever worse, because it wouldn't be fair in the circumstances we find ourselves to be...

C. BROWN: Laying off thousands of people.

ANDERSON: ... to be asking you for what we're asking you for and to be having the very difficult task of reducing our headcount to also, at the same time, enrich ourselves. That just doesn't work. And I don't think any executives at any of these airlines are going to do that.

C. BROWN: I have a couple of questions about security. As far as the sky marshals is concerned, I noted in your report you said that, "We should have them all on domestic flights." I don't understand why not all flights.

ANDERSON (?): They are already on the international flights. And what we would propose is that Secretary Mineta has these two committees that are already beginning to do work. And they'll bring back specific recommendations in a couple of weeks for both airport security and aircraft security.

C. BROWN: One other thing, Mr. Kelly, I noted that you said -- and this is, I guess, serious consideration about the $3 for security. One of the things that the public understand is a user fee. And I think when you said that you want the federal government to take over, you know, the financing, you are the federal government. It's all our dollars, and we've got to figure out what's the best way to install the safety measures. Because I came up last night, and there was nobody on my flight.

And all members of Congress, for one thing, we know something about the industry because we're on planes, all of us, at least two or three times a week. And so, if we don't feel secure, if the public don't feel secure, then they're not going to fly.

J. KELLY: And I'm in total agreement with you, Congresswoman. And the bottom line, as you well know and we all know, is that we are all going to pay. Whether we pay it in a fare or we pay it in a ticket tax or a user fee or we pay it in general taxes, we the citizens end up, you know, bearing the cost one way or another.

And the question really is, how should we best accommodate that? And my point is that, given a struggling industry, adding that cost on, given the elasticity issues, is, perhaps, not the best way to accomplish it. That's the only point we're making.

C. BROWN: OK. Mr. Chairman, I'm...

(UNKNOWN): Ms. Brown, would you yield some time to our colleague, Mr. Doggett?

C. BROWN: Yes, please.

MICA: I'm sorry. We can't do that. There has already been requests. If they're not a member of the committee -- you can only yield to a member of the committee.

Let me then yield to Mr. Latourette.

LATOURETTE: I thank the chairman very much.

Gentlemen, at the end of last year there was a lot of consternation by some in the Congress about money that we provided to the Medicare system and, particularly, insurance companies that handle senior HMO products, thinking that they would use that money to increase coverage, go back into areas that they'd abandon. And GAO came out with a report indicating that a number of those companies then put the money in their reserves, which is sad.

If Ms. Tauscher is correct, that for every one airline job there are six other jobs in the economy spun off -- and I think that's a conservative number -- one of the concerns that I have is, if this package goes through and you're made whole, I'm aware that at least some of the airlines represented at this table have sent out letters to their suppliers since the tragedy of last Tuesday, asking the supplier of parts to reduce their open invoices, that is stuff you ordered before September 11, by 12 to 25 percent.

My concern is that if this package is approved by the Congress -- and I happen to be one that fully believes that you're entitled to it and you need it and your industry is one that's important -- my concern is that open invoices -- the guys and gals who are making the parts to go into the engines and everything else that you need to fly -- will you still be asking for that 12 to 25 percent decrease on open invoices?

And, Mr. Anderson, maybe I'll start with you.

ANDERSON: Since I sent the letter, yes. Yes. We will still be asking for the reductions from our suppliers.

LATOURETTE: And then how are we going to be able -- so we'll make you happy and healthy or at least bring you back to a level, but what about the other folks that operate the machines in our districts?

ANDERSON: Our industry, as you said, probably for every one airline job there's more than six other jobs. And as sort of a lynchpin of the whole aviation system, how we go so goes the rest of our suppliers and the other people that depend upon the industry.

So if you fundamentally want to be able to assist Pratt and Whitney, Boeing, General Electric, our principal suppliers, Rockwell, Allied Signal, the best way to do that is to keep us stable, because the impact to our suppliers will be even more significant without this package, and there will be even more ripple effect in the economy.

LATOURETTE: I fully understand that, and that's the argument that the committee staff makes to me. But I'll tell you this, if you are made stable -- and you all have represented to us that you weren't doing great before September 11, but you're doing OK -- why then should the guy at the second-generation machine shop that makes a little ignition switch to help in case there's a flame-out, take a 25 percent hit when you're going to be made whole?

ANDERSON: Well, I believe that Leo described to you the fact that the revenue fall-off in the direct impact of these acts of terrorism to the industry between now and June, by conservative estimates is, $18 million, by pessimistic estimates it's $33 million.

(UNKNOWN): Billion.

LATOURETTE: Billion.

ANDERSON: Billion, excuse me. We wouldn't be here if it was millions.

LATOURETTE: Right.

ANDERSON: And so, we have a wide range of potential losses that we yet have to make up over and above. So I think the members that talked about, you know, executive compensation and everybody participating, when we go through these kinds of events, our suppliers likewise contribute.

LATOURETTE: I got it.

Is there anybody that has a different answer than Mr. Anderson?

MULLIN: The only one that I would add is that, many of us, in light of the difficulty that we're having before this, had been engaging in through, what is called supply chain management, very aggressive discussions with our suppliers in the face of the recession. And unfortunately, to echo Richard, well, you hate to see a small machinist, you know, go out of work. We all are going to have to be very, very aggressive in controlling those costs.

At Delta Airlines, $7 billion of our roughly $15 billion of expenses each year are supplies. And so, to get a hold of those costs, we definitely are going to have to attack that component of our expense base.

LATOURETTE: Could you, in the 30 seconds that I have left, someone comment on what the intention is under this package, in terms of honoring passenger tickets that have been purchased for routes that are discontinued or for a trip that no longer exists because an airline ceased to exist?

ANDERSON (?): We routinely accommodate those under our tariffs. Actually, we regularly go through schedule changes in the industry, and you pull service, cancel service to cities. And we have a regular process for reaccommodating people across the board.

LATOURETTE: Thank you.

MICA: Thank the gentlemen.

And let me recognize Mr. Filner.

FILNER: I thank the chairman.

I guess if this weren't an incredible national crisis I would be tempted to comment on the irony of corporate America lined up here asking the federal government, the hated federal government, for an $18 billion handout. The same corporate America which resists a dollar increase in a minimum wage or grant programs that help poor people, as giving handouts to the undeserving, or resists collective bargaining agreements. I would be tempted, but I'll resist that temptation today.

We've talked about layoffs. How many of you up there have laid off people already or intend to this week?

MULLIN: I have not yet.

(UNKNOWN): We have not laid anyone off.

ANDERSON (?): We intend to.

PARKER: We've announced intentions to but not this week. We announced this week that we plan to do so.

FILNER: Do we have any assurance that money that you are asking from the federal government will either forestall or allow us to rescind those layoffs?

MULLIN: I think, generally speaking, there can be no assurance, particularly given the uncertainty that we have, with respect to the amount of traffic that we're going to be flying. If we have load factors that prevail, such as have been cited here, with the demand as is low as it is, it just makes no sense to continue to fly those airplanes.

FILNER: OK. So it seems to me, we have a job up here as a Congress, to not only make you whole, but to protect those who, also through no fault of their own are thrown out of work. When you were are asked, I think, when Mr. DeFazio asked the question of, "What protections would you recommend for these laid off workers, such as health benefits that would continue or other benefits," Mr. Anderson said, "Well, these are protected in collective bargaining agreements."

The guy on your right and the guy on your left, sitting up there, I would argue, do not put much faith in collective bargaining agreements, and don't have those for most of their employees.

So how are they going to protect them since a lot of you don't believe in collective bargaining agreements with -- how are we going to protect the employees then? Since your answer, Mr. Anderson, as I heard, didn't cover anything Mr. DeFazio asked.

But I'd like to hear the ones who don't have the collective bargaining agreements answer. How are you going to protect those folks?

MULLIN: I can just say from Delta, which is the, perhaps, the least unionized of all the airlines, that we will...

FILNER: You got one more here that's not.

MULLIN: ... absolutely protect our employees to the same or even more of a degree than those who are...

FILNER: Are you going to give them health insurance over time? Are you going to -- for example?

MULLIN: We will do the best we can.

FILNER: Are they going to have ways of either counseling or training for new kinds of jobs? I mean, are you going to do that?

MULLIN: We will do the best we can. We're working on those programs right now.

FILNER: Well, it seems to me, given that answer, it's up to this Congress to guarantee that that occurred, since your answer is to the best of your ability. I think we have to guarantee it.

In fact, as I listened to some of the answers, whether we're talking about security or we're talking about passengers rights or talking about employee rights, I think we need a permanent oversight commission as part of this legislation, Mr. Chairman and Mr. Ranking Member, that is going to make sure that these rights are protected and that the security does take place.

I mean, this is a group that keeps resisting government intervention, is here asking for $18 billion. It seems to me, that we have a right to insist on certain return obligations for the bailout that is being requested here.

MULLIN: Sir, may I comment on one thing?

FILNER: Sure.

MULLIN: You give me the opportunity to refer, again, to the bailout. We absolutely do not feel we're in a bailout here. We are in a industry stabilization effort that results from a terrorist attack using our airplanes.

FILNER: I understand, sir.

MULLIN: And it's a very...

FILNER: Again, those people are out of work for the same reason. I've heard Mr. Abercrombie, with great eloquence, if I may use, that his whole state is threatened with bankruptcy because Hawaii depends on tourism. Did I get that right?

ABERCROMBIE: You got it right.

FILNER: Now, aren't they entitled, too, however you want to phrase it? All of the travel agents in my district and every district around here are out of business, virtually. Aren't they entitled to the stabilization based on -- however you phrased it?

All of the folks who have -- we've heard here from many people who have lost their jobs, lost their businesses, lost their livelihoods, lost their futures, because of what occurred not from their own doing. Why aren't they entitled to the same stabilization that you are requesting?

I don't buy the argument that was made that because of your unique status you're the only ones entitled. You are a particular industry that is vital. We all agree to that. And nothing I say should undermine that sense.

And you're going to get a package here. It just seems that this Congress should be looking at these factors also.

FILNER: You have resisted, by the way, as an industry, a passengers' bill of rights.

MICA: Time for the gentleman.

FILNER: Would you mind having that incorporated in this bailout?

MICA: The time of the gentleman has expired. If someone wanted to respond.

F. SMITH: Well, I just want to say you attributed to me some sentiments to the best of my knowledge, Congressman, I've never spoken to you. And I certainly believe in the right of collective bargaining.

FILNER: Does FedEx have a bargaining agreement?

F. SMITH: FedEx has no intention of laying people off.

FILNER: But do you have collective bargaining?

F. SMITH: We do.

FILNER: With which groups?

F. SMITH: We have an agreement with our pilots.

FILNER: Well, your pilots. How about everybody else?

SMITH: Well, that's their choice.

MICA: That will have to suffice as a response. The time of the gentleman has expired, and we have many members waiting patiently.

Let me recognize Ms. Kelly. Thank you.

S. KELLY: Thank you, Mr. Chairman.

Gentlemen, you are here asking for money. The money that we have to allocate to you comes out of the pockets of the citizens of the United States of America. It is our fiduciary responsibility to make sure that that money is spent wisely. That's what we are elected to do. That's why, I believe, you hear these concerns.

I have a certain concern that Mr. Filner alluded to. The very first question I wrote down here that I wanted to ask you is the fact that -- especially I'd like to address this to Mr. Mullen and Mr. Horton.

In some times past, you have chosen to reduce the percentage that travel agents are able to achieve when they sell one of your tickets. In the event that you get this bailout, so to speak, would you be willing to either consider rescinding that or reducing that amount so that we can let this have a trickle-down effect at least to some of our other people who need some help here? And I'm asking the two of you.

MULLIN: Congresswoman Kelly, at this point and in light of the terrific challenges that we have, I don't think we can make any promises with respect to certainly rescinding an expense component that has already been taken. I think our challenge is going to be even greater, moving forward, to move our expenses down.

Our industry doesn't have any revenue. I mean this revenue pattern that we've got right now, if there's no money coming in, then we are going to be having to look everywhere we possibly can in order to manage our expenses most effectively.

S. KELLY: Mr. Mullin, that's exactly what the travel agents have to face. I understand that the travel agents, I've been told, face a loss of approximately $4 billion in the next four weeks.

MULLIN: We are inextricably linked to the travel agency sector. I mean, we have had a partnership with them even given the changes that have been made in the price and going forward. And we have to work very closely together to restore the revenue stream of the airlines and the revenue streams on which they depend. So, we will be working very, very closely.

I responded to your specific question pertaining to a rescinding of an expense item.

S. KELLY: Mr. Horton?

HORTON: Well, I would essentially agree with what Mr. Mullin had to say.

And I would second something he said earlier which is, we're not seeking what some call a bailout. We're seeking a recovery to the sorry state of our industry before this event occurred.

So all of us are going to be looking for every opportunity we can to make our companies more cost-effective. So, I don't think we can make any guarantees about any of our costs.

S. KELLY: In other words, Mr. Horton, you are saying that you want to see us give you money, which then, as I think others are concerned about, will stay within your own industry and not trickle out. Do I misunderstand you?

HORTON: No, let me be clear. Our industry was headed for $3 billion in losses this year before this event occurred. It would be irresponsible for us, as managers of these companies, to do anything but look for opportunities to make our companies more cost-efficient and generate more revenue. And that's what we'll continue to do.

S. KELLY: Mr. Parker, I saw you.

PARKER: If I may, I think there's a huge trickle down effect. People are not avoiding Hawaii because they don't want to go to Hawaii. They're not going to Hawaii because they're afraid to fly.

We need to stabilize this air travel industry first, then restore consumer confidence in air travel. Once we do that, people will begin going to Hawaii, travel agents will begin making more money again. We'll be able to buy more airplanes. We'll be able to hire more people back. But you have to start with getting people back in the air. And you need to start that by what we're asking for here.

S. KELLY: Thank you, Mr. Parker.

(UNKNOWN): Ms. Kelly, may I?

S. KELLY: Let me just ask one. I have a very short time here. I want to just ask one more question.

If your planes are flying and they're large planes and they're flying with not so many people, is there some reason why you can't fly smaller planes and fill those planes to capacity?

MULLIN: Yes, we will be doing that. Delta, I can speak, Delta particularly, we have the largest commitment of any of the airline to regional jets. And we would be particularly aggressive in deploying regional jets on routes where the demand has fallen just as fast as we can get them.

S. KELLY: And that would reduce your cost, I assume?

MULLIN: Yes. I would want to make one last observation here. The context of this element of the conversation might suggest that we're on a program of reducing jobs or, in some sense, acting against travel agents, who in many respects are our partners.

Our whole goal through this whole conversation we've been having here is to stabilize this industry such that we can increase jobs. Our goal is to get those jobs back. None of us wants to engage in the kind of activity that we've had to outline for you here today.

MICA: The time of this young lady has expired. Thank you.

S. KELLY: Thank you.

MICA: Ms. Johnson?

E. JOHNSON: Thank you very much, Mr. Chairman.

Let me first say that, although this is not considered a bailout by the airlines, the people of the nation feel that it is, and I guess it's in the eyes of the beholder.

I am concerned about recovery procedures, your out-placement plan and your plan to re-attract passengers.

Are you going to speak for all the industry?

MULLIN: We had a little trouble hearing you. I apologize. I heard the plan to attract passengers. And did you say out-placement plans?

E. JOHNSON: Yes. In your recovery procedure, do you have a plan for out placement of employees? And what is your plan to re-attract passengers?

ANDERSON: I'll speak on behalf of Northwest. With respect to our employees, the provisions of our collective bargaining agreement govern layoffs. And the provisions of those agreements will apply in these cases. And most of the other carriers have similar provisions.

The second piece is, I think the first and foremost thing the industry's doing is running a good airline. The industry actually today is running very well. We've got to provide safe, secure, on- time, good customer service to our passengers. And we need your assistance and the assistance of our government in re-instilling confidence in the traveling public that it's safe to fly.

So, I think those end up being -- re-instilling the confidence of the traveling public in the safety of our system is going to be the most important step that we can take as an industry.

J. KELLY: There will also be fare discounts. I am absolutely assured of that. Whenever passengers aren't flying, we will be out giving them a reason to go flying again. And that has already begun. So, building confidence on one hand and some stimulation on the other hand, Congresswoman.

E. JOHNSON: Now, you indicated in testimony that improvement of security and modification of some of the planes, you expected the federal government to arise to the leadership in those areas. Will any of these federal dollars be used for those purposes?

MULLIN: We would anticipate, over time, establishing separate accounting for that, so that to the extent that the federal government does bear the cost responsibility for that would be very clear about that. As Congressman Mica indicated, given that we are currently spending $1 billion or so right now on security, it will need to be worked out as to who is responsible for what component of the security that goes forward.

And as mentioned in previous questions, Secretary Mineta does have a task force that has been established with members of our group here on that task force. It is due to report on such issues within a short period of time.

E. JOHNSON: So, I think I hear you in your answer saying that that is an expectation that that's additional money for the federal government to pick up, not included in this initial request?

MULLIN: We have not put into this initial request any estimates for the added expenses that will be presumed, as mentioned in an answer to a previous question. We just put them in place and said we'd figure out the cost of it later.

E. JOHNSON: Well, I think that the concern that most the members of this committee have is that the majority of the people who will be inconvenienced, and are already, grossly outnumber the persons that will survive in the airline industry.

And this is a lot of money being taken away already from programs that would probably be allocated for education, Social Security reform, Medicare reform, prescription drug assistance. And so, when we have to look away from that to do this, we have to have some assurance that you're thinking about the people that support your industry as well.

MULLIN: Thank you.

E. JOHNSON: Thank you very much. Thank you, Mr. Chairman.

MICA: Gentlelady yields back the balance of her time.

Mr. Simpson, you're recognized.

SIMPSON: Thank you, Mr. Chairman.

First, Mr. Mullin, let me say that I hope that you don't go to regional jets from Dulles to Salt Lake City, because I don't want to sit on one of those. I understand the idea of getting smaller planes that are fuller.

MULLIN: Depends on American Airlines.

SIMPSON: Secondly, Mr. Filner mentioned the workers and his concern for those, and I think we all have that same concern. I think Mr. Hoffa mentioned during his testimony the idea of some funding for transition funding for those employees that are being laid off.

It's not uncommon or unroutine for Congress, as an example, when contractors at DOE sites lay off employees, that we include transition funding, retraining funding, those types of things for those types of employees. And I think that's totally appropriate in this situation also.

And I hope that Congress looks at that as part of a total package, because there are going to be some layoffs that are probably going to be permanent, as you said, as you reorganize your industry due to the situation that it's currently in.

It was mentioned, Mr. Latourette asked the question about re- accommodation of those ticketed passengers that have tickets, that the flights have been canceled or no longer flying or whatever. And I think Mr. Parker mentioned that people aren't going to Hawaii because they are afraid to fly.

What is that re-accommodation? Do they get their money back? Or are you ticketing them on another flight? Because if they're afraid to fly, re-ticketing them doesn't help.

(UNKNOWN): Yes, in that case, they would be entitled to a refund. And a number of us, I'm not sure whether all, have waived some of the fees that typically apply to refunds. So they can either get reaccommodated or they can have their refund.

SIMPSON: In the $5 billion that is going to go out in direct payments in the stabilization funding, as you've called it -- and I agree with you that's what it is -- it's going to be based on ASMs. There are high-cost carriers and low-cost carriers. Some regional carriers are much higher cost. We can tell that by the fact that a ticket from Boise to Idaho Falls cost more than a ticket from Dulles to Salt Lake City. Is there any accommodation made in that for high- cost versus low-cost carriers?

MULLIN: No, there isn't. And we just felt that the allocation based on, essentially, capacity in the sky was the fairest way to do it. We don't want to have any kind of swing on this based on the cost structure or even the competitive structure that prevailed prior to September 11.

So, none of those factors were taken into place. We talked about many different mechanisms to do it. And we think that the ASM is the fairest way to do it, with the modification that Fred Smith has made for cargo carriers, which, as he said, accounts for about 10 percent of it. I think this is the fairest way.

SIMPSON: Do the regional carriers agree with that?

(UNKNOWN): Congressman, we're a low-cost carrier. Doug is a low-cost carrier. And we agree with this allocation method. We've all agreed that this is the fairest way to allocate the money. And again, the money has to then be justified by actual expenses in an audit after the fact.

SIMPSON: And as I mentioned during my opening statement, I'm one of those individuals that have some reservation about this. And I guess my reservation stems from the fact that there are hundreds, if not thousands, of companies across America that have suffered losses, not because of their own fault, but because of this act of terrorism -- many of them in the World Trade Center.

SIMPSON: If we put this stabilization funding out, how do we justify not helping all of those hundreds of thousands of companies that have been severely impacted by this also when they come before us? The insurance company that insured the Trade towers or any company that was in there that may totally be lost now?

MULLIN: I think, sir, that I'd respond in making just the affirmative case for airlines, rather than arguing against anybody else. I certainly wouldn't want to make that argument against anybody else.

But the affirmative case for the airlines, I think, derives just from the fundamental role that we play in the economy and the support that we give to all of those other folks that you are mentioning. I mean, this economy of this country, I think almost everybody would agree, simply could not operate effectively without effective aviation system. And that is the essence of our argument.

If we didn't have that fundamental underpinning to the argument, we shouldn't be here. And so the support of us is really, we would argue, by the multiplier affects that have been mentioned in terms of those added jobs and added contribution to the economy that is created by airlines, is the fundamental reason we are here. This economy needs a fundamentally effective aviation sector. Without it, all of the problems that we are talking about would be far, far worse in every sector of the economy.

MICA: Time of the gentleman has expired.

SIMPSON: I appreciate that. Could I ask one...

MICA: I'm sorry. I can't do that. I have folks waiting patiently.

Mr. Lampson?

LAMPSON: Thank you, Mr. Chairman.

I yield to the gentleman if he wants to ask a quick question.

SIMPSON: Thank you. I appreciate that.

One of the fundamental things we have to answer here in Congress is an airline industry that, as was mentioned, was going to lose $3 billion this year, anticipated it will lose $3 billion. And we understand the damage that was caused and what that's cost the airline industry now.

I want to make sure that what we're doing is giving money out to address the problems that were caused by this accident, and not by management decisions that caused a $3 billion lost this year.

MULLIN: We could not share your view more. I mean, in everything that we have talked about here today stems from the September 11 tragedy. But we're absolutely prepared to be audited on that fact. And so, we share your view.

SIMPSON: Thank you.

LAMPSON: Reclaiming my time.

You're welcome, Mr. Simpson.

LAMPSON: I'm a little concerned about what is happening to some communities where there are notices of cessation of operation by commuter activities. Will you all comment on some of that, how extensive you think it might be? It so far has not been extremely so. But how quickly we will see a return of flights where there have not been the best markets in the world, but at least service from areas that are desperately in need of it?

ANDERSON: At Northwest, we tend to serve a lot of less-populated areas, so it's an issue that's particularly important to us. The 20 percent reduction, as you look at how schedules seem to be flowing out, seem to be more in frequency than terminating service to destinations. And one of the proposals that we have talked about as an industry is the ability for us to discuss together scheduling, so that in the event there are a couple of carriers in the market, you know, that we could talk to each other about the possibility of one carrier staying in a market so that a city pair that was previously served. I think, in your situation that Continental has announced pulling out of some cities like Tyler and the like in Texas.

LAMPSON: Thank goodness not Beaumont yet.

ANDERSON: Not Beaumont.

And so, we've discussed that. We all take seriously our responsibilities for service in the smaller markets. And I know at Northwest, we have particularly looked at our schedule cuts in the upper Midwest to make sure that we don't terminate service to any cities, but that, in fact, we have reduced frequency. And so a lot of the cuts that you've seen in this 20 percent when you see how it's cascaded across everyone's schedule, it's been frequencies, not destinations as much.

But I do think the committee should consider, separate from this, and I would have said this prior to September 11, our essential air service marketing program. And I know Congressman Oberstar has had that as an issue from time to time.

LAMPSON: Anything any different from anyone else on this? Thank you.

There's going to be other kinds of costs that local government and the federal government's going to be facing. I learned of some of the things in my visits the other day, that may be as simple as having to give up parking spaces, parking lots that were within a certain distance it can no longer be. We're having to find ways, obviously, that we're going to have to make the priorities of where we're going to put dollars to make this overall industry work.

What other kinds of things will the industry suffer from, not just the airlines themselves, but airport-related or other industry- related, what might local and federal government be looking at in a total cost to help this industry function properly?

ANDERSON: The immediate costs, and I don't have an estimate on these, but I'm sure that ACI and AEEE could give you an idea, is that airports are essentially sole-source funded by concession revenues and airline rents and landing fees, and local airports are financed through general airport revenue bonds. And when you have this kind of cessation in activity at airports and reduction in parking revenues and reduction in concession revenues, the financing mechanisms behind our airports and the financial viability of our airports, particularly some of the smaller airports, will be stressed.

In addition, I think you're going to see, at the same time, at many airports you've seen significant additional costs under Part 108 (ph) of the Federal Aviation Regulations which governs airport security. And so, you also see additional cost, for instance, at Houston Intercontinental Airport, the cost of additional police services fall on the Houston Police Department.

LAMPSON: Right. Exactly as happened.

With the few second that I probably have left, will someone tell me again a little bit about insurance and the difficulties that you're facing. Is there any such thing as loss of business insurance? Does anyone have it? And then, what will not be or cannot be covered by insurance, as it exists right now?

MULLIN (?): Well, this is, obviously, you know, a rapidly changing environment in the insurance part of our business. But what we are hearing from our insurance companies is that we will see dramatic increases in insurance rates. We will see limitations on the amount of insurance that we're able to achieve. And we've also heard indications that we may or may not be able to get war risk insurance that covers damage and loss of life on the ground, which is the very issue that we've been discussing here today.

MICA: I thank the gentleman. His time expired.

Let me recognize the gentleman from Georgia, Mr. Isakson.

ISAKSON: Thank you, Mr. Chairman.

Mr. Mullin, you had said earlier that you all were before no other committee of Congress for any other benefits other than this particular package.

MULLIN: This is our package, yes.

ISAKSON: OK. So there is no request for any abatement or deferral of taxes, is that correct?

MULLIN: No.

ISAKSON: With that in mind, do you know, Mr. Mullin, and maybe Mr. Horton might be the best gentleman to address this, do you happen to know how much in federal taxes, payroll taxes, the employer's share, ad valorem taxes, equipment taxes, and other taxes the industry paid the United States of America last year?

MULLIN: $30 billion.

ISAKSON: All right. I want to make a point for those that have asked very good questions with regard to employees, subcontractors, ancillary people and the like, and our responsibility to the taxpayers. As I understand it, the airline industry last year collected mostly from us, citizens, $30 billion and turned it over the government in various forms of taxes.

MULLIN: That's correct.

ISAKSON: That if the airline industry goes out of business, there will be a net reduction in the revenues of the federal government of the United States of America. Is that correct?

MULLIN: That's correct.

ISAKSON: It's also correct that your estimate of the $18 billion shortfall is subtracting all the money you pay to subcontractors, employees and people that make your business run from the amount of revenue you anticipate getting. Is that correct?

MULLIN: That is correct.

ISAKSON: So the way I get it, it would cost the country $48 billion if we don't do this; $18 billion that's lost and the $30 billion revenues that are over.

My last point -- and I'm sorry I'm talking rather than asking -- but my last point is this. The cost to us not to judiciously stabilize the industry would probably have a multiple factor of 100 times if all the other industries who we fear for were out of business.

My last point. I want to commend American and United -- I assume by accepting the available seat capacity formula that many airlines have taken the very unselfish position in unifying behind this package, and I want to commend them doing that, because I think that shows the best in your industry, and I think that's important.

Secondly, I have to inject into the record for those that have talked about the workforce, AirTran voluntarily reduced their pay by 9 percent yesterday, the pilots. And I'm assuming that in your cost assumptions that derived in the $18 billion shortfall, there are many sacrifices that were presumed in that cost basis before you determined that numbers, and I'm assuming that's correct as well.

MULLIN: That is correct.

ISAKSON: Thank you, Mr. Chairman.

MICA: Thank you.

Mr. Sandlin?

SANDLIN: Thank you, Mr. Chairman.

I'd like to say thank you to all of the folks that are testifying here today and we extend our sympathies to you and appreciate your appearance. And I want to say that Congress wants to work with you to be sure that you have the relief that you do need presently, and that you have long-term viability. We've got limited time and just many, many questions.

Clearly, you need some capital infusion, and I was looking at the Morgan Stanley letter, and without going through it it says there are virtually no markets open to the carriers. The credit rating agencies have downgraded the debt securities; investors are nervous. If these funds are advanced to you, do you feel protected under the proposed legislation from any extraordinary remedies, such as sequestrations or other demands from your creditors by them deeming themselves to be insecure?

ANDERSON (?): I think if this package is put in place, we'll find a way to access the capital markets in a sensible way.

SANDLIN: OK. All right.

Let me ask you another question, moving to a different subject. Of course, we do want to work with you. We want to help you and work in partnership. Mr. Mullin testified a moment ago and caught my attention on layoffs. There have already been thousands and it seems like from what I've read and what you've testified that 20 percent industry-wide seems to be fairly common.

And I would like to compliment the Delta flight attendants I understand have volunteered to work for comp time or delayed compensation. And I notice the president of Mesa has reduced his pay by half. And the pilots at AirTran have been mentioned -- a 22 percent reduction.

I've been concerned at looking at compensation, though. I notice that Continental Airlines announced 12,000 layoffs, but they say they have no plans to ask executives to take a pay cut. And at that particular airline, the top executive makes $42 million over five years. And Delta said no one at Delta has been asked to take a pay cut yet, and may not be, but nothing had been ruled out, so I suppose that's a possibility. American Airline refused to comment on executive compensation. United didn't respond. US Airways, their top executive made $11.57 million last year; the top five executives, $28.5 million last year.

And I compared that to flight attendants, for example, a first- year flight attendant makes $14,850 a year; six-year, $22,000; 14 years, $28,000. The Airline Pilot Association said the average salary at major airlines is $25,000 to $30,0000, with a top senior captain going international, $250,000 a year.

The point being, we want to work with you and everybody has to cooperate. And can you help us in encouraging the executives to also make some changes, because we can rehire thousands and thousands and thousands of special services people and flight attendants and mechanics and support personnel with just a little bit of help from the executives. Can you do that?

MULLIN: Yes.

SANDLIN: And do you think that that's in the works? I mean, have the executives discussed that?

MULLIN: I think that when one looks at executive compensation, and some of those numbers that you cited, not to get overly technical, but the big numbers are driven by some kind of black shoals estimate of the value of stock options...

SANDLIN: I understand that.

MULLIN: ... which have a guess as to what they would be worth in the future. In point of fact, with what's happened in the stock market, I can just speak for Delta, the stock options are worth nothing.

SANDLIN: Right. I understand that. But on the pay, you can work with us and ask them to sacrifice, so that we can get some of our families back to work.

MULLIN: A significant portion of our cash compensation is also performance based. And when our organizations don't perform, that doesn't come in.

SANDLIN: When I mentioned in my opening statement that some in the industry have blamed Congress for these layoffs, and all of you I saw shook your heads no, that was not so. Can you commit to working with us as quickly as possible, getting this instituted?

MULLIN: Yes.

SANDLIN: And would each of you agree that even though we're taking the time to have these hearings today, that holding these hearings and committing to work with President Bush to develop some sort of long-term plan, rather than rushing to a judgment without a hearing, taking this time has in no way caused any layoffs, has it?

MULLIN: No.

SANDLIN: Would each of you agree with that?

MULLIN: We are grateful for having this hearing. We really appreciate it.

SANDLIN: I appreciate that.

And let me say one other thing. I notice Mr. DeFazio was asking about the fees for security. I think American Airlines has testified before that they support that, or something along those lines. Are the other airlines, do you feel like that's a reasonable thing to do and say the passengers will do that? Because I tell you, I think people would. We're talking two or three dollars, I think people would pay $10, $20, $50 a leg if they thought it went to security. What is the position of the other airlines on that sort of theory?

MULLIN: Well, I would just comment -- one of the reasons that you hear this is that all of us are willing to consider any reasonable mechanisms for paying for the security. And as I mentioned earlier in my statement, safety is our overriding objective. Nothing even comes close to safety.

And so whatever mechanism is decided is fine. I think that in terms of perhaps, say, what some of the larger carriers versus some of the low-cost carriers might say is that when you put an added fee on a ticket where price is a major objective, and it certainly is the case with respect to how the discount carriers compete, that putting a $3 fee on a smaller ticket base represents a much more substantial...

SANDLIN: I understand. But I think you'll see the public support it.

MICA: The time of the gentleman has expired.

SANDLIN: My time has expired. Thank you for your comments.

MULLIN: That's the explanation.

SANDLIN: Thank you, Mr. Chairman.

MICA: Thank you.

Let me recognize Mr. Hayes.

HAYES: Thank you, Mr. Chairman.

I personally resent some of Congressman Filner's remarks and the implications that if a company CEO does not have collective bargaining, this somehow represents a lack of concern for employees. Nothing could be farther from the truth. With all due respect, I disassociate myself with the remarks of my friend and colleague Mr. Filner in this regard.

As the CEO of a company, union and non-union, in the past, nobody cares more about the employees than me. And I assume you all have the same regard. So I want to make that very, very clear.

Interestingly, I don't know everybody in the audience, but a number of folks who work on the ramp at Reagan National, Signature Aviation, just came in the door, and this is real to them.

Question, will you all give us a list of suggestions after you have legally met -- suggestions that say what you can do working together on scheduling and other areas, given reasonable protection from antitrust laws, so that we can address this problem on that level?

MULLIN: Yes.

HAYES: Everybody says yes.

Number two, I spoke with Mr. Hoffa as he left. As a former CEO of a Teamsters company and under the master trade (ph) agreement, I asked him if he would be willing to consider flexibility of work rules which translates into cost savings, also more job opportunities for others. He did not respond initially. I asked the question again, and he said he would be willing to look at that. Are you all prepared to directly, and there are other unions involved -- this is not an anti-union statement; anybody in the audience that wants to question me about it later, please do -- but are you willing to go to your unions and say, let's be realistic; what can you do?

ANDERSON: I can speak to that. We have in fact met with all the unions at Northwest Airlines, from the pilots, flight attendants, mechanics and our people at the IAM. And because of the exigency of the circumstances here, we weren't able to have fulsome discussions with them. But I believe that they were very forthcoming and very somber when we had to sit down with them. Doug Steenland, the president of Northwest, sat down with them yesterday, and talked them through where we are, and it was a very difficult meeting for all of us. And I think that the tone and tenor of that meeting was such that we can have those kinds of discussions with our people.

J. KELLY: The answer is yes for Alaska and Horizon. We've already responded that in fact we wouldn't go ahead unless we did have those kinds of discussions.

HAYES: At this point in time, I see complete cooperation on your part for burden-sharing and doing what we need to do to get the ox out of the ditch here. And until some point in the future where I see otherwise, I appreciate your being here and I appreciate your concern and participation.

Thank you, Mr. Chairman.

LATOURETTE: Mr. Hayes, would you yield to me a little bit of your time?

HAYES: I yield to Mr. LaTourette.

LATOURETTE: I thank you, Mr. Hayes.

I just want to follow up on Mr. Sandlin's question, because I -- and sometimes you hear things that aren't true around here. But I had been led to believe when the package was on the floor on Friday that there had been discussions between the leadership of the House and the airlines that if relief could be -- a signal could have been sent last Friday to the markets for when the market opened, that perhaps some of the layoff announcements that have come out this week were going to be delayed pending an examination of that. Did somebody not tell me the truth on that?

MULLIN: No, I think that first of all, we had terrific support last week in response to the absolute crisis that we felt at that time. And there was a package that was put together that reflected essentially what I would call a three-day look at what was going on. And now we have the vast amount of time of a one-week look at what's going on, but frankly it's a lot better look, I think, than we had back then.

We were particularly grateful to the leadership of this committee in terms of pushing forward to provide that help. So it was needed then and this is needed now. And as far as we're concerned, the efforts are consistent.

LATOURETTE: All right. Thank you very much. Thank you, Mr. Hayes.

MICA: Mr. Pascrell?

PASCRELL: Thank you, Mr. Chairman.

I would assume that each of the panelists have read Jerry Paciucco's (ph) and Nelson Walsh's letter from Morgan Stanley. This is a powerful letter -- one page -- talking about security and the stabilization of the airlines -- the access to capital, and that's why you're here.

What is your specific opinion of the letter? Is it conclusive, Mr. Mullin?

MULLIN: I think it is a conclusive letter. I can certainly say it's entirely consistent with the experience that I have had just this week in terms of completing a financing, where we had kind of 100 percent assuredness before the events and even then it had some last minute wrinkles on it. I think the likelihood of doing a EETC or equipment financing-type deal moving forward, without action by the federal government, is virtually nonexistent. And the EETC market is what all of us are using to handle our equipment purchases moving forward.

PASCRELL: Then simply put, if we don't have an economic package soon that's a smart package, there is no way you are going to have access to the capital that you need in order to survive.

MULLIN: Absolutely.

PASCRELL: Am I exaggerating that?

MULLIN: No, you are not exaggerating.

PASCRELL: Let's go to point two.

MULLIN: Yes, sir.

PASCRELL: We're talking about an $18 billion package. It's been broken down several times -- close to $18 billion. What percentage of the total operating budget this year is that for all of the major commercial lines?

MULLIN: Well, let's say that Delta has about a $15 billion expense program. We represent about 17 percent of the industry. Multiply that by six. You're talking about $100 billion of expenses.

PASCRELL: Final answer?

MULLIN: He said I was right.

(LAUGHTER)

(CROSSTALK)

PASCRELL: What I asked the question for is to get the proportion here, algebraically, of what we're talking about. We don't want to be headed -- I haven't heard that from anybody here -- and we are united in trying to help and have various ways of getting there, but we're united. We don't want to head towards nationalization.

MULLIN: Absolutely not.

PASCRELL: And let's make that clear. That isn't what anyone's asking, nor is anyone suggesting on this side. We've gone through during critical times in our history nationalization of certain industries in order to get by, in order to provide security. You're not suggesting that we head in that direction. You are suggesting somewhat of a nationalization of the security at the airports. Is that correct? Is that what you're saying?

MULLIN: Yes, we are.

PASCRELL: Let me go to the next point. I, because of location, am concerned about all of you, but specifically Continental Airlines. Now, Continental Airlines has a very specific problem of liquidity -- cash flow. Some airlines have that problem, some do not, for various reasons. If we don't provide this package -- and this is a good example -- if we don't provide this action, Continental is about 8-9 percent of the total industry...

MULLIN: Correct.

PASCRELL: ... Continental goes belly up October 1. Mr. Chairman, this is serious business we're talking about here. Continental goes belly up, who is there to assume those responsibilities, those services to those destinations that you pointed out? Now, you have I believe, correct me if I'm wrong, 5-10 days grace period in order to come up with a payment. Continental has a payment right now that's due of $70 million.

MULLIN: It's due on Monday.

PASCRELL: It's due on Monday, but from what I understand there's somewhat, in negotiations, a 5-10 day period of negotiations. That's why I said October 1. I'm talking very specifically, very tangibly here, about a specific -- one of the great airlines, as you all represent as well. I mean, the nature of this problem, Mr. Chairman, is that we need to act as soon as possible on a package that is acceptable. We have worked out formuli to the acceptance of everybody concerned, from what I understand. Our next step is for us to act.

But I think you've heard enough from this committee to know that we are concerned about security as a very critical aspect of this give and take. And secondly, I would suggest to the airlines that you not simply -- not that you're doing it -- but you not just dismiss the employee side of this, the rank and file in terms of benefits; in terms of severance; in terms of health benefits that these families need, which are critical -- just as critical to the economy, I might add, in the long run...

MICA: The time of the gentleman has expired.

PASCRELL: May I have the response?

MICA: I'll allow a brief response.

MULLIN: I would just like to say, and I think I echo, but I'll just speak from Delta's perspective. There's nothing more important than our employees to Delta. The employees are Delta. And if some of these employees are laid off for hopefully a short period of time, we want them back and we want them back to be enthusiastic representatives of our company. They are our company. We want to treat them very well. We'll treat them as best we possibly can.

MICA: I thank the gentleman.

PASCRELL: Thank you.

ANDERSON: Same for Northwest.

MICA: We did attempt to act immediately last Friday night and Saturday morning.

Let me recognize Mr. Simmons.

SIMMONS: Thank you, Mr. Chairman.

I have some questions, but I'd like to yield a few seconds to my colleague, Mr. Hayes.

HAYES: I failed to mention, I think there's never been a safer time in American history to fly on the commercial airlines. The danger is in the trip to the airport still.

SIMMONS: Thank you, Mr. Chairman.

I agree with that assessment. I've been flying three of the last five days, and I've never felt safer actually. People have gone through parts of my baggage that they've never gone through before, but I won't get into that.

I mentioned earlier that a member of my family is part of the airline family. But I want to put up a couple of difficult questions that derive from The Wall Street Journal article this morning, entitled "No Time To Bail." I don't know whether you gentlemen have seen it or not, but briefly it says "the rush to bail out the airlines, at least as currently envisioned, is not one of those right things. Simply put, bailing out the airline industry is like trying to bail out the business cycle. It can't be done."

They go on to say that there are some things that the federal government should address, such as nitpicking airline mergers that the federal government should be more relaxed about airline mergers. Maybe that's a natural way that the industry can be self-supporting; that in the area of security, the federal government should assume responsibility for airline security because they're better at police power and public safety is a government duty; national defense is a government duty obviously. And then finally, providing some sort of immunization to the air carriers from tort warriors or the legal profession, perhaps on a one-time basis or for a certain period of time.

We've talked a lot about cash grants and loans and dollar instruments. I would like you to comment a little bit on two or three items that are raised by this article. Can you bail out an industry? And are there other governmental things that we should be addressing other than money to try to strengthen your position over the next six months?

MULLIN: This is not a bailout. This has no resemblance whatsoever to any past circumstance that has occurred.

SIMMONS: It's their term. That's all.

MULLIN: I understand. I did read the article this morning. In many respects, none of us would want to call for the nationalization of our industry. We've already stated that. This derives from this tragic event of September 11, wherein airplanes and this industry were used as lethal weapons in the consummation of this terrible situation.

That's what brings us here today. There is no comparable situation in American history, and therefore in that Wall Street Journal article, which I read myself this morning, I found that they must have been talking about something that was on some other planet. It doesn't pertain to this situation. This is not a business cycle problem. It is derived from that tragedy.

And relative to the other issues such as the use of mergers, we have made a firm recommendation to ourselves not to introduce any other public policy dimension into the equation for this particular instance. What we are here today is to talk about consequences that are associated with the September 11 tragedy and its consequences on our industry. Hence, we have purposely said we don't want to talk about changes in merger acquisition policy or labor laws or passenger service plans or any of the other issues that confront our industry on which there may be differing opinions.

This is a unique way in a laser-like fashion. It is related to the tragic events of September 11 and the consequences to our industry and our capacity to restore and our capacity to serve the economy moving forward.

MULLIN: That's what we're about.

SIMMONS: If I could just follow up very briefly. I understand what you're saying about the laser-like approach, but if there are other administrative and oversight recommendations that could be implemented that have beneficial effects and don't have the same cost to the taxpayer, why would we not want to consider those?

MULLIN: You should consider them, but I think not as a matter of this proceeding per se. I mean we are here for a specific purpose relating to the consequences. This financial package is related to that. We would be very, very happy, and it is appropriate to have discussions of those.

I find myself agreeing, by the way, with the merger statement that was in the Wall Street Journal. I do agree with it, but that's not what we're about here today. We're here to talk about the consequences that stem from the September 11 events.

MICA: The gentleman yields back the balance of his time.

Mr. Boswell?

BOSWELL: Thank you, Mr. Chairman.

I, in our opening remarks, we were short, but I referred to all of you as generals. And you are, and I'm proud of you.

MULLIN: Thank you.

ANDERSON: Thank you.

BOSWELL: Very much so. I watched your nodding when I mentioned the employees like the DCA folks moved in, or Mr. Hoffa. They're your troops. And you understand it. I just wanted to make that point. And I'm proud of you.

A couple of comments, statements and a question -- we have to protect the pilots to crew. We have to protect everybody. But the pilot, the man or woman that's up there in the cockpit, they're the ones that are going to place that airplane on the ground. You know that. I know that. We've got to protect them better. And we're going to do that, I have no doubt.

And I don't see this as a bailout. This is no bailout. The event that happened on September 11, we, through our FAA, but for a good cause, stopped you, and it has been and is very costly. That's what you're here to deal about. We want to keep you going.

I'm hearing over and over and over, security, security, security. I very much associate myself with our previous chair, Mr. Chairman, Mr. Duncan, that there's things we've got to get done. I think we can incorporate this in this thing today. I'm willing to stay here all night long. I bet you are too. We can work awhile, come back with a draft, do whatever we have to do; spin it up a little bit, go back work to work awhile, come back with the second draft and fix it.

But I think security is as urgent as the financial part. It's urgent, and you've said that extremely well, all of you. Mr. Mullin, you've led -- urgent, it's absolutely urgent.

I made a comment and it was interesting, and you may want to refer to it. Mr. Chairman, I may give it to you for tomorrow or Friday. I was quite taken with the police officers that called this morning from my capital city of Des Moines that said, "We would give our time, our off-time. We're pretty well trained, but to give you encouragement, maybe just take those of us that have five years experience or we've went through certain academy courses or however you want to do that. But we're trained to protect people. We might need some additional training for a day or something." But they're willing to step in and be sky marshals. I bet that would be across the country if we checked it out.

No compensation? Well, he said, if the airlines don't have full seats, they might want to give us a ticket or a ride somewhere, but I bet you wouldn't have no trouble with that. And so I hope that we will look at that as something -- again, the urgency to give comfort to the public. And that would help a lot.

The question that I would like for you to refer to that Mr. DeFazio asked about your purchases -- things that are pending. You didn't get a chance answer, ran out of time. And I would like for you to answer that, so do that in a moment here. I think we've got a couple of minutes yet.

Again, Mr. Chairman, more in statement -- general aviation has taken a hit, too. They're just absolutely so -- the fixed-based operations and so on. And I don't know if anybody heard me. You know, I fly a little Piper Comanche regularly, and I file IFR. I file VFR, or I don't file -- depends how far I'm going, where I'm going.

There's nothing that would have stopped me or somebody that flies small aircraft that went to their airplane over these last few days, got in it and flew somewhere and rammed it into something. And we're not going to be able to stop that. So why are we putting this burden -- it's accomplishing nothing that I can see. And I want to participate in that argument, if there is an argument, because why are we putting this financial stress on this entity? They're not selling any fuel. There's not any training going on and so on and so on. There's lot to be said.

But we can pass something tomorrow -- back to the point -- if we just knuckle down and get on with it .

Can you respond to Mr. DeFazio's question about purchasing?

MULLIN: Could you frame the question?

BOSWELL: Well, he said you've probably got orders and will be canceling some.

MULLIN: Yes.

BOSWELL: Would you consider canceling the foreign market orders versus those purchases that are being made with American industries and so on? "Buy American" I guess is what he was referring to.

ANDERSON: In all due respect, Congressman, it wouldn't be appropriate for us to do that. At Northwest Airlines, we're one of the largest operator of Boeing airplanes in the world and we were one of the largest operators of AirBus airplanes in the world. And we've made firm commitments. And by the way, those AirBus airplanes all have Pratt & Whitney and General Electric engines in them. So the day that I cancel an order for an AirBus A-320, I just canceled two engine orders for General Electric and a wheel and brake order for BF Goodrich and an avionics order for Honeywell.

So the complexities that are involved in who makes all of the components for airplanes are much more complex than just saying Boeing or AirBus. And second, we gave our word and we signed a contract. And I will say it here, both make very good airplanes. So I don't think it would be in our best interest to do that.

BOSWELL: Reclaiming my time. It's a great answer.

MICA: The gentleman's time has expired.

BOSWELL: I will stop.

(LAUGHTER)

MICA: I'm going to recognize Mr. Rogers.

ROGERS: Thank you, Mr. Chairman. And I thank you gentlemen for being here for a long period of time when I know there are a great many things that you could be doing back at your companies.

A couple of concerns. There were some arrests in Detroit last night and they found IDs and information that would lead to believe that they had access to some of the services at the airport. And I happened to be in a town hall last night where that came up again and again and again.

And we've heard about all of the security measures that we've done for passengers, and as someone who has flown on Northwest Airlines several times since last week, and I feel very safe doing that, what is being done to increase the accountability and the security for the services provided?

ANDERSON: As part of the security regulations that we worked with the FAA on around the clock last week, we included several new security directives with respect to access to the airport operating area.

Airports were directed to cut down the number of entrances to the AOA. We have regular pat-down and search AOA airport operating area. We're stuck with a lot of acronyms. We have pat-down searches and random access. Our searches of employees on a random basis, all of the people that have access to the ramp.

We're requiring identification when employees come into the AOA. Instead of just a normal stripe, you have a guard present who is verifying IDs. And I would say those immediate steps have been taken, but in the longer term, the task force that Secretary Mineta has put together -- and it's really not long term; it's in the next two weeks -- I think one of the really big issues that we have to deal with is third-party vendors on the airport -- fueling vendors, catering vendors and the access that they have to the airport.

And I think that should be a significant issue that we address in the context of Secretary Mineta's task force.

ROGERS: Thank you.

Next question, and first of all, I have had the privilege of owning a small company and the great agony of owning a small company. And I've heard my colleagues on the other side of the aisle talk about taking care of your employees. And I can't tell you, we would not have functioned were it not for our employees. That is the last thing that we want to ignore in the process. I know you are in the same phase. You can't run a good airline without good people.

ANDERSON: It's your most important asset.

ROGERS: Absolutely.

The other concern I have is I have noticed the different cash flows and there is a wide variety -- I think from a high of 90 days to a low of about 20 days, if my information is accurate.

J. KELLY: It's a high of 110 days. We were just not included, in Alaska Airlines, but we actually have longer than anyone.

ROGERS: So you don't need nearly as much money is that what you're telling everyone?

(LAUGHTER)

J. KELLY: I wouldn't say that. We would have to justify each of our levels.

ROGERS: My concern is -- and I have been on those airplanes as well -- and there is just hardly anyone on them. How are we going to gauge the fact that we're going to give these grants and that we can make that last until we get the confidence back in the American public to get back on these airplanes? That is my concern. We can promise you loan guarantees. We can promise you we're going to take the cost of security. We can do all of those things. We will give you the shot in the arm, but how do we fill the gap here? That is my greatest concern, especially with companies with short-term cash flows -- 20 days, 18 days.

MULLIN: Well, I think the key element of the $5 billion, make no bones about it, that $5 billion is needed like now, particularly for -- there are a set of our colleague airlines that we've mentioned earlier that are really close to terrible financial duress.

And then it is our belief that in terms of the projections that we've made, that this $17.5 billion program with the two parts, $5 billion now and the $12.5 billion loan guarantee program, will allow us to make it there.

Now we're using optimistic assumptions for ourselves to impose the demand that we really work hard to carry out our share of the bargain here. But hopefully by the second quarter of next year under these projections, you know, we would be there. And so, that's what this program will do. It will get us there, we hope.

ROGERS: Great. Just more of a comment and the last -- again, in this town hall meeting, there were several folks who were there who earn their living -- they were travel agents, booking agents. And they had a very interesting perspective, and I certainly appreciate the concern of my colleagues, but they said quite clearly last night, they said, "You know, we're going to be fine if you can just get the airlines flying lots of planes again."

I think that ought to be our focus here. We can help those folks by helping you and we ought to get on with the business at hand.

MULLIN: It's a classic case of a derived business that we're talking about. And hence, it underpins exactly the reason that we're here. So much of the economy depends on the airlines.

ROGERS: And as an automotive state, that just-in-time manufacturing counts on the airline industry to keep those factories open. The ripple effect of this is tremendous and we ought to get about the business at hand.

Thank you, Mr. Chairman.

YOUNG: Thank you very much.

The chair recognizes Mr. Baldacci.

BALDACCI: Thank you, very much, Mr. Chairman.

I certainly would like to echo the comments that were made earlier. As our nation rebounds from last week's disaster, we must do everything possible to ensure a strong economy. And no industry has been so uniquely and strongly affected by the terrorist attacks as the airline industry and its related sectors.

I think it's also helpful as we go through this process to just be able to go through and ask some of the particular questions that have been raised to make sure, as we move forward with this package, that we've done our due diligence.

One of the things that has concerned me is the ripple impact in the relationship between regional airlines. I left this morning on Delta and the service was wonderful. Got there on time. The plane was pretty full when it left Bangor, Maine.

MULLIN: That's good news.

(LAUGHTER)

BALDACCI: There were only two seats that were available at that time.

BALDACCI: So that was good. There was confidence back in. But then I started thinking, well, what about the ripple impact about going to the hubs and then not having the airline service at that point? And what does that do to the regional economy and the relationship back and forth? And what are your plans in terms of those integrations?

MULLIN: Well, you're pointing out a fundamental. I mean the regional economies are inextricably linked to the hubs. Delta, for example, in just even our connection carriers, our regional jets receive over $2 billion of its $15 billion or so revenue from those small communities served by those connection carriers. So to the extent that we continue to have difficulty, that ripple effect into the small communities will go beyond just the cessation here. It will absolutely affect the service equation throughout all of America, and I think especially into the smaller communities.

BALDACCI: One of the other things that is a concern was raised earlier was the confidence in the consumer. And you know, I spoke to a room full of people last night, and there was lot of uneasiness about flying again. And we've all flown in order to get back and forth. What are the programs? I heard fare discounts, but do you have a program in mind to be able to go back to people and suggest OK, it's now time to fly?

MULLIN: We, absolutely, will be doing those programs. But I think to quote Richard Anderson, just earlier he said it eloquently, there's absolutely nothing that could be better to restore our marketplace than the absolute confidence that people would place in our industry, most especially with respect to safety and security, which we have welcomed the opportunity to say over and over again, how primary that is in terms of our objective.

But secondly, in terms of our financial stability and our ability to perform, people have to have confidence in this industry. So, just through the kind of hearing we're having today, the kind of support we hope we will get from you, and the continuing rollout and implementation of the safety program that has been already defined and will be further defined to Secretary Mineta's committee report in two weeks. Richard Anderson is a member of that committee. I think all of that will create a sense of confidence.

But I think that what we will be doing if pushing the message over and over again. It's much more than marketing programs. It is this industry is safe. Prior to this accident, nothing was safer in transportation. And now we've taken steps to even make it more safe in light of the terrorist actions that have been taken.

BALDACCI: You know, I don't know where it's all going to end, but I know that we were attacked. And I know that it was very unsettling. And I know it's very important for all of us to roll up our sleeves and get America back to work. And part of that is getting the airline industry, which has a tremendous impact. I mean they were telling me just at Reagan National, the impact there was 10,000 jobs. And when that shut down, the impact that that has on those families and the families that they do business with, and in terms of service and other types of related jobs that are affected by those jobs.

So, we're all interrelated here. And the stronger that we are as a country, and the sooner we can get the airline industry and the other affected industries back, then it's going to be better for America.

I would just like to say that in terms of airline security, I do think that we do need to have a federalization of that program. I think we do need to have uniformity. I was little bit concerned that different airlines have different procedures and are given different latitudes. And I do think we need to have uniformity. And I would be in favor of advancing that, and having the federal government having that responsibility also, and being assumed at the federal level.

I think the people would feel much more comfortable also if those efforts, along with sky marshals and other check-ins and security measures that are taken will be helpful. And I look forward to working with the industry as we try to build back their economy and get our country back on its feet again.

Thank you very much, Mr. Chairman. I yield back.

YOUNG: Thank you very much for your observations. You know, in an informal survey at the beginning of this hearing, and this is the largest committee in the Congress, and we had near full attendance, just about every member had traveled over the weekend. I know I did and others have, too. And they related their experience. And I think most of us have a great deal more confidence in the security checks and everything that are going on. So we're trying to be part of the solution, not a perpetuator of the problem.

The chair recognizes Mr. Kerns.

KERNS: Thank you, Mr. Chairman.

And as this is my first opportunity to address you folks today, let me first say my deepest sympathy to you, Mr. Horton, and American Airlines, and all those impacted by this terrible tragedy.

HORTON: Thank you.

KERNS: I was delayed earlier by a delay in my flight schedule, as many Americans have been recently and understandably. Let me ask you this, and the question I have been asked back home in Indiana is how quickly, financially, this tragedy impacted the airline industry? What do you see going forward if we have another catastrophic emergency or something impact the industry, that we don't have a similar financial melt-down, if you will, over the short period of time? Because I don't know if this country can once again put this kind of money forward if we continue to have this type of thing happen or something similar, recognizing that we're certainly going to address the safety aspect.

MULLIN: I guess I would have to begin with the observation that we truly hope that we never have a circumstance like this again. We've never had it in our history so far, until the tragedy of September 11. And so we're not giving, we just will hope and pray, but do everything, sort of "praise the Lord and pass the ammunition" type thing. We're going to work our tail off to make sure that we do everything we possibly can to ensure that everything is safe and secure.

And certainly we stand in admiration of the steps being taken by the federal government in an intelligence sense to ensure that these perpetrators or their colleagues never are permitted to commit an act like this again.

And so we are proceeding with that assumption and attempting to earn back the confidence of America. And I think with all of the safety and security steps that have been taken, I think the American public has every reason to believe that flying will be safe and secure.

KERNS: I have heard a number of statements indicating that security measures have been increased and it is, in fact, safer to fly today than it was just a few days ago. Are you prepared to say today that it is safe for the American public to fly?

MULLIN: Absolutely.

ANDERSON: Absolutely.

J. KELLY: Absolutely, positively.

KERNS: OK, let me suggest that anything we do financially to support the airlines industry, and we do not want to have a collapse of the industry, as we recognize the importance of it to the U.S. economy, that security measures, increased security measures be tied to any financial package we do to assist the airlines industry.

I have traveled just recently back home to my district, and of course back here today to be with you. And I've noticed an increase in security and diligence on the part of the airlines industry -- those at the airports and elsewhere.

But I can also say that I see room for improvement. Some things that I've witnessed and experienced over a period of time at other airports are now being implemented here, for example, at Dulles Airport. So I think standardization and working together like we are here today can benefit the American people and all of us as a whole. And with that, if you have any comments, please feel free to make them.

With that, Mr. Chairman, I'll yield back the balance of my time.

YOUNG: Anyone? Mr. Mullin?

MULLIN: I think the comments -- we agree with them; through the committee that the secretary has established, we feel like we came right out of the blocks with an absolutely terrific improvement in security developed jointly by the government and industry. That's in the process of being implemented now. Other follow-on subjects such as the improvements to the cabin door and so forth, that will be considered as part of this. The question of who's paying for it. We've implemented these without any question about who's paying for it yet. But we're just moving ahead with it. So, I think I would just associate myself with your remarks and know that we have to continue to improve it.

KERNS: Thank you.

YOUNG: Thank you very much, Mr. Kerns.

The chair recognizes, for five minutes, Mr. Carson.

CARSON: Thank you so much for being here today, and the marathon is almost over by the time you get down to where I am sitting. Just a couple of questions for you. First of all, much has been made about the possibility of draconian layoffs and cutting back airline orders and issues like that. I think one of the sources of confusion is that the bailout, to use a term I know that you don't like, but that the public would use, is supposed to put you to the status quo ante -- back to where you were before the airlines hit the World Trade Center, and the models you project, the talk about cost through the fourth quarter of next year, discuss those kinds of things.

But, I think that's why a lot of people are confused about that. And that is, your models say your losses will be between $18 billion and $33 billion over the next 12 months. The question is, would that put you back into how you were on September 10? And if so, why -- to follow up on Mr. LaTourette's question -- is that if the airlines are put back into the status quo ante, do all of your derived businesses from the travel agents to the peanut suppliers in Ohio, bare a brunt -- bear much of the problem?

ANDERSON: As a number of congressmen and then senators pointed out to me yesterday in various visits, that we will probably never return to the status quo in this country after what happened last Tuesday. We have an estimate of what the impact will be to the industry. But that estimate is an estimate that's based upon our projection of where revenues are going to go in our industry. And as Leo Mullin stated in a very articulate way, we picked a very conservative case in terms of what we're asking you to help us do.

And there is still a big hurdle that we have to undertake internally. And because of the lack of demand, we really aren't returning to the status quo of last Monday. And candidly, I don't think we ever can, given the dramatic change I think that it's wrought on our country.

CARSON: I guess my question, though, is what I think people are confused about or raising concerns about, is it seems in the model you're offering us, costs are static over the next 12 months, or I should say are dynamic over the next 12 months because in your mind you're going to be cutting costs -- all kinds of layoffs and things like that. But in the model, they seem static, and that is you're projecting what costs are on September 10, projecting those out over the next year, and then laying those up against declining revenues, and coming up with this $18 billion figure. When in fact, costs are going to be declining quite dramatically as well if these catastrophic layoffs occur, if there are declining orders for aircrafts and all the other costs as well.

So my question is, can you tell us what you project costs to be? You have a projected burn rate on September 10. What are the costs expected to be and how do those line up with the revenues? And does your model make all of that come out to between $18 billion and $33 billion?

MULLIN: Well, I would just say that the base case that we have used is the one that generated the projection of the $24 billion need. And then with a much lesser probability, an optimistic revenue projection that would have produced the $18 billion need. Now, what we're basically, implicit in the challenge that we're presuming here is the challenge of taking on that revenue cost equation, howsoever it turns out during that time period.

And so there will have to be a considerable reduction in costs, even if we were able to operate within the $18 billion, given that the $24 billion is the base. So, that's the...

CARSON: Would it be possible for you to give me and other members of the committee kind of the model that you're using to project these kinds of costs?

MULLIN: Sure. We'll be happy to go through detailed calculations with you. We can provide our staff assistance to the staff of the committee or whatever to help do that, or to you.

J. KELLY: I would also like to point out, if I might, congressman, that we're really talking about 19 days, $5 billion. That does not cover the time-frame forward. Going forward, what we're asking for is the ability to have loan guarantees, loans that will be repaid. We are going to be suffering mightily after this point in time. We will be taking every degree of self-help we can to stem the losses. But all we're asking is that we can have those loan guarantees so we can have the liquidity to continue operating and get passengers back flying as soon as they can, because that will be in everyone's best interest.

CARSON: Let me ask the question to the representative of America West. I understand that American Airlines and United are very concerned about the potential liability on the ground from what happened last week. And much has been made about how the capital markets are drying up until it's proven what those liabilities are and if they exceed possible assets of the respective corporations. Is that a concern for you as well in that sense? I mean, are the capital markets drying up for you because of potential liabilities that American or United might be facing?

PARKER: Well, to answer your first question, is it a concern? Absolutely, for similar reasons. The fact of the matter is, capital markets have dried up for America West and like airlines not so much because -- actually hard for me to say which happened first -- but the fact is they've dried up largely because of the liquidity situation and the future revenue projections that are out there. So that first and foremost is what caused our financing to fall apart.

But having said that, we share with American and United concern about the liability issues because once we do get, I don't think you can really have stabilization until that issue is taken care of as well.

CARSON: Let me ask, then, one final question to anyone on the panel. I know much of the resistance from the airline industry about more money and the security procedures or sky marshals or various proposals like that, the war risk insurance, is the elasticity of demand when you raise the prices that are passed along to the passengers. Tell me if that's a correct analysis of what the resistance from the industry is, and what the estimated elasticity of demand is in the airline industry.

ANDERSON: When customers buy our tickets, they buy our tickets on the total purchase price and there are a lot of add-ons. And so, if you advertise at $99 and then you have PFCs, Customs charges, whatever else goes in, our demand curve is based upon the total ticket price, including all the add-ons that go on the ticket. Because when a passenger prices a ticket, they make their buying decision based upon a total purchase price.

CARSON: Right. But your ability to pass it along depends upon the elasticity there. What is that in the airline industry? I mean, when are people going to go off to take a bus.

ANDERSON: Well, it varies by market and it varies by passenger and it varies by economic conditions. And in fact, we manage that by day, by flight, by market in about 12 different fare types. So it is a much more complex equation than to think that you can vary it. But I can tell you that if you talk to any pricer in the airline industry, they will all tell you that when you add that onto the ticket it impacts elasticity, absolutely.

YOUNG: The gentleman's time has expired.

The chair recognizes for five minutes Mr. Rehlberg.

REHLBERG: Thank you, Mr. Chairman.

As a testament to the new security provisions, at Dulles on Friday they even took my mustache scissors. So we know it's working out there.

When you represent an entire state like I do, the state of Montana, the greatest population of any district, I get asked the question a lot, you know, why do you pick the committees that you're on? And I always answer the question, I want to represent those that are most vulnerable within my state or my district. And never did I think that the airline industry would be one of the more vulnerable constituencies that I've got.

I guess my question is even more narrow than your own company, and that is essential air service. Can you explain to me, does this bill and the financial package that you have put together adequately represent those that are not necessarily your company, but partners of yours?

Specifically Mr. Parker, I know that you were most recently up in Montana signing a contract with Big Sky Airlines; Mr. Mullin; Mr. Anderson. And when you cancel particular flights, as we know has occurred already in the state of Montana, the one that I take in particular, it affects essential air service. Can you explain to me or can you mollify my concern that essential air service isn't going to be the biggest loser?

ANDERSON: Well, as to your question as to the formula, all of the carriers have agreed, including the Regional Carrier Association -- Ed Faberman's group -- and the charter group, that the fairest allocation of the funds that we're asking you here today for is through ASMs (ph). So it has an equal impact from American Airlines to Big Sky Airlines in terms of the availability of benefits.

REHLBERG: Except that the ability to pass on additional costs. We'll use fuel as an example. As the price of aviation fuel was going up under the essential air service contract, Big Sky Airlines was not able to pass along that cost in the cost of their ticket. And so there seem to me an indirect additional cost to those that provide essential air that wouldn't be covered under this proposal.

ANDERSON: Well, they take as a carrier, just as Northwest takes as a carrier with its other commuter subsidiaries under the formula. And the passing on of fuel prices is the same whether you're American Airlines or Big Sky Airlines. So the bottom line is, I think the formula that we've provided for allocation of the grant and the loan guarantees is a formula that treats everyone equally based on size.

Now, your questions with respect to essential air service I think are legitimate questions. And I think the whole issue of our essential air service program in the United States is an issue that should be revisited.

REHLBERG: So Mr. Mullin or Mr. Parker, are they adequately considered within your proposal from your perspective? Or should we have some additional separate or earmarked support for regional carriers or those that provide essential air?

MULLIN: In my opinion, they probably deserve more consideration. I think that there's no question that as we go through our own -- look at our routes where we fly that those thinly populated routes which don't generate much traffic tend to be questionable. I think that the offset to it continues to be the continued infusion into the marketplace of the regional jet. This is a technological innovation that really wasn't there five years ago and we are -- most of us are taking very large orders of those, which from my standpoint, while we might have to go back and talk to some of the large manufacturers like Boeing or Airbus, I would not conceive that we would be stopping our flow of regional jets. And they are uniquely tailored to serving the kind of market that you're discussing.

And we at Delta into Montana have had a program going with Sky West particularly to continue to develop and cause that to flourish. So I think it's not -- the direct answer to your question is we're not down to the level of detail where I could give you a firm answer that that has been adequately considered. I think from your standpoint in Montana, it is something that you should be concerned about. We'd be happy to work with you on it. And you have at least some hope I think with the regional jet around that somehow we can work out something here.

REHLBERG: Mr. Parker?

PARKER: I agree.

REHLBERG: I apologize. I don't know if Alaska Air...

J. KELLY: Alaska Airlines, Alaska Air Group owns Horizon Air, so when I sit here, I'm speaking for both entities. And I would agree with Mr. Mullin that in terms of the formula, that works fine for all of us. We all agree and all the regionals that we represent agree to that. The other side of the equation that Mr. Mullin was talking about is one where the regional carriers are going to be hit even harder than we are proportionately.

Now, we fly in markets because we want to fly there. These are cities we want to serve and we want to maintain the service. And the question is going to be revenue expense, and that's something we're going to have to look at.

REHLBERG: Thank you, Mr. Chairman.

YOUNG: Thank you.

Mr. Kennedy?

KENNEDY: Yes, and thank you for your 4.5 hours with us. And I'd like you to pass on our appreciation to your employees. Nobody flies more than your pilots and your flight attendants, and their confidence in coming back to fly has really inspired us all, so we have to thank them. And I'm happy to report to Mr. Anderson that my plane was over two-thirds full coming back from Minneapolis.

ANDERSON: Thank you.

KENNEDY: As a businessman who has a high degree of faith in the marketplace, I'm not usually anxious to look at whether or not we should be supporting private industry. But we as a government did ask you to shut down and stay shut down for four days, and this deserves our attention.

And I would too echo how important the airline industry is to all businesses, big and small, and not just in the travel and hospitality, and for the few days that I was home, I clearly heard that.

I'd like to ask a couple of questions, though, about the guarantee itself. And first of all, what kind of term do you expect that guarantee to be having?

MULLIN: We haven't really worked that out. We've been talking about, as it's fundamental terms, sort of a 10-year term with a market-based rate of interest as being the fundamental components.

KENNEDY: So you would see this as having a 10-year term. When one set debt would expire, then the guarantee would roll away and not be renewed?

MULLIN: Yes, I don't think we've gone much beyond that in terms of -- and I think this is one that we would have to work out with the federal government. I know the Department of Transportation has got some serious concerns with respect to design as to how this would work. And we had some questions from Ms. Tauscher, I guess, Congresswoman Tauscher on the subject of what form this would take. We're into a complicated design topic which we need to get resolved. But I think that for our immediate purposes here, if we knew we were going forward with the $12.5 billion loan program, I don't think it would take a long time to deal with these design issues, but we still have yet to do those.

KENNEDY: So if in a best-case scenario your loss was $17.5 billion or incremental loss, we're really reimbursing you for $5 billion of that, but helping you spread or finance the other $12.5 billion over a 10-year period of time.

MULLIN: With the obligation to pay that back.

KENNEDY: And as a former chief financial officer, my job was always to worry about the worst-case scenario.

MULLIN: Yes.

KENNEDY: And I know you're just asking for numbers that reflect the best-case scenario, but given that base-case scenario worst-case scenario is still possible, would this be better off if it were 50 percent of the loan or 75 percent of the loan guarantee, so that it could cover the base-case or worst-case scenarios?

MULLIN: Well, there are a series of ways to handle a best-case and worst-case. Some of you may know that I spent five years with Conrail, so I actually have had experience with a situation that stemmed from the disaster of the Northeast railroads in the 1970s. And we went through a similar kind of financing deliberation as we're having here. And I remember the secretary of transportation at the time asking us to take the approach that we have done here, which is to stretch ourselves with respect to it. Which is what we've come back and asked you when we use our so-called optimistic assumptions. Another way of saying that is we are stretching ourselves.

Now, I think everybody in this -- I haven't heard a single congressperson in this session say that air service is not essential and vital to our economy. So we're going to do our darndest to get through this and live within the financial parameters that we have outlined today.

But in Conrail's case, actually we had to come back one. And if we had to, we'll come back, but we sure would want to avoid that if we possibly could.

KENNEDY: Well, we thank you for you testimony today, and we'll look forward to making sure that we keep that essential airline flying. Thank you.

YOUNG: The chair recognizes Mr. Oberstar for closing comments. We're getting near the end, gentlemen.

OBERSTAR: Thank you very much, Mr. Chairman.

I first want to say that the ranking member of the subcommittee on aviation, Mr. Lipinski, was unable to be here today due to family obligations, and it is very, very regretful that he can't be here.

Second, although Fred Smith has left, I just want to say his presence at the table is the longest period of observed silence from Fred Smith in my memory.

(LAUGHTER)

MULLIN: We had to work on that.

(LAUGHTER)

ANDERSON: That's probably why he left.

YOUNG: He was excused.

OBERSTAR: The response to the question raised by Mr. Boswell about general aviation -- the ground-stop order on general aviation will keep law-abiding pilots on the ground. It doesn't do much for anything else.

Security can't wait for separate action. It must be a part of this package, and we have to have our staff working on putting those two together. Costs have been raised, and I don't think that Mr. Kelly's response was comprehensive. Early on, I asked whether declining expenses were included in your projections of the $12.5 billion of losses subsequent to September 30. I just want to clarify that in fact you have calculated declining expenses due to declining service in those estimates.

(CROSSTALK)

OBERSTAR: Is that correct, Mr. Mullin?

MULLIN: Yes. In the estimates that we have given you here of the $17.5 billion, we have resumed a steady state type of operation as it pertained prior to September 11. That's what generated the $24 billion. And so in effect, the further cost reductions are associated with going to the $18 billion-type number. We are going to have to engage in a substantial cost reduction program to operate within those so-called optimistic assumptions.

YOUNG: The chair thought that that was brought to bear when you responded to Mr. Carson.

MULLIN: Yes.

OBERSTAR: But there were other questions -- other responses, I thought, were not...

The issue of executive compensation has been raised, and has also made a Wall Street Journal story. Now, I know from my recollection that early this year, this spring when Mr. Anderson and Mr. Steenland were promoted to CEO and president, respectively, they gave up or deferred pay increases in base salary until a management team would review and make recommendations next year. There was already a payroll reduction plan in place.

But because there is a perception -- and I appreciate the answer that you have given, Mr. Mullin and others about your -- I think that we may face some limitation on compensation in order to put this package together, and that there might be some language that would limit pay of executive -- or limit executive compensation to the 12- month period preceding September 11, and limit severance pay or other benefits that would exceed some factor of that basic compensation.

MULLIN: I'd say certainly we would talk to you about whatever kinds of terms and conditions you would want. But given that most of us operate on incentive compensation, obviously it's going to be a wipe-out. So by that comparison...

OBERSTAR: You've already made that clear.

MULLIN: ... I'd say we're going to be bearing with a considerable amount of pain. And I would expect adjustments to take place as well.

OBERSTAR: I would also observe, however, that in the Chrysler package, there was a proposal for an employee pay freeze.

OBERSTAR: That was 300,000 employees. And it was rejected both in editorial comments and in legislative consideration by the Congress in 1979. I served here then, and I recall it very well.

One final thought. Chrysler had 300,000 employees at risk in 1979. Had the Congress not come to the rescue of Chrysler, it was estimated that the layoffs would have increased the unemployment rate one full percentage point in 1979 -- 300,000 employees.

We have 1.2 million airline employees, probably 800,000 to 1 million airport employees. If the industry goes into financial liquidation, I would envision unemployment going up 2 to 2.5 points with the resulting draw-down of unemployment insurance payments, reductions in Social Security and Medicare payments into those trust funds, and the outlays that would be required for disability compensation and employee severance costs that would -- and of course the reduced ability of employees to make purchases in the economy -- would put the national economy into a tailspin.

MULLIN: I don't know how much study you put on to that, but I would agree with you, the general thrust of your remarks. I would only add what Mr. Isakson had said in terms of those tax payments. I think that's the only element that you missed in your statement there. The consequences are incredible.

OBERSTAR: Well, the industry is already putting $20 billion in taxes into our system. I observed that earlier today.

Thank you very much.

Thank you, Mr. Chairman.

I appreciate your testimony today. We will continue to walk with you on this and with the executive branch and hope that we can have a package on the floor by week end.

MICA: Let me yield to Mr. Boehlert for one quick question.

BOEHLERT: I just want to thank all of the witnesses for your testimony today. Some people may consider it unusual for somebody to thank someone for asking them for billions and billions of dollars, but you're doing very important work. And the professionalism that was evident in your testimony -- we're not making a lot of emotional arguments; we're very pragmatic. We're dealing with this in a forthright manner. And I want to say to all of you, we thank you for serving as a resource to this committee.

MULLIN: Thank you, sir.

ANDERSON: Thank you.

J. KELLY: Thank you. Appreciate it.

ANDERSON: Appreciate it.

MICA: I want to thank each of our panelists. Our heartfelt expressions of sympathy go out particularly to the men and women of United and American Airlines and others -- family and relatives who had horrible losses, personal losses last week.

We have tried to expedite consideration of this package because it does have a tremendous impact. If we've learned nothing else, we've learned of the rippling effect throughout our economy and other business, industry, tourism, travel -- what really makes America go.

So we look forward to working with you. We will try to keep this on fast track and look forward to again working with the administration, both sides of the aisle, and the Senate in a unified effort.

There being no further business, we will let this panel be excused and call up the second panel.

Mr. Oberstar also moves that the record be open for a period of 30 additional days for additional statements by members' submission to the record of additional information or data.

Calling the second panel -- and I'm going to ask folks to please leave without conversation. If we could go ahead and clear the committee room. We do have three additional panels. We have 75 members, the largest committee, I believe, in the House of Representatives or Congress, and everyone wants an opportunity to be heard.

(CROSSTALK)

The second panel consists of Mr. Kerry Skeen, chairman and CEO of Atlantic Coast Airlines, representing the Regional Airlines Association. The other panelists on the second panel is Hillis L. Harris, chairman and CEO of World Airways, representing National Air Carriers Association.

I want to welcome both of the panelists. Thank you for your patience and understanding. We do want to hear from, again, as many people as aviation industry as possible. And we will now recognize for opening statements Mr. Kerry Skeen, chairman and CEO of Atlantic Coast Airlines.

(CROSSTALK)

Mr. Skeen, welcome and you are recognized.

SKEEN: Thank you very much.

Mr. Chairman, Mr. Oberstar and distinguished members of the committee, thank you for inviting me to appear before you today.

I testify before you today as chairman and chief executive officer of Atlantic Coast Airlines. You may not know Atlantic Coast because we partner with Delta Airlines as Delta Connection, serving the LaGuardia and Boston areas of the country. And we also serve as United Express in another operation of our holding company as United Express at Washington-Dulles.

Total, we have 118 aircraft, provide service to 66 cities, and we employ over 4,000 people. Most of them reside right down the road in Northern Virginia, where our headquarters are at Dulles. So our bases are Washington-Dulles, Boston, LaGuardia, so we have certainly been touched by the actions of the past week.

Before getting into my formal testimony, I would like to echo what has been said many times here today, and that is the employees of Atlantic Coast Airlines, we do extend our most sincere thoughts to the victims' families, rescue workers, and also the employees of United Airlines and American in terms of those lives who have been changed forever by the acts carried out last week. Our employees live and work in this area and none of us will ever forget this tragedy.

There's been so much dialogue today and I have been here for several hours, I am going to cut my presentation short and make comments on things that I have heard today. I think you would probably appreciate that. You have my printed testimony. Please refer to that.

MICA: Without objection, your entire statement will be made part of the record. Please proceed.

SKEEN: So we move into basically my ad-lib part of my presentation, if you will bear with me here.

I'm the founder of the company. And I've heard things here today about the employees side, participation. I have a big stake in how our company performs since the tragedy. We're a publicly traded company on the NASDAQ. Our stock is down. Don't know what it's doing today. It opened lower. It's down about 50 percent from where it was before the tragedy. Atlantic Coast Airlines has really been a high flier. And you can take that as a pun also.

Our company has grown the last five years at a compounded annual growth rate of over 35 percent. And I'm very proud of the track record we have in returning that wealth to our employees through numerous profit sharing and incentive plans to all of our employees that participate -- they all participate -- as well as our shareholders.

So when we talk about has there been pain incurred by the management and employees, financial pain, yes -- that answer is a very loud yes. Also in terms of my particular case, since executive compensation has been brought up, our board met yesterday and the top five executives of the company did agree to a pay cut, as well as we suspended all bonus compensation, even bonus compensation to the senior group that we had already approved this year. So there is real sacrifice being made. And we don't do press releases over that. It's something we share with our employees and we share with our partners at both United and Delta.

The story that I think is real relevant to this group is the regional jet phenomenon.

SKEEN: And you've heard me speak before you on other occasions and we are a part of what has been one of the most remarkable transformations in this U.S. transportation industry, and that is regional jet technology coming in and replacing turboprops. I was happy to hear -- I'm really sorry we've taken so long today, because so many of you flew in on my airline, from the comments from the gentleman from Charleston to Knoxville to Bangor -- all those were, even though they probably didn't know it was Atlantic Coast because the airplanes either had a United paint scheme or a Delta paint scheme, but that was Atlantic Coast Airlines.

So I regret that it's taken so long because you should get out there and fly some more because it is very difficult to see the drop in passengers, and it is real and you've heard that today, and I won't say any more about that.

But on the regional jets, we operated last year -- we had 60 turboprops in our fleet. We're on track by the end of 2003 to be totally phased out of those turboprops and replaced with regional jets. We have 81 regional jets on firm order today to complement the 77 we already have. And my biggest fear because of this crisis that faces this industry is it is going to be difficult to finance and insure those regional jets, which means loss of service to smaller, mid-size communities that we specialize in.

I was glad to hear Leo Mullin's comments, since I am a partner of Delta Airlines, and his bullishness on the value of the regional jets to the Delta system and his desire that that will play a major role in helping Delta return, hopefully to profitability. So I'm very pleased with that. But our ability to finance those aircraft, as well as insure -- we're already had three of our aircraft financings fall through since that last week, where we had commitments from credit committees before we had gone to contract that called and reneged or backed out, whatever you want to call it, of that commitment. So it is real.

On the insurance issue, that is real to us as well. We are very concerned. We were notified yesterday of notices for cancel and rewrite of our liability insurance. Huge increases in rates coming our way. And the magnitude of a small carrier -- I've got to read my notes to make sure here -- I've got to refer to my script a little bit -- you're looking at a carrier the size of Atlantic Coast Airlines that our insurance on liability, not hull, is approximately $2 million this year. The rates being thrown around, and we haven't seen anything firm, but increase that to $8 million next year. Staggering. And we're not even sure it will be available in the capacity that we need. And so there is a real fear, real crisis, and that is one area that I encourage you to really step up and assist. And I heard very positive things earlier today.

The other issue is loan guarantees, which has been talked about, so I won't go down that path, but obviously that is needed to ensure that the regional jets can continue to be financed. The security issue was the third point that I'd like to reinforce, but again that got a lot of dialogue today, so I think enough has been said. But the security -- we have to get people flying again, and that is really if we can get over this immediate financial crisis, we're not going to get over it if people don't have confidence in the system.

So it's very important that we all do our part in trying to make the American public feel safe about flying, and hopefully start beginning to get positive, maybe more level representation from the media in terms of what's going on in the airports. Because it's not all gloom and doom in terms of long lines everywhere you go. I went out and flew Friday and Saturday to see our employees as well as see it first-hand, and yes, there were some inconveniences, but I was really pleasantly surprised at the lack of problems that I incurred in terms of delays getting through the airports.

It has to improve and we've got to be able to demonstrate and convey that to the traveling public, because not only is it security, we serve a lot of markets that are just 1 hour or 1.5 hour flight away. If they think they have to get to the airport two and three hours ahead of time, they'll get in their car, which is documented the more dangerous mode of transportation, and drive to where they're going instead of flying us, and then the resulting losses that we've talked about, the multiplier effect, when our industry does not do well.

So with that, I had a very cohesive presentation, but I felt emotional to just kind of rattle off things that I heard today, and kind of tweaked my interest. So again, thank you very much for allowing me to be here, and I will conclude my remarks.

MICA: Thank you, Mr. Skeen.

We'll hear now from Hollis Harris, chairman and CEO of World Airways, representing the National Air Carriers Association. Welcome, and you're recognized, sir.

HARRIS: Good afternoon, and thank you, Chairman Mica. I was going to recognize Ranking Member Oberstar, who I've known for many years in the industry, even though he's not here, and to all of you other distinguished members of the committee.

I'm Hollis Harris, as has been said, and CEO of World Airways, with our headquarters now in Peachtree City, Georgia, a suburb of Atlanta. And joining me here in the audience is Tom Corcoran of one of our NACA carriers, Gemini; and Mr. Ron Priddy, who is president of the National Air Carrier Association.

So thank you, as all the others have said very sincerely, for holding this hearing and for what I know is great concern on your part and support for what is a grave hour in our aviation history.

I've been in the aviation industry for more than 47 years now -- 36 years at Delta with three years as president; over one year at Continental as chairman, president and CEO; and I was the CEO and president of Continental Holdings; five years as chairman and CEO of Air Canada; and over two years now as chairman and CEO of World Airways. And in my entire career, this certainly is the most serious crisis that the industry has faced, and I think arguably you could say it's the most serious and the worst in the history of civil aviation.

In the interest of time, and as Kerry has said, I'm going to not cover everything because it will be in the record, Mr. Chairman, I assume, and we have turned in my comments. And so I'll pass over the background I had on World Airways. It is in there. And I will go on.

I have been asked by my fellow National Air Carrier Association boardmembers to represent their concerns here today in this hearing, in addition to my own. World is a long-time member of the nation's Civil Reserve Air Fleet program, as are most of the other carriers of NACA. And it's fair to say that these carriers are the backbone of the military's peacetime and contingency airlift system. We are providing whole airplane charters to worldwide destinations.

And we are all proud of what we've done in the past in our airlift response during the Persian Gulf War, and we stand ready to support DOD when we identify and locate the current enemy.

What are our concerns? We have many concerns stemming from the terrorist attack last week, just like our associates. We are focused primarily on security, insurance, lack of revenue, lack of capital, and our people. The security, we are concerned that travelers have already lost and will not get back their confidence in the industry's ability to provide safe and secure air transportation, certainly not in a timely manner. And in the initial aftermath of the terrorist attacks, we collectively participated with the Federal Aviation Administration to plan and implement changes, just like the big carriers did -- changes to our nation's security system for all of the airline industry.

And so in (inaudible) time and because of the support and the attention that was given here, and the people we worked with, I comment Secretary of Transportation Norm Mineta and the FAA Administrator Ms. Jane Garvey for the prompt responses that they have made to re-start aviation operations. I think we are indeed fortunate to have their leadership and experience during this time of crisis, as well as all of yours.

Much, however, as we have said and heard here today, remains to be done. But we support the federal government assuming some of the responsibilities for securing U.S. airports. But we are in favor of a surcharge as has been discussed here today. I think that would one way that would be correct for everybody who uses the system to help pay for the cost of ensuring the safety of the entire operation. But carriers still need financial assistance to recover from the expense of implementing these emergency security measures that we had during last week and are ongoing.

As far as insurance is concerned, we worry that the industry will have very real difficulty with the availability and affordability of insurance, and specifically as has been discussed, war-risk, but some of the other coverages also.

HARRIS: The insurers who provide liability, war and allied perils, aviation insurance coverage have given the seven days notice as of next Monday night, Greenwich time, September 24th. And the insurers have indicated that they intend to offer reinstatement of the coverage prior to the expiration date, pending a modification of the coverage.

But in order to reinstate the coverage, an airline must agree to a special surcharge of $1.25 per passenger and changes in the scope of coverage. And we anticipate that the changes in coverage will be a lower limit primarily for third party bodily injury or third party property damage.

And separately, we expect to receive similar surcharges and changes in scope of coverage as it relates to the whole all-risk insurance. We expect, some of us, our passenger charter carriers and some of us are cargo at the same time, and then we have some members who are just full cargo. But we expect a similar adjustment in the cargo side, and we all should receive an update on the status by sometime tonight, we have been told.

But as Kerry mentioned the numbers relative to his operation, we think that they are going to be four to five times and in one instance, 10 times more expensive than what we have been paying prior to September 11.

We believe that we are fortunate that Congress has already provided laws for emergency assistance in these types of circumstances. And of course, as you know, the law requires the president to make a determination that insurance is not available or only available at extraordinary prices. And in a letter from our organization, the NACA, in a letter dated September 16, we asked Secretary Mineta to initiate that action. And we provided your offices and the minority staff with a copy of that letter.

Unfortunately, as you well know, there are shortcomings in the law that we need your assistance in fixing. There is no coverage for domestic flights, and there's too little money in the insurance fund to cover modern aircraft whole loss -- just one.

Also, we believe there needs to be expanded authority as to the actions that the administration may take. Specifically, we believe the government should be able to cover these significant increases in premium with direct payments to the carriers, which then would pay the premium to the underwriters. In than manner in our opinion of one way to do it, we are not providing government insurance in these extreme circumstances.

On the other hand, where underwriters will not provide coverage, working with the program could provide coverage and must provide coverage. And we are currently working with the Aviation Subcommittee staff on this subject -- we, the NACA.

Obviously there are other approaches you could take, like passage of a law that would, or expansion of the law that would relieve some of our suppliers and so forth, such as airplane lessors and so forth, of the liability that they would be faced with.

On the revenue side, we are as concerned as the big carriers that the recent loss of business revenue during the grounding of the industry will have reverberations that imperil the safety of many carriers. We must ensure the survival of the industry in order to support the military, as well as the civilian needs for air transport.

In a contingency, more than 95 percent of all military passenger movements and approximately 40 percent of all cargo airlift are handled by civil air carriers in the Civil Reserve Air Fleet. We must preserve that partnership and capability.

However, the current financial condition of the airlines that are now in the Civil Reserve Air Fleet operating mode are in jeopardy of going out of business -- some of these. We were in jeopardy at World before September 11 of running out of cash. And we set out to help ourselves by going to our lessors -- and this subject has been discussed here today -- to get all parties involved in the pain, we went to the lessors to reduce rates.

On two airplanes we have from Boeing, for instance, they have agreed to negotiate with us and we are talking about a significant decrease in rate for up to one year. And they have agreed to negotiate with us without putting us into default, which is of great significance to us. That was before September 11 -- now with the loss of revenue in our group from September 11 to September 14, then the situation and the probability and possibility of running out of cash before the end of the year, which we cannot allow to happen, is even greater.

And so we are concerned that as that situation has gotten greater, that the investors and other means of getting capital into the whole industry, but certainly into our company, some of these small companies, is a major problem.

And for that reason, we agree with the large carriers that in addition to some immediate relief like the $5 billion that has been mentioned, we need some sort of loan program at something like zero to 3 percent rates, which would be the Federal Reserve window rate, and no payments on premium for 36 months -- some program like that.

And the amount of the loan certainly would vary by carrier, but you could provide a line of credit for up to 25 percent of the gross revenues that were projected before the terrorist attack, for the next 12 months of operations. And if you look at that, obviously focus on what some of the previous panel said, that that is something we're going to have to obviously pay back.

And finally, though, and of most importance, we remain worried about all of our employees and their families if relief is not immediately forthcoming. Because if some people run out of cash, all of you know what the results would be.

And I realize that labor has already spoken here today. Mr. Hoffa testified this morning. But I do want to point out to you that all of the NACA member carriers do have collective bargaining agreements among most of our employee groups. World Airway pilots and flight attendants are Teamsters, and some of our other members are represented by the International Brotherhood of Teamsters, and three NACA carriers are also represented by the Airline Pilots Association. And then there are cabin attendant unions as well.

I point this out only to emphasize the far-reaching impact that this crisis has had on the people of this country. And as Leo said, this is not just a business problem. It's a very personal problem for many of our employees. Unfortunately, the big carriers and some of the small ones have already announced layoffs. And if we do not get help soon, the situation will demand that other carriers do the same.

At this point in time at World, we are not contemplating across- the-board layoffs except on a seasonal basis. Starting October 1, through December 1, we will furlough 130 flight attendants.

We have 1,030 people in our company. Over 400 of them are flight attendants. And during the winter it is somewhat of a seasonal requirement that we furlough some, but we are looking as we get this operation back up to full speed, to bring them all back by April 1.

So to summarize, we need to take immediate action to expand the government's authority to respond to these unique and critical circumstances. We support the administration's approach on these issues. And under that expanded authority, we support the direct payments to air carriers for insurance, security and the other critical business needs, as well as the establishment of a loan program to ensure the viability of the aviation industry and its support of America's response to this acts of terrorism and war.

One last request -- when you are considering what you are going to do, please do not get us little people, especially the thousands of people who work for the little operator, and keep in mind that the small operators in NACA play a big part in the support of our military.

And I thank you for your time.

MICA: I thank both of you. I have just one question, and it really deals with your last statement, Mr. Harris.

MICA: The little people or smaller air industry players, you both feel comfortable that the legislation that's drafted has the potential for assisting both of your interests, both as far as there are two parts to that, one is direct compensation; second part is the longer-term loans. Do you feel like you're adequately covered, Mr. Skeen?

SKEEN: I'm glad you asked that. The pain experienced by the majors that they so well documented today, you know, there is pain at the regionals as well. We had the same impact as they had, just it's all relativity. So I think it has been a fair approach.

For us, our concern is obviously our own company and the financial threats that we have now because of this crisis and the losses that we've incurred this past week, just kind of short-term from not flying, as well as the impact on future revenue streams because of the lack of confidence in the transportation system.

But our biggest concern really, because we are a feeder network for our major partners, is the majors have to survive. If the majors don't survive, then obviously we're not going to be around and there's going to be a lot of other bigger problems here for us to deal with in this nation.

So yes, we are comfortable with the language as we have seen and what I heard today. I think just to reinforce, is we just want -- and I think we heard this today -- that the regional carriers should participate in whatever assistance is provided, and the mechanism would be based on an ASM -- a proportionate level, even though we're at the very low end of that food chain, we think that is a fair process as long as we're participating on that proportional basis, we think that's a fair way to do it.

MICA: Mr. Harris?

HARRIS: I think we at World can go along with the proposal on the basic $5 billion, an ASM basis because we at World, we are flying for the military, MD-11s and DC-10-30s, so we have 400-seat airplanes making 12-hour-plus flights for them in the Pacific. Some of the small carriers like us are going to have more problems on the cargo side -- our cargo part than Fred Smith mentioned. And I think he would even agree, if he could have gotten away with it, that probably he would rather have gone to available ton-miles rather than revenue ton-miles, which I think he's been talking about. But he can handle that better.

But our, like Gemini, who is an all-cargo carrier, I think they may not be as well taken care of in that formula as would, say, FedEx. I personally would have gone to a different formula, but I think we, World, can live with the one. I would have gone to the 10K filings to take revenue, instead of available seat miles. Available seat miles certainly helps the major carriers.

But we will support what they're doing, but please remember that we are even below the pecking order of Mr. Skeen here. So we will -- probably your package as we see it will work out to there being probably a fair amount when it gets down to the bottom of the list on the basic infusion of cash to make up for the lost revenue, and then hopefully there will be something that whatever formula you come up with for loan guarantees would be helpful to us also.

MICA: Thank you.

Let me yield now to Mr. Sandlin.

SANDLIN: Thank you, Mr. Chairman.

Let me say first that I appreciate the critical part that the smaller airlines and the feeder airlines play, and we certainly recognize. And I fly to Texas twice a week and go through Dallas and Shreveport, Louisiana, and I'd like to say that I experienced the same thing you did -- no delays, no problems, maybe a heightened awareness of security, which is important. And I would like to say thank you to those employees at the American Eagle in Shreveport, Louisiana, doing such a good job, and all the folks at that airport, and at the DFW Airport, special services in particular and others that made our trips helpful.

You have not talked and we have not talked much about liability today, and I know that's not an issue. It was brought up earlier, but I know you have experienced both in big airlines and small airlines. Is there any advice you could have to us on how we could work together as an industry and as a Congress to provide relief to the families and the victims without further victimizing the victims? Do you have ideas in that regard?

HARRIS: Well, are you talking about now the victims on the ground?

SANDLIN: Yes, sir.

HARRIS: I think the insurance, as American said, the basic insurance that we carriers have had would take care of the passengers and the victims and so forth on the airplane, but I don't know the answer to the third party body and third party property. It is so vast. I don't know exactly where you have to draw the line there.

SANDLIN: Do you think some of the money that we've set aside to help the airlines, and certainly we want to help the airlines, should some of that be set aside for a claim fund by the victims? Would that be something to consider or not?

HARRIS: Technically, I'm sure you could put it in the bill and it could be set aside. I don't know -- I really don't know if it's workable...

SANDLIN: OK. I'm just asking.

HARRIS: ... because of the large number of people involved.

SANDLIN: Right. I'm asking for your advice, too.

SKEEN: My comment on that, if you don't mind, would be that we played a small part in scrubbing some of the numbers that you heard today from Leo's presentation. And those type of funds are not in the kind of scaled-down request, as I understand it. You would have to check with someone from ATA, but that is my understanding, that those numbers were not built into Mr. Mullin and ATA's model.

SANDLIN: I think that's correct, but I was just asking generally, without getting into dollars, if you had any ideas, and you might want to think on that and talk with us later. I didn't want to pin you down on numbers or ideas, but just something that you might come up with creatively or otherwise to address it.

And I'm interested as we go forward, do you feel like -- are these hearings beneficial to you as an industry -- the hearings we're having today, to the discussion and the debate?

HARRIS: It's interesting that you have given the opportunity to the small carriers that are represented by the National Air Carrier Association. Yes, I think they're benfeficial.

SKEEN: Yes, I think they have been, too, especially since I'm a partner to Delta and I got to hear some very encouraging things from Leo today about they're not wavering on their commitment to the small communities and the role the regional jets play. So actually it was worth every minute I squirmed in my seat back there in the gallery.

SANDLIN: Did you all get to talk with the major, larger carriers last week as this happened, as far as your input or whether or not if you had suggestions on what might...

HARRIS: We or some of our representatives were in various meetings with them. So we got to make some input like the meeting that was held tomorrow with most of these guys up here. We had these two gentlemen were at the White House, so we've had opportunities to participate. But we haven't been in the calculations.

SANDLIN: In fact, since we've had an opportunity -- I want to make sure we're using our time well -- since we've had an opportunity today and we may have other days to discuss these issues in great detail and get input from the industry, both large carriers and small carriers, and we'll hear from labor and others additionally. It's quite likely to assume you will have more relief and a better bill and better legislation than you would have if we had rushed to judgment. Is that correct?

SKEEN: I wholeheartedly agree. I think this has been very beneficial, and it's been a two-way street and I think I have witnessed that with the panel that preceded us. I think it's been very helpful, and hopefully it's been somewhat enlightening to this audience as well, and hopefully we both benefit from that, and the flying public and the American economy will benefit from that.

SANDLIN: We're nearly out of time. I see the light going. But I think this complete discussion -- we appreciate your input; it's helpful to us in learning how to help you and make the airline more stable and protect the workers to have jobs, and protect the public in flying. And I think you would agree with me that it's in keeping with President Bush's desire to move forward in a focused way, to examine all of the issues that are before us, and to come up with a good long- term solution to these plans. So wouldn't you agree with that?

HARRIS: I agree that it has probably been more beneficial to us than anybody -- the little carriers, not having done something too rapidly last week, although some said it might have helped the stock market.

SANDLIN: Well, we're out of time. I appreciate your answers. Thank you all for coming, and it's critical to us to be of assistance to you.

MICA: I thank the gentleman, and recognize at this time Mr. Boehlert.

BOEHLERT: Thank you very much.

I'm a little bit sorry that your testimony comes in the fifth hour of this proceeding because we're talking about the continued viability of the U.S. air transportation system.

BOEHLERT: And the regional air carriers, and the members of the Air Carriers Association are a very vital component of that national system. It's not just serving New York, Los Angeles, Chicago and a few major urban centers. It's all America.

Let me ask, and I'm pleased to hear, Mr. Skeen, particularly your comments that you feel that your needs have been addressed, not just in the package that is proposed by ATA, but in some of the comments made by Mr. Mullin and others. And they're giving consideration to you.

Let me ask you, the insurance question is something that concerns every single person. And I'm wondering this, is the threat or promise or whatever it is of the dramatic increase in your premiums from $2 to $8 million, I believe you said...

SKEEN: That's right and that's just liability, not even hulls.

BOEHLERT: Just liability -- was that sort of a back-of-the- envelope calculation or was that really thought through? My point is this, one of the things we all acknowledge we have to do is pay attention to security in a very precise and very specific and very thorough way. It has always been my experience that when you increase security, for example in a home, if you increase the security of your home against fire and install sprinkler systems for example, your rates go down.

Is the insurance industry indicating to you that they are factoring in the determined effort on the part of the Congress and the carriers to dramatically increase security? Therefore, it would seem it would reduce the risk. Are they factoring that in their projected rate increases?

SKEEN: Well, it's hard to speak for their methodology, but obviously they've just incurred very substantial losses. So I think what we have been notified of is it would be in the form of potentially an immediate surcharge of roughly $1.25 cents per passenger for the liability. So it was really not a back of the envelope. It's a pretty easy thing to do because it's based on the passenger. So you project that through next year and it does represent the increase of $6 million on a base of $2 million.

BOEHLERT: You know most of the five hours we've had today understandably have been devoted to the financial situation and the need for immediate action to sort of extract ourselves as much as possible from the crisis nature of that financial situation.

We're going to have hearings. Mr. Mica's subcommittee will be having a hearing I believe Friday of this week on security. I am committed to the proposition that we have to give serious thought to federalizing security at our nation's airports. I mean the present system, particularly it impacts on regional carriers. The present system is sort of a makeshift sort of a system. We don't have a high degree of professionalism involved in security. It's hit or miss. Some airports are outstanding. Others are not. And in most cases, it's not extensive professional training.

We're talking about lower wage-scale personnel and lower wage- scale personnel can be just as dedicated, just as committed as anybody else, but they don't have the training or the experience. This whole idea of federalizing airport security, is that something that you would care to address for me?

SKEEN: We support that 100 percent. In fact, it's in my printed testimony that we serve -- you know, our bread and butter is serving smaller communities and the resources in those airports obviously are limited is what you will see in maybe the larger hubs. But it's just, you know, it really makes so much sense because it's really the law enforcement -- our federal government that holds the intelligence information really. That gets passed off then to the FAA and that gets passed off to the airlines that are potentially doing the screening or contracting for the screenings. So it is a very cumbersome method if you are looking at just the effectiveness of actually doing what it's intended to do.

But I think of all the things you've heard today in terms of raising the caliber of the individuals potentially, training -- those things. I think they're all needed, and I think you need one central control point. And I do believe that role should be done by the federal government in terms of protecting our customers.

BOEHLERT: Mr. Harris?

HARRIS: I think some of the basic concepts or tenets of government in the whole world is to provide security for their people. And going back to my (inaudible) days when we first introduced this kind of system where the carriers pay for it, when I was at Delta, I think now and I thought then, it would be better for the airport or some agency other than the airlines. And I think the federal government, like it is in European countries, is the place for it to be. But the next step is, I do support getting the populace who is using this system to help pay for that.

BOEHLERT: Well, I just happen to think that the first obligation of the government is to provide as much as humanly possible for the peace and security of the people.

HARRIS: Yes, sir.

BOEHLERT: And that security has been tested as never before, at least domestically, and it's been found wanting. We've got to find a different say.

So I thank both of you. I thank you for your patience sitting through these hours of hearings. But I think we're all engaged in something that's very important for the nation, not just selfishly for your company or selfishly for this committee. It's something that deals with something that's extremely important for all Americans.

So thank you very much.

MICA: The gentleman's time has expired.

Mr. Pascrell?

PASCRELL: Thank you, Mr. Chairman.

I'm interested, Mr. Harris, with what you started to get into, suggesting -- there's a proposal on the table right now in terms of formula and how the money is distributed.

HARRIS: Yes.

PASCRELL: You suggested another possible method. And I was just interested in you putting on the record what you see as the difference between what you're suggesting and what we already have before us.

HARRIS: The one other method that I mentioned was that you can get a public document for all the carriers, which is the 10K, which would give everybody's filed revenue for whatever period you chose, like 2000, which was pre the -- it's more of a clean period -- pre the economic problems we've had this year, and pre September 11.

So it's an easy number for everybody to understand. So I thought it's as good as what they were talking about as far as ASMs, which certainly is aimed more toward the high-end, big airplane operators.

PASCRELL: Right.

HARRIS: But as far as World, since we have big airplanes too, although we are very small in number, we only have 14 airplanes in our fleet now, but they're all long-range and large aircraft. And so we could come out all right on the ASM. In fact, we would probably come out just about the same. But in talking about representing all of the NACA carriers, especially the cargo carriers, I am not sure because I haven't run the numbers on the all-cargo carriers like Gemini, that they're going to come out with a formula, especially if you break it down like they were talking about -- 80 percent, 20 percent on the revenue ton miles.

So I don't say that it's not as good. To me, it would have been simpler to go the other way.

PASCRELL: You heard the first panelists this morning, this afternoon, talk about the distribution money and referred to it. So you're not so sure that what is on the table here before us is the most equitable way to distribute the money. Do I get you clearly?

HARRIS: I'm wiling to support it because I can't prove to you at this point what -- because our numbers, the numbers...

PASCRELL: OK, that's fair.

HARRIS: ... that I have says it's about the same.

PASCRELL: Now, the subject of insurance both of you touched on.

New terms, OK, there's a seven day cancellation. The carrier comes back and therefore is going to work out new terms, new costs with the airline.

HARRIS: Right.

PASCRELL: Hopefully...

HARRIS: Hopefully.

PASCRELL: ... provide a different proposal.

Do you think that the insurance under the new proposal should still cover or should cover collateral damage with victims and properties? Do you think that we should exclude that in order to bring the cost of insurance down? I'm talking about collateral damage, victims on land.

HARRIS: As far as concept, I would say there should be some coverage. And I can give you a personal experience.

PASCRELL: Please.

HARRIS: When we at Delta had a Lockheed 1011 that crashed at Dallas-Fort Worth, we hit a bunch of cars on the final approach, and they were taken care of under the insurance coverage that applied at that time.

I think the underwriters have just, probably rightly so, like some of us in the airline operating business, have panicked at the magnitude of what this whole September 11 thing cost. And so at first, you know, they wanted to just cancel everybody right off. We couldn't operate without that. We would then have had to have some coverage from the U.S. government for U.S. carriers.

PASCRELL: Well, it's a good anecdotal story. And you would agree with me, therefore, that we should not simply in an attempt to hold down costs totally eliminate the concept of collateral damage.

HARRIS: You know, I don't think that the...

PASCRELL: I've heard that from some of the airlines.

HARRIS: But I think the underwriters are, you know, they're talking about under the liability part and third party coverage that we're talking about, that Kerry mentioned and I. They're talking about keeping some third party people, bodies and also property damage in there, but at a lower cap.

HARRIS: But they're going to make us pay for it.

PASCRELL: Well, yes.

HARRIS: And because of that, our numbers that Kerry mentioned there -- he went up from $2 million to the $8 million -- our numbers for just a little carrier like us, and he has many more airplanes and so forth and many more passengers to deal with , but just the liability and the war risk hull insurance for us is about $250,000 a year. And you're talking on the hull war risk going up by five times from like one penny per hundred to 5 cents per hundred. And the liability part, it's going up at $1.25; for just a small operator like us, will go from about $150,000 a year to about $800,000.

YOUNG: The gentleman's time has expired.

PASCRELL: Thank you, Mr. Chairman.

YOUNG: The gentleman from Maryland.

GILCHREST: I thank the chairman.

Mr. Harris and Mr. Skeen, Mr. Mullin on the previous panel said that it is absolutely critical that this issue that we're talking about now -- insurance and liability -- be addressed in your legislation as it is a critical element of the overall financial impact of this tragedy on our industry. He had extensive words dealing with the liability aspect of this. And he asked us to consider the following three proposals, which I would like to ask you to comment on.

The first one is to expand the war risk insurance program to include domestic operations; the second one to include, in such an expanded program, both hull loss and liability coverage; and the third is to employee the Civil Reserve Aircraft Fleet program wherever possible to assist in providing airlines with insurance coverage.

Now, of any of those three that you know something about or want to add to that, we would appreciate your input.

HARRIS: I think we -- I know all three of them, including the Civil Reserve Air Fleet, we agree with that approach under 443 (ph).

(UNKNOWN): There is no Civil Reserve Air Fleet insurance. They use the FAA's insurance program.

HARRIS: Well, as Ron has reminded me, there is no Civil Reserve Air Fleet insurance, but we do use the FAA coverage. We have to list all of our tail numbers that are flying with the FAA and there is, under the present law, coverage for that kind of flying. But in summary to your question, I would agree with those three components.

GILCHREST: Mr. Skeen?

SKEEN: The same. I would agree.

GILCHREST: Any added additions to this?

SKEEN: Not really. I think that their expertise, quite frankly, is greater than my expertise in that particular subject. So I don't think it's appropriate for me to try to add to that.

GILCHREST: So it's your sense that the coverage that that was to some degree recommended this morning on the first panel to the Congress to include in this legislation would be obviously beneficial for the major airlines, and then useful for the size fleet that you have.

SKEEN: Oh, without a doubt. Again, the issue is the availability of insurance; the capacity, you know, and that is a concern that there will be enough capacity. Actually, we were scheduled to go next week over on what's typically an annual road show, where you go overseas and in the U.S. and you try to, you know, get your insurance capacity available to be able to get your policies renewed for the previous year. And it's a long process you go through and you try to, obviously, have more capacity than what you need because then you've got some competition in getting your rates lower, and that is going to be an extremely difficult process this year.

And without some positive move from the government, it may be impossible to have the capacity needed to really insure the entire industry. So that is really one of our biggest concerns in addition to just the cost of the increases going up.

GILCHREST: So you see, besides this initial, if we want to call it an infusion of cash, some type of legislative language to change the federal government's role in the liability coverage of airlines is just as urgent.

SKEEN: Yes, I would agree with that. And again, I'm not as versed in that as is Leo on that panel, so I would really defer to the ATA position on that.

GILCHREST: Thank you, gentlemen.

Thank you, Mr. Chairman.

YOUNG: I thank the gentleman.

Mr. Boswell?

BOSWELL: Thank you, Mr. Chairman.

It sounds good to me that you -- I know you had to put in a lot of hours, but you're in agreement with what was said in the previous panel. I think that you're in full agreement on the urgency, in full agreement on the security measure running in track with this. And I appreciate that.

So I'm just not going to ask questions. I want to make just a statement, Mr. Chairman. The previous panel, I asked if they would answer the question that Mr. DeFazio had asked and then ran out of time. And I think it was Mr. Anderson who gave the answer that, on their buy-America purchases and so on that they made the comment that they did, and I thanked him for it.

But I find out from a piece of paper that was passed to me that it left out some things, like the statement has been made -- and I'll have to affirm this -- but 15 percent of Airbus is made in the U.S., whereas nearly 80 percent of Boeing is made in the U.S. So I just think that as part of the record probably ought to be included for whatever it's worth. I started out just to get an answer that wasn't answered by one of my colleagues.

I appreciate your being here. I might add that yesterday which was unscheduled on my schedule, but I got on Comair and got handled very professionally and got here. I feel like I was checked. My legislative director never went through such a check that he ever went through. Every piece of clothing that he had in his baggage was looked at thoroughly and so on. Anyway, I made the statement in Des Moines, Iowa that I thought we ought to be about our business to fly, that folks in your business are professional and doing a good job, and it's safe to fly.

And so I'm encouraging folks, which I'll continue to do, and I think everybody on this panel is doing the same thing, that let's get back to our business. Take precautions, but we're doing that, but let's get back to business.

I appreciate you very much. Thanks for being here.

YOUNG: Mr. Hayes -- Robin Hayes?

HAYES: Thank you, Mr. Chairman.

I heard you all talking. I got the impression you think we need some tort reform as it relates to the insurance industry and what it costs for the airlines and the regionals. Further comment on that?

HARRIS: What specific part of that are you talking about?

HAYES: Well, you're talking about limiting liability. Liability comes from the people who pursue the extremely large settlements that are a part of our culture at the moment.

Let me ask you the same question another way. Do you think the insurance companies are trying to get us to federalize a portion of the liability insurance for those carriers who cover airlines and regionals?

HARRIS: I'm not sure they're trying to get you to stabilize it, but they certainly are trying to make the carriers pay for the extremely large settlements that they see coming one way or another.

HAYES: I've experienced it in personal liability for aircraft hull, but more particularly liability insurance. I know exactly where you're coming from.

Are you connected with NATA, the trade organization whose umbrella covers Part 135 operators?

HARRIS: We're World Airways and we are on the nonpaying board of the National Air Carrier Association, who represents all of the carriers that we can name, which are people like Gemini here, and ATA and Omni and Challenge Air, and it is a trade organization.

HAYES: Well, we talk a lot about 121 operators.

HARRIS: We're not a part of the 135. This is 121.

HAYES: Do you have a comment that you could add? We don't seem to be specifically talking about them today. The chairman in Alaska knows the importance of 135 operators -- the air charter, air taxi folks. Is their plight considered in the agreements that we've talked about today?

HARRIS: I really don't know. My guess is that I don't think they are. Obviously -- as Mr. Boswell, I think it was, mentioned him being a pilot and everything, he could fly VFR, and had to fly IFR and not VFR and he wanted to get that up. That certainly is hurting an individual operator or the corporate charter operators, the corporate jet flying, and those kinds of airplanes.

HARRIS: But I don't think they are as significant a part of the problem that you're addressing. Because in my opinion, one man's opinion, based on my 47 years experience, there are a lot of other ancillary activities out here that probably are asking you for help. But I think that what the big problem, as it was stated by the other panel, is the attack on the airline industry itself. And if you fix the airline industry, it's the engine that drives all these other things like hotels and rental cars.

HAYES: I understand. We don't have any disagreement. I'm just saying the 135, the air taxi operator who serves as a supplemental regional carrier is also a part of this. And I just asked if you know if they're included in these discussions within the airline industry.

HARRIS: I do not know if they have been included.

SKEEN: But I can add, indirectly yes, because I had to do some homework back here. But the Regional Airline Association has two members that are 135 operators, Scenic Air and Cape Air which flies to Nantucket and the Vineyard. They are 135, and obviously are AA. The Regional Airline Association has been very involved in the input.

HAYES: And of course, they flew under a Tango November designation after the major airlines. There's a rush to federalize security, and I don't have a problem with the concept. The concept seems to me to be standardize and make sure that people who have expertise -- law enforcement, FBI, National Security Agency -- set the standards. What I don't want to see us do -- the federal government is not known for moving with lightning-like speed on different problems, although, we seem to be overcoming that in this discussion today.

But I would like to suggest that we consider making sure that we get the standards out there that people agree on, or adding the additional security. And make sure that people in place are operating up to those higher standards as quickly as possible, while we seek a longer-term solution of whose going to own those agencies. So I simply add that to hopefully move what is a great idea forward even quicker.

And I too appreciate your -- one quick question. Regional jets -- I know they are made in Canada. I know they are made in Brazil. Are there other suppliers?

SKEEN: We're the operator of the third one. It was a little late to the market so it doesn't have the market penetration that the Embry Air (ph) or the Bombardier, the Canadair RJ does. But for Delta, we fly exclusively the Fairchild Dornier 328. And it is an American-headquartered company. The manufacturing is in Germany.

HAYES: Yes, just in Dulles, I remember talking to the...

SKEEN: Exactly, they just moved their North American headquarters from San Antonio to Dulles. Yes.

HAYES: Thank you.

YOUNG: I thank the gentleman.

Mr. Lampson?

LAMPSON: Thank you, Mr. Chairman.

On that same point, Mr. Skeen. You have 81 airplanes ordered, you said earlier, I think?

SKEEN: Yes, we have 81 additional regional jets on order. And we fly 77, I think, is the count today.

LAMPSON: Who will be the manufacturer of those 81 aircraft?

SKEEN: It is a mix between the Fairchild Dornier. We have 32 of those 81 would be the Fairchild Dornier aircraft. Well, actually, we've got four more coming for Delta. So it would be 36 of those 81 would be the Fairchild Dornier; the remainder being the Bombardier, the Canadair Regional Jet, the 50 seaters.

LAMPSON: Basically, none of them are made in the United States though, right?

SKEEN: But unfortunately, there is not a regional jet manufacturer in the United States. But I would go back to the same comments made by the previous panel. The Bombardier -- I don't know what percentage, but they are GE engines, and the Fairchild is Pratt and Whitney, and it's the same Honeywell and the same vendor. So there's a lot of U.S. product, but I couldn't tell you what percentage is on there.

LAMPSON: As a nation, I think we ought to be seriously concerned with that -- really, really concerned. Not with the situation you're in, but the situation that our country is in with not being able to manufacture those things. I can imagine us getting to the point some day that we are looking like we did with our shipping industry, as with aircraft.

SKEEN: And we would welcome the competition to have more suppliers. So we would echo that sentiment.

LAMPSON: Understood.

I spent a lot of time in a lot of airports in the last week, different sized ones, intentionally trying to learn about those in my particular area with regard to security. Because I'm most interested in trying to federalize, because it's pretty much what came out -- the need for that standardization -- but also the feeling that it should be a federally operated activity from just about every place that I spoke and listened.

But one of the things that came out, specific comments that came from people in these different-sized airports is that the biggest need is that passengers have the same experience from airport to airport as they go through the security activities.

You made a statement that regional air carriers are uniquely impacted by additional security measures. Would you talk about that a little bit? Tell me some of your suggestions, but tell me the differences. What is unique about the regionals?

SKEEN: You know, the airports in a lot of the communities -- we serve smaller communities -- and so, the facilities sometimes are a challenge to have just the right processing space. There may be limited carriers, because all the carriers share in the responsibility at the larger hubs. It falls maybe to the burden of one carrier or two carriers at the smaller cities. And so I think the comments that you mentioned and made earlier, is the standardization to ensure that it's the same experience throughout.

LAMPSON: How can you have the same experience, given the differences?

SKEEN: Well, I think it's the standards. And it's, you know, the standards in terms of the equipment, in terms of the personnel, and whatever standards come out of the committee that Mr. Mineta has appointed. They have to. Because really, the transportation system, even though there can be a tragedy here, the individual that caused that tragedy could have boarded in a very small market or a very large market.

LAMPSON: And could there be potential difficulties for us to put the same kind of equipment in a little-used airport some place that would give us the same information as in a larger airport.

SKEEN: When we get into the technical aspect, I'm treading on thin ice just in terms of my knowledge in that area. But I would say, no. There is no reason why it cannot be in the smaller airports, except it becomes, again, economic issues in terms of you've got a very expensive piece of machinery at a larger airport in terms of a per passenger on revenue that comes through there. It doesn't make up a large percentage of costs. You put that unit in a small station that only boards a few customers, maybe, and the cost per customer could be really expensive. And those are the real difficult decisions we're faced with .

LAMPSON: I think it's going to have an impact as we discuss the differences about how we can go about federalizing. What are the real needs to accomplish the goal?

Yes, sir?

HARRIS: I think the latest state of the art in these x-ray pass- through units like in Atlanta, you can put one single unit of that kind of equipment -- latest state of the art in a small airport. But I think, as you're going down the road, if we get into explosive devices in checked baggage, then the cost of those would be an even further problem for the small, little airport.

YOUNG: The gentleman's time has expired.

LAMPSON: Thank you, Mr. Chairman.

YOUNG: Mr. Honda are you ready to ask questions? You pass? Amen.

I want to thank the panel. You brought some good points up. I'd like to suggest one thing. As we review this security problem, I come from a very small area and the idea that we have to have a uniform unit equal to even Anchorage, does not make me very happy. In the first place, I don't think anybody would be interested in hijacking the plane out of Fort Yukon, because I don't know where they would be going. I just hope that you have to be a little bit sensitive to the differences of this country and how it will happen.

Secondly, on the security aspect of it, I hope we don't just try to use bandaids. And I say "bandaids" because the tragedy, the act of war that occurred last Tuesday, with all the suggestions put in place, probably couldn't have been prevented, and also there's a different MO for the pilots.

YOUNG: We have to concentrate on the intelligence ends of it; identifying potential problem makers. And if we don't do that, all the screening systems, all the training and everything else won't take care of the problem. And as we get into this discussion, I hope that we do write something in it that's broad enough that we give the latitude to whoever takes it over to make sure that we do the other things that are important, because the small airports just -- I don't think that's where it would occur.

With that, I thank the panel very much so, and good luck to you.

(CROSSTALK)

If I may, I'd like to bring panel three and four up all the same time. There are five chairs there, so if we could have panel three -- Miss Susan Donofrio, director and senior analyst, the Deutsche Bank Alex. Brown, New York, New York; Mr. Raymond Neidl, airline analyst, ABN AMRO, New York; and Mr. Scott Gibson, senior vice president, SH&E, New York, New York; along with Robert Roach, general vice president, International Association of Machinists and Aerospace Workers, Upper Marlboro, Maryland; and Mr. Sonny Hall, president, Transport Workers Union, New York, New York.

And for those two gentlemen especially, I apologize for the lengths of the day, and by letting Mr. Hoffa come in before you, but that was a request that he made and I granted it to him.

Would everybody please take their seats. I'd appreciate it.

(CROSSTALK)

DONOFRIO: Mr. Chairman and members of the committee, I am the senior equity research analyst with Deutsche Bank Alex. Brown, and I have about 10 years experience under my belt. I do appreciate the chance to address the committee on transportation and infrastructure on the state of the U.S. airline industry. What I would like to address today is the current financial state of the airline industry and the need for immediate relief to allow for the coverage of day-to- day operations.

Going into 2001, we thought that this would be another banner year for the airlines due to robust demand. However, revenue quickly turned sour as demand faltered due to a softening economy. This was evident in business demand for the industry, which dropped 41 percent year over year, from January to July. Acting responsibly as opposed to the 1980s, there was already a move by most airlines to rein in capacity growth in response. There was also a move by the industry to scale back whatever costs they could.

Even in the face of this, it was still going to be a year of substantial losses going into last Tuesday's tragedy. Much of this is due to the fixed cost structure which we have estimated to be about 80 percent, and soft demand. Our net loss estimate prior to September 11 was a decline in net income for the majors of roughly $4 billion for 2001. This was getting close to the $4.8 billion loss that the industry sustained in 1992.

The airlines' financing was expected to help cover their costs from the economic downturn. Time was what was needed to allow for the U.S.'s economic recovery and a return to traveling. This was planned for, and actually it was reflected in my positive stance on the industry. What was not planned for was the exponential drop in the revenues due to the terrorist attack.

After last week's tragic events, air travel came to a virtual standstill for four days. According to our industry model, the airlines lost roughly $260 million per day in revenue alone, widening this loss. Given an assumption that traffic through year end is likely to rebound from a decline of 50 percent to a decline of 30 percent, we believe that this points to a net loss for the year of $10 billion. While capacity is likely to be reduced for next year as well, we've estimated a generous 10 percent decline for the year, labor costs for the industry are rising, offsetting some of the cost savings.

We are therefore assuming that the industry is going to lose roughly $3 billion next year. The response to this was a sharp drop in most airline stocks of roughly 50 percent after the market opened.

Given the immediate responses of many airlines to immediately reduce their workforce in response to sudden fall-off in demand and the necessity to draw down their available lines of credit, liquidity clearly appears to be a major concern for the airlines. With respect to the majors' cash position, at the end of the June quarter, the cash position roughly totaled $7 billion in lines of credit currently available. Of this, $890 million was only drawn at the end of June quarter. Recent discussions with the airlines have indicated that most of these lines have now been fully drawn due to the severity of their financial situation.

Currently, the top nine U.S. airlines are generating negative free cash flow. This indicates that the industry is in need of financing to meet their current debt and lease obligations. Long-term debt, including the capitalization of off balance sheet obligations for the industry, stands at approximately $91 billion. Our estimate of the current free cash flow to net debt position is within a range of .5 to 43 percent.

What all that tells you is that loans to the industry may not be such a good idea alone, since the industry is already burdened with a very heavy debt load. Many of these companies will therefore become even more highly leveraged, with the risk of failure quite high in such uncertain demand environments. What may in fact happen is that very weak carriers may be forced to cut fares to cover the loans from the government, weakening the stronger airlines.

We therefore believe that the solution is a short-term cash infusion to compensate the airlines for the losses during the shut- down, and also enough to adjust them to a new operating environment.

And I will stop here.

YOUNG: Well done.

DONOFRIO: Thanks.

YOUNG: I'm going to just change this a little bit. I'm going to go down to the other end, then I'll come back and forth so we have labor's side and the financial side to change the menu.

Mr. Roach?

ROACH: Thank you, Mr. Chairman.

I'm going to be brief as well, and skim through my remarks.

My name is Robert Roach, Jr. I'm the general vice president of transportation for the Machinists Union. We represent approximately 290,000 people in transportation, as well as in aerospace -- Boeing, GE and Pratt & Whitney. The disastrous events of September 11 will be with us as long as we live. The transportation industry as we know it today certainly must be changed. It must be changed and it will be changed.

For the airlines, the American public and for its workers, these changes call for more than just a quick band-aid reflex approach. The casualty list is staggering. We cannot allow the nation, the industry or its workers and the flying public to remain victims of this catastrophic event. The complete shutdown of the aviation industry was unprecedented. Although these actions were necessary, we must take action to ensure that this never happens again.

I've had the opportunity to listen to many of the speakers today, and there's a component missing, in our view. Certainly, the airlines need immediate cash infusion, but just giving somebody some money is not going to fix the problem. The problem has been coming for a very long time. A decade ago, 120 illegal immigrants were taking off out of Newark Airport. They were third party workers cleaning aircraft, unsupervised on aircraft, cleaning those aircraft. That was a decade ago, and nothing has changed.

Subcontracting of catering work, passenger service, passenger screening work, and now with the machines where people can get boarding passes, go through the magnetometer, and then board an airplane by sticking the boarding pass in a machine, and the first person they see is a flight attendant is a very dangerous way to save money.

We have people screening passengers today who are making minimum wage, who are responsible for the lives of thousands of people in the flying public, and billions of dollars worth of assets. Again, we believe this is a very dangerous situation that the labor organizations will tell you we have been fighting for some time. Our members -- the airline employees -- are afraid today because of passenger rage. Our members -- airline employees -- are afraid to confront the passengers about different situations.

As all of you know, somebody walked up with a full fare ticket, one-way, no baggage and was unchecked. And what we believe is that it's because many of the airline employees today have been scared. For example, at Newark Airport where an employee -- his back was broke. That person was arrested, went to court, and was acquitted. We did not feel there was support. We did not feel that there was any backing and security at the airports.

ROACH: If we are to restore the confidence in the system, we must restore the confidence in the employees. If we are to stabilize the system, we must stabilize and make the employees feel secure. That is the component that is missing. We've heard from the CEOs of the major carriers who have indicated that there are collective bargaining agreements that are going to protect these people who are being laid off.

I would submit to you that I have negotiated many of those collective bargaining agreements on Continental and Northwest and TWA, and there are no such provisions. There is some severance pay, and at least one carrier said that they were not even going to pay the severance pay because this is an act of war, and that the people will be without medical insurance; people will be unable to pay for mortgages; people will be unemployed.

And we think of the work that has been currently subcontracted out, if that work was brought in-house on a long-term plan, that employees who have access to aircraft, work for the airlines and are subject to all the screening that an airline employee is subject to, that that will go a long way in securing the system. We believe that the federal government must be involved in airport safety. We believe that federal marshals should be aboard aircraft. And we are prepared to work with the carriers and the federal government to do what is necessary to secure and make this is a viable system.

It is a matter of national security in our view. And this is not a situation in our professional roles as labor leaders, we sometimes or most of the time have an adversary role with the carriers. We believe that we must work together on this issue with the federal government and with the carriers. We met with Secretary Mineta today. We have called for a joint task force to fix the problem on a long- term basis. Immediately, cash must come into the carriers, but the employees -- the people who service the passengers, confront the passengers every day, who fix the airplanes, who load the airplanes, who protect your safety aboard the aircraft -- they must have input into this process if this process is going to work.

This didn't happen September 11. This has been a long time coming. And if we're going to fix this on a long-term basis, we all must come to the table and work together to fix the problem.

Thousands are missing. America is in shock. We lost at least two of our members at the IAM. I have lost a dear and personal friend. It is with that in mind that we must say that business as usual is not an option.

Thank you very much.

YOUNG: Thank you, Mr. Roach. Now we have Mr. Raymond Neidl.

NEIDL: You had it right. Yes.

YOUNG: All right.

NEIDL: Very good.

Historically, I have been generally opposed to any government bailouts with taxpayer money of any business or industry that has gotten themselves into trouble, and would then come to the government begging for help. My belief was, and remains, that if there was mismanagement or if the employee union demands won uneconomical contracts, then the company and the employee should suffer; should pay the bill if they weren't being competitive. So I'm very much of a free market advocate.

However, this is not a normal time that we're in right now, with the developments that happened last week. And like anyone else, I can make an exception, and I think this is a case where we should have an exception and I think the airline industry has made a good case today that they have been affected in a very unusual way and directly. As bad as this has been, there has been no other industry that's been affected nearly as bad as the airline industry. And the airline industry is the nerve center, the backbone of not only the national economy, but the world economy as well. And if we don't have a strong transportation system, the world economy will not grow and will fall apart.

I've been around the industry for a while. I used to work for American. I was a credit analyst at S&P. I was a high-yield bond analyst for a long time with airline bonds with EETCs, and now I'm an equity analyst. So I've seen the industry go through a couple of cycles. And the industry was -- I won't call it mismanaged, but it wasn't managed very well after deregulation. Most of the people in place were still had the regulatory mind -- capacity and market share, not bottom line.

But that all changed in 1992. We did have a terrible downfall in industry profitability, large losses. New management came in and they worked very hard for a couple of years in reforming the industry. They modernized the fleets. They restructured their route system to be economical and profitable. They built the hub system. I know a lot of us don't like the hub systems, but it's probably the most efficient way in moving the most amount of people in a timely manner. Basically, they did everything that I can think the industry had to do to make it a competitive industry that thought for the bottom line.

As a result, they were rewarded with fairly good profitability in the '90s, in the lush '90s. Now, even though they had record profits, if you still look at their profit margins, it was still pretty thin by almost any other business you're looking at. But for airlines, they were doing a good job. They were moving a lot of people. I know people were complaining that the planes are crowded and the airports are crowded. Well, they were doing their job. They were producing bodies to fill the planes at low fares. That's why the air systems are so crowded, because the airfares came way down.

So they were doing everything that we could expect them to do, whether in government, the public or their customers. And this led us analysts to think that maybe as far as an investment goes, airlines would be a little bit better. We knew it was a cyclical industry. We knew the next economic slowdown would reduce profitability, but we thought the airlines were in better shape to take on the next recession.

Now, despite all this progress and hard work that the industry did, they just became another victim last Tuesday of the senseless tragedy, and they're suffering the negative effects, along with the rest of us. As I said before, I think they're suffering it disproportionately. They did everything that they were supposed to do with the FAA. They followed safety procedures. They followed every request -- grounding their aircraft; not producing any revenue.

Remember, airlines are very high fixed cost businesses, and if their revenue is shut off, 90 percent of the costs are still there. They're saving maybe something on fuel expense, but the costs are there. So basically, I think that the case they made today was pretty accurate.

Now, the traveling public now, as you've heard today, has lost faith in the airport security system. And it's going to be difficult to win back traffic until the traveler is convinced that major changes have been made in the airport security. In my opinion, the best way to do this is to federalize the airport security system. And the reason for that is is government's prime duty, at least in my opinion, is to provide defense and safety for its citizens and its businesses so they can go about working on capitalism and producing profits and producing salaries for its workers, so we can pay for health care and everything else. But the prime duty of government, in my opinion, is to make a safe environment so we can improve our living standards.

I don't think the airlines are just equipped to take care of security, especially in this new environment, and we really do need somebody who is professional at doing this, and that would be standards that only the federal government could provide.

So in summary, I'd just like to say that the airline business is capital and labor intensive. It must maintain a large amount of assets in place to meet peak traveling periods, even though it incurs additional costs during the lower traveling periods, and they've done a good job doing this. However, what happened last Tuesday is something that they cannot plan for, and as a result the industry does need our help at this time.

YOUNG: Thank you.

Mr. Hall?

HALL: Thank you. I think I'll follow the lead of my brother Robert Roach and depart from my comments and just talk, if you will, for a few minutes with each other.

For identification purposes, I am Sonny Hall. I'm the international president of the Transport Workers Union. I'm also the president of the Transportation Trades Department of the AFL-CIO. My union represents about 150,000 transportation workers, 60,000 of which work for airlines.

To me, the issue is down to three major components, and they're all tied to each other; obviously, the immediate need of an infusion of cash for the airlines so they can survive. We don't have the luxury of time of doing it in a more debated way. We need to do it quick and fast, and then monitor it as much as we can. So that's the first ingredient.

The second one is to ensure that the employees are within the framework of survival; to make sure that those who are going to be within the system will be safe, and the things my brother Roach talked about. But also those that are going to be displaced, and there will be thousands

HALL: As much as we as a union will fight to maintain as many members we can and employees we can, many will be displaced.

We have to make sure that we treat them in the same way as we come to the emergency needs of the companies themselves. As was talked about earlier, health care for these workers, retraining, in spite of the reality that we know we're going to get back to almost normal, I don't know if we'll ever be back to normal. And many of the displaced workers will not return to the industry, and they need to be retrained for other jobs.

We can shift them, as brother Roach has said, within the system. We should do that. But they need to be the second major ingredient -- the employees of the system who've dedicated their lives to air transportation in this nation.

The third is security. If we do not convince the riding public that the system is secure, then we will never come back to the top of the mountain that we've always been in the aviation industry. But I want to make it clear they're tied together. One cannot be sacrificed at the expense of the other. All three ingredients must occur.

Another one, of course, that's outside of that framework is that we're in this together. As Americans, we're in this together. This is not about Democrats. This is not about Republicans. This is about America and the nation that we all grew up with and want to maintain. Now for us to survive in the airline industry, workers, as well as management, have to be on the same page. Without that, we will not be successful.

One of the things that disturbed me the most, and I would hope that this committee, as we talked to Secretary Mineta today about, is to give a message to all of the companies, and particularly the one, US Air, that has decided that it's not even going to honor its contract, as minimum as that contract is, for displaced workers and furloughed workers. They said they think this is a war footing, and they won't honor the contracts.

If we want to break faith between worker and the CEOs of the companies, that's a sure way to do it. So I would ask you to add your voice as a committee that that's not the way we should do business.

And last, just to comment to the fact that, repeat again, we're in this together and all of labor is prepared to do whatever it takes to make sure we restore our nation to where it belongs.

YOUNG: Thank you, Mr. Hall.

Mr. Scott Gibson. You're the clean up batter, now.

GIBSON: Mr. Chairman, members of the committee, thank you for providing me with the opportunity to speak to you today about the U.S. airline industry and the actions that can help get it through these difficult times. The firm that I work for works for airlines, financial houses, manufacturers, and includes airline management, public policy, experts and economists. So we have a very broad platform with which to look at the industry.

I think there is no reason for me to elaborate on the numerous financial projections that have already been made. But you probably noticed today that the focus of the carriers is on cash. Based on what we see today in terms of travel, the industry as a whole, and this is an average of all carriers, will run out of cash in less than 30 days. There are some people who are going to run out of cash as early as this coming week. And some who have very significant sums that can last for a longer period of time.

But the unusual events of this are normally airlines get cash from both operations, carrying passengers and from the financial markets. The combination of liability and financial risk as a result of the attacks that occurred last week have essentially closed the capital markets to the airline industry. In fact, we happen to be aware that many lenders are looking at invoking material adverse change clauses that would actually withdraw or cancel funding commitments to airlines.

That's where I would have argued a week ago that this industry could survive the original financial outlook for losses. I'm not sure I could make that claim today. What we see is an industry that is taking desperate actions to save itself by rapidly reducing it's cash (inaudible). Layoffs of large numbers of employees have commenced. And just this week Continental announced that it would not make debt service payments on its enhanced equipment trust certificates that were due last Friday. These are actions to conserve cash.

When I look at the industry as a whole, though, and I think when we look at why government needs to be involved, I think it's important to put it in perspective. We've talked about how many people the industry employs -- the passenger industry, it's about 700,000. That same passenger industry spends over $1 billion a year on goods and services in the United States. And that industry today has 930 aircraft on order -- that's Boeing and Airbus, that does not include the regional jets, worth $63 billion.

And the manufacturers of those aircraft and engines employ 200,000 Americans, and that does not include the subcontractors or suppliers or the secondary manufacturers, such as those for avionics. This industry is the most reliable and cost-effective on earth, and is considered key to the competitiveness of the American economy.

When we talk about what government can do, in fact, I think what it needs to do to preserve the industry, we look at it as a kind of a six point prescription. We've already talked about the government needs to help restore faith in the safety of the air transportation system. Passengers will not come back unless they believe that that will occur.

The government needs to provide the airline industry with sufficient capital to survive. As I said, this is an unusual time. It calls for extraordinary measures. Where I previously thought that the government could limit its action to absorb the liability of American and United that resulted from these specific events, it has become clear in the last 48 hours that an ongoing liability shield from the consequences on third parties from acts of terror is needed.

I think also that the government needs to provide some relief from the collective bargaining agreements. Now, I say that very cautiously. And I'm a Democrat. I note that management and labor are already working together in many cases and have had very unusual and fruitful discussions. In fact, I can look at AirTran and see that they've already unilaterally reached agreement with labor to take actions that are necessary to preserve the company.

At the moment, the airlines are in an unusual situation that following layoff criteria in collective bargaining agreements means a great deal of cost and time that is difficult for the airlines to absorb at this time. In addition, I think that government really seriously needs to look at an enhanced safety net for employees that are displaced, hopefully temporarily, from airlines and related industries.

In addition, the government needs to create a mechanism to prevent aircraft and engine manufacturers from being impacted. Incentives to ground older aircraft and to continue to take deliveries will be essential if we are to avoid severely impacting a significant manufacturing sector and possibly doing further damage to our already- weak economy.

Lastly, the government should provide a one-time exemption from antitrust laws so that governments can coordinate their capacity reduction and thus minimize the impact on small communities, and at the same time, maintain competition on the greatest number of routes.

And I think that these type of actions are unusual, but necessary. And we've talked about precedent. There is no precedent for what occurred. The best example I can think of is steps that the government took after World War II, where it effectively paid for the cost of providing an ongoing transportation system, granted which was mobilized for the government's war effort.

Thank you.

MICA: Mr. Chairman, may I ask Mr. Gibson to offer a footnote on what he personally experienced last Tuesday from his office window?

YOUNG: If the gentleman wishes to do so.

GIBSON: Well, you know I will first of all say that my firm, which is headquartered in New York, and the people that we personally work with, our colleagues that we directly work with at the Port Authority and the financial community have all managed to survive this. So we know where everyone is that we work with. But I realize that they're quite some number of people that are still missing and who have already been identified as not surviving.

But from our offices, we had an excellent view of the north tower of the World Trade Center. We had two of our employees who actually saw the first aircraft hit. And then we all gathered to watch and to listen and saw the collapse of the tower. And candidly, it is a surreal event. I live and work in mid-town Manhattan, and you wouldn't know this is happening -- power, water, phones actually work.

But it is clear that the city is radically changed. The foot traffic and vehicle traffic last week became almost nonexistent. And while the city has bounced back to life, from our perspective, Wall Street is just not there. The financial community is starting to function, but barely. These people are not traveling. People are not coming to visit them. And most of them do not have offices. So you have a whole sector of New York's economy and key to the nation's economy that really is not capable of functioning today, despite the fact that the stock market is up and going.

YOUNG: I thank the gentleman.

I appreciate the panelists' testimony.

Mr. Hall and Mr. Roach, both, I don't think we can do it in this bill, but I happen to agree with you. Do you think there could be a second bill under a national emergency clause or some way that we could set up a safety net, for those that are being displaced because of this action? Because it's going to take time to recover. And if we can help, even through the taxpayers, because this is a different time, a training program, and trying to make sure that those that are relieved of duty have access back to the companies that relieve them.

I don't know how we're going to do it, but somewhere along the line this does have to happen. If you can help us figure out a way to do this, it would be very helpful to me personally, because there are a lot of ideas out here, but none of them so far solidified as far as I'm concerned on how we'd do it. If you would just comment on that if you'd like to.

HALL: I think you described it. Because of the need to act quickly to get cash to the airline industry, there's going to have to be a second and a third bill.

But I think the way that has to be done in the first instance is that the corporations, the airline industry has to understand their responsibility to the stage two, stage three and stage four, as they're getting this large amount of money which they desperately need. To fix the other areas now, you have to go back to make sure you hold the corporations, if you will, that they have a responsibility to phase two or phase three. But I don't think there's any way we can reasonably or rationally deal with all of them now in the time that we have left to put cash into the system.

YOUNG: That's not a bad idea. We might put a caveat in this bill to make sure that they support the other two provisions. That's a good idea.

Mr. Roach?

ROACH: I agree with what Sonny said. It has to be something and it has to be, whether it's in this bill or on another bill, but there has to be something that requires these things to happen. Otherwise, they're just not going to happen.

(CROSSTALK)

YOUNG: Mr. Neidl, you're a free marketer. You don't believe in -- and by the way, I watched some of this as I had other meetings today, and I heard the words "bailout." And I actually don't believe this is a bailout. The Chrysler situation was a bailout. That was government interference in the free market. But this is a totally different thing and I do not like the word "bailout" when it's used, because this was not anyone's fault. Let's look in the future on how we can prevent it.

But you believe that one of those provisions is a federalization of the security, primarily because...

NEIDL: I really do think this is one function that government can do better than the airlines. You know, they do national defense. They do the FBI. They do national police. And it would probably be much more efficient and hard on following procedures if they monitored the whole system instead of airlines, whose primary function is to transport people, not to be policemen.

So I just think by putting it in federal hands, one, it would be more efficient. But number two, I really don't believe that the airlines should be incurring these costs; somebody earlier asked about that. They said, "Well, you know, it should be the traveling public through a surcharge." But the thing is, it's a national cost if a plane is hijacked and it crashes into a building. It's more than just the passengers are affected. It's really a national obligation.

YOUNG: One of the things that you bring a very good point on is, I talked to some of the CEOs today after they were on the panel. Other than a surcharge, they would be willing to pay -- they're paying approximately $1 billion now for security. They would be willing to just give $1 billion to the government and let the government run the security. They're not trying to avoid that, because they do believe, as you believe, that we can do a better job through Customs or whatever it may be.

NEIDL: And it's even more important, I think -- just like if a manager's doing a bad job in a company, you replace him. And that new management is given a sweetheart period to fix the job. The public doesn't trust the security system now, rightly or wrongly. By changing it and saying, "OK, we're in charge now; this is not going to happen again," I think that would bring back confidence a lot quicker

YOUNG: And, Mr. Gibson, you may be a Democrat and you may not believe in collective bargaining with Mr. Hall right next to you, but I'm a conservative Republican and happen to believe very strongly in the unions and how they work. So when you say, "I'm a Democrat," you know, be careful, because I am a Republican and there's a few of us that understand the problem.

GIBSON: And I was saying, it's not that I don't believe in collective bargaining. I believe in it very, very firmly. I just think that this is an extraordinary time and to move quickly. That there is some action needed to relieve airlines from a cost impact that results from these agreements. And it's not to abrogate the fact that the agreements are there, it's just a function of how do you deal with this in a timely manner to do cost avoidance.

YOUNG: OK. That's fine.

My time is up.

(CROSSTALK)

Mr. Honda, you had your hand up first. We're going to go to the hand routine.

HONDA: That's one of the advantages of being a student and a teacher.

Mr. Chairman and Ranking Member Oberstar, I just want to thank you for putting this together so quickly. I remain (AUDIO GAP) the parts that I missed (AUDIO GAP) and I don't think I disagreed with much of what was said today, but I do have some concerns, and one is the comment about the unions taking phase two or phase three down the line.

My sense is that at times when the heat of need leaves us or diminishes the willingness of follow through, I think (AUDIO GAP) diminishes also. It's not to say that people are not going to keep their word, but I think that historically we've seen people back off on obligations -- on the commitments that they made in the past.

Are there not current programs on workforce retraining that could be bolstered or amended or given more appropriations while we do this? That's one question.

The second question is -- it was said that some companies, some airlines were in trouble prior to the terrorist attack. And now all of us are up front here in line looking for relief. And I want to help them, because I do believe that the national economy and the global economy is imbalanced right here with the situation with the airline industries. The question is, those who were in some sort of financial jeopardy before, will they be held at different standard or expectations or will there be some sort of monitoring in terms of expectations for performance and other things when they receive any kind of financial assistance or should they be?

HALL: In response to that, and also as a caveat of a clarification of what I was talking about earlier about phase two and phase three, is I envision and I think labor envisions that within phase one that the industry will have to address at the very beginning before they get the kinds of dollars we're talking about, how are they going to treat their workers.

More in terms of phase two and phase three is where the federal government steps in, like an TA (ph) program for training. We need an expansion of that for the airline workers to be part of that, because that's really tied to trade, and they have very little money in that program right now, nor does that agreement in any way deal with or that language within the TA (ph) deal with health benefits. So I see as phase two what the federal government can do beyond what the industry can do.

I think when the dollars come, at the very first phase, it must be very clear what they must do in terms of treating their workers and, obviously, honoring the contracts, but beyond that, about how they're going to layoff people and to be able to prove to the employees, talk to their own employees, talk to their labor organizations about how can we redirect how workers go, whether they can be moved form one job to another, before you just unilaterally say, "I'm going to layoff 5,000, 10,000, 20,000 people." I think that's all within phase one. But the phase two and phase three are other things that's really tied with what the government can do, in addition to what the industry can do for their own employees.

ROACH: Mr. Anderson, the CEO of Northwest Airlines, answered a question today and said, "whatever is in the collective bargaining agreement." What is in the collective bargaining agreements, was that tied to these extraordinary circumstances that we're faced with today? And there is no mortgage protection. There isn't any, as Sonny said, there isn't any health benefits. All these benefits, in most cases, is just 12 weeks of severance pay.

And thinking about it, certainly that should be tied to the money that's going to be distributed at this time, rather than wait because their official comment is that they don't intend to do anything special. And it should be tied to the fact that they're going to get this money and they're looking for these guarantees, and there should be something in this bill that can tie them to getting these things done to protect. They throw around this number 20 percent of all airline workers are going to be laid off -- 100,000 people. That's going to have a devastating affect on this economy and all the people. And there should be some sort of safety net put in place now.

HONDA: Perhaps, Mr. Gibson can answer the question about the expectations of (inaudible)

GIBSON: I'm sorry, sir.

GIBSON: The answer to the question about the industry?

HONDA: The question was, you stated that there was some companies that were not very healthy.

GIBSON: Yes.

HONDA: And with this tragedy, we need to help them, but...

GIBSON: The calculation that the collective group of carriers has put together has really been one of the effects of the shutdown and for the month of September in the cash injection tranche. So that in effect takes no account for where the world was before and is trying to say this is what has occurred on top of where the industry was on an individual carrier basis.

The allocation mechanism is designed to spread it, you know, in a relatively uniform fashion between carriers. And I think the fact that you've seen all different size carriers agree to the formula that's been proposed is kind of reflective of that. And I don't think that the allocation as proposed gives any benefit to a carrier that may have been, you know, in either trauma beforehand or a much worse case than where we are today.

YOUNG: The gentleman's time has expired.

Ms. Kelly?

(CROSSTALK)

KELLY: Thank you very much, Mr. Chairman.

Mr. Hoffa and Mr. Roach, I am very interested in hearing from you how you feel about the suggestion that we've heard here today that the government take over the security of the airlines. Do you see that as a potential for using some of the perhaps displaced workers on a retraining basis? Could that substitute for some of your workers?

ROACH: Yes. Certainly we believe that the federal government should be involved in the screening of passengers and protections at the airport. I think that they need to be assisted by trained people, airline employees, which is in my statement -- that they should be assisted by highly trained, properly paid employees. And there should be some retraining and moving those people over. Those are some of the things that can be done to stop some of these layoffs that the CEOs said that have to take place. I think that's exactly on target.

HALL: By the way, Mr. Hoffa has a million more members than me. I'd love to have them, but I'm Mr. Hall.

(LAUGHTER)

I obviously agree. But one of the things I think also is needed is what has not happened yet, even with the labor organizations, never mind with the workers in the field. There is a need to communicate, even before this bill is finalized, frankly, and there's a few days to do that, with the workers themselves in the system.

I can tell you that the AC mechanics, the cleaner, if you will, could tell you right now the problems that are within the system in terms of security and the kind of work they could do to help shore-up that. So if you need less cleaners, these are experts about how to get in and out of the airline illegally. And we'll make sure that they probably will be the first ones that you train to maybe retrain them for these jobs. So, they have a big piece of that ingredient.

KELLY: I thank you very much. In other words, you do feel strongly that retraining some of these potential displaced workers would be a good thing if the government were to take over the security of the airlines.

HALL: I think more than that. I think it should be mandatory before the companies get a penny.

KELLY: Thank you.

I only want to make one more statement, and that is I feel very strongly and continue to feel very strongly, in spite of what we've heard today, that if this airline industry is granted the money that they are asking for, they absolutely must account to us, the American public and the Congress, for every single penny that they are getting from us and spending as a result of this bill. I hope you all agree with me.

And Mr. Gibson, I wonder if you'd care to speak to that?

GIBSON: I would just say that, yes, Congresswoman, I agree totally. And I think that the industry, from what I see, is prepared to go do that.

KELLY: Mr. Hall, did you have a comment?

HALL: Yes. I just wanted to comment. In our meeting this afternoon, myself and Brother Roach and others and James Hoffa met with Secretary Mineta. And one of the recommendations that came out, a strong recommendation which the secretary embraced, was that there should be a joint task force that would meet periodically, every couple of weeks if necessary, every three weeks, every four weeks, to make sure we're living up to actually what we both committed to each other -- both the carriers and also the labor organizations; to track it to make sure it's going well. And I think that should be mandated, that kind of language, when they're receiving dollars -- that they must report back to the Department of Transportation and certainly to this committee.

And it should all be tied to the first instance of this particular bill to make sure what the carriers are saying they will do that they're forced to do under this legislation as they receive billions of dollars, which they need and which we encourage they should receive. But we are concerned, of course, that if we wait until tomorrow to take care of the employees and other needs within the employees that it may never happen.

KELLY: I thank you very much.

Mr. Gibson, I just want to say one thing to you. And that is, I heard your description of what went on in New York. I represent a lot of commuting people who go into New York, some of whom were there. And I know that you said that New York was changed. The building skyline may be changed, but New Yorkers are strong as ever, and we will continue to be strong.

Thank you very much, Mr. Chairman.

MICA: I thank the gentlelady.

Let me yield to Mr. Sandlin at this point.

SANDLIN: Thank you, Mr. Chairman.

I'd like to ask a question of Ms. Donofrio, and say thank you for coming today. On the issue of elasticity, we've had discussion about a surcharge or a tax or some sort of fee being placed on the public to be applied to research. Does your research or your historical data indicate that doing that would adversely affect demand?

DONOFRIO: Well, I think the issue we have right now is that it really depends on your assumptions going forward with respect to how quickly demand is going to bounce back. And that's a very big issue. You're also looking at added costs as well that are going to be put into place. So it's very fluid.

In terms of historical, there are a number of airlines, such as Southwest, who has very minimal fare increases. And the reason is -- it is -- and you can see a fall off in demand, even from what sounds like a very small increase, and that's a couple dollars. So, there is evidence.

SANDLIN: Well, I was just wondering, in this sort of extraordinary circumstance where the public is so united behind having security and flying safely and making sure the airlines are stable, I was wondering if there was any sort of historical data indicating or research indicating that the public wouldn't mind doing that. It's my general impression that it would not cause a problem. But I certainly have no data to say that.

DONOFRIO: I mean, actually, you know, air fares have been going down throughout the years. So it's actually been stimulating travel. So, you know, fares have not been going up.

SANDLIN: OK.

Mr. Roach, I had a question for you on -- determining this -- the relief that is requested and needed -- was labor consulted last week? Did you feel like you had input in trying to set forth what was needed in the package?

ROACH: My organization represents about 290,000 people, between transportation and aerospace; about 155,000 in North American airlines. And we were not consulted about any of this. At some time late in the day we were given some documents that said "this is what it is; we want you to support it," but we had absolutely no input.

That's why we believe it is essential going forward. There must be a joint task force between labor and management and the federal government to ensure that the things that are being said are carried out, and to ensure that employees are being trained and that the process is working.

SANDLIN: So do you feel like you're input today is important in formulating a plan and attempting to approve relief that will save jobs?

ROACH: I certainly do.

SANDLIN: OK. From your perspective, did anyone working at any airline lose his or her job as a result of not holding a vote on Friday, but rather waiting until today and having the debate?

ROACH: No, I don't think so.

SANDLIN: Good.

And Mr. Hall, I think you had a response.

HALL: I just wanted to comment on the issue about labor organizations being contacted. My union did not also receive any. If it quite frankly wasn't for this committee and members of this committee to tell us in advance at least a few days of last Friday of what really they were looking for so we could have some idea what was going to be happening on Friday, which we thought the legislation would pass, we would have had nothing.

So we thank this committee for communicating with us through our transportation trades department and others. But in terms of the carriers, we received nothing.

SANDLIN: Well, we appreciate you coming here today and cooperating. I think it's a real opportunity for labor and the carriers and the government, being both the Congress and President Bush, to work together and formulate a plan. It's critical that we maintain our transportation infrastructure and keep the airlines flying and make sure that people have their jobs and people feel safe. And I think it's going to take a partnership of all of us, and we appreciate your commitment to that.

And then on Mr. Gibson, I had one final question. You had talked about the need to -- you said the government should absorb the liability of American and United. One, do you think we have enough information right now to move on those issues or should we pause and do a little more research? And then secondly, do you have any suggestions -- maybe some sort of creative suggestions on what we might do as a Congress or as an industry to address the immediate and current needs of our families as a whole? Maybe part of the money should be set aside in a relief fund and delivered immediately. Or we might have some subrogation issues. I don't know. I'm asking for some input or something that you think might be helpful to families.

GIBSON: Answering the second part of your question first, I really am not enough of an expert or do not have enough knowledge in that area to be able to comment.

It certainly is not possible today to estimate what the sums are that are involved here. But I think it is possible for Congress to, in a sense, craft the responsibility lines in terms of what insurance carriers would generally cover and what are extraordinary events. And again, it's really the third party damage as a result of acts of terrorism. I think that the dividing lines in terms of responsibility can be crafted based on what we know today.

SANDLIN: Well, we're out of time. But let me say again, thank you to all of you. And I think we can all work together and work with the president to do something that's good for the country, preserves jobs and preserves the industry.

Thanks.

MICA: I thank the gentleman.

Let me recognize Mr. LaTourette at this point.

LATOURETTE: Thank you very much, Mr. Chairman.

Mr. Chairman, before I ask questions of this panel, since I guess I'm assuming that there is not going to be a markup of this legislation, I do want to make a couple of observations more for your benefit and for the record.

When we had previous panels there was an observation about whether or not Americans who have airline tickets that they've paid for and the route has changed, or the airline goes out of business, or there's another cancellation, whether or not they are going to have the opportunity to get another ticket on another air carrier or a refund. And the representatives from the airlines said that's our policy; not a problem.

I would just like to suggest that if the staff could consider -- if it's truly not a problem since we are dealing with extraordinary circumstances -- that perhaps that could be included somewhere in the draft legislation when it goes to the floor.

That being said, Mr. Roach, is the largest employer of members of your organization in the airline field still the UPS?

LATOURETTE: Is that still your largest employer?

ROACH: United Airlines.

LATOURETTE: United Airlines is.

When were you and Mr. Hall notified that there were going to be layoffs of your membership?

ROACH: We've heard rumors. The only official notification, I believe, came from -- we really didn't get any official notification of layoffs. We've heard it reported in the newspapers. There have been discussions back and forth with our people, but there's been no official notification of layoffs. We've heard more about layoffs here today than we've heard from the carriers.

LATOURETTE: So when, for instance, in the Cleveland Plain Dealer there was a notification, there was an article, I think Monday or Tuesday, that 12,000 Continental employees are going to be laid off, I would assume that would affect some of your membership, and that's how you were getting the information as well?

ROACH: Yes.

LATOURETTE: How about you, Mr. Hall?

HALL: The same is true. I've learned it through the media. We expected that this is going to be one of the issues we have to deal with, but the first we heard of it directly from the airlines, including American Airlines, which we have some 50,000 members on, we have not heard anything from them directly yet. And frankly, we would not expect them to lay off one member until they sit down and talk to us.

LATOURETTE: I read with interest in your testimony, Mr. Roach, the fact that the catering service and some of the contracted-out jobs relative to maintenance decrease security at airports. And you may or may not know, but this Congress passed the Airport Security Act of 2000. President Clinton signed it into law. I think all of us thought that things would get better as we did a top-to-bottom review of not only the people that get into the airport through the scanners, but those that have access to the tarmac that are bigger security risks than others.

That was the good news, that we did such a thing. The bad news was that we gave the agencies a year, from last November to this November, to come up with the rules and regulations to implement those policies. But I believed then and I believe now that that's the kind of legislation we need to look at, and I would hope that your organization -- and your organization, Mr. Hall -- could give us a hand with crafting ways to keep not only the bad news from going through the scanners, but also to make sure that the people at the scanners have good training, good wages, know what it is that they're looking for, and the same with those that are servicing and have access to the tarmac.

ROACH: That's the same issue that -- certainly we will help with any way that we can. We believe that those jobs were taken away from airline employees some years ago because of alleged cost, and we believe those jobs should come back within the airline, within the airline industry, to airline employees to make them good jobs, so that people believe they have careers and not just jobs.

LATOURETTE: Well, one of the things that a lot of people that would watch this don't even know, one of the aspects of it was for those that run the magnetometers, there is no background check for that. You could hire a mass murderer, you could hire a burglar, you could hire someone that was subject to corruption and bribery to man those stations. And that was one of the things we tried to correct, and I'm shocked that it hadn't been done before, but thankfully the Congress did it last year.

Ms. Donofrio, we were told last week that the airline industry needed cash, and if there couldn't be immediate cash, that with the market opening up on Monday that there needed to be a signal sent that the government was at least if not ready, we're ready to help and willing to help. Was it important, in your estimation, that the Congress send the signal last week that there was going to be some relief in the form of cash, either grants or loans given to the airlines?

DONOFRIO: I think it was important. In talking with investors, their biggest concern was, you know, why didn't it get passed on Friday. What's holding it up? Is it because Washington doesn't understand the magnitude of the issue? And I think that is reflected in the airline stock prices, which did close down 50 percent when they did open.

I think going forward, I think there does need to be some type of signal, given that you do understand the magnitude. And we can see the cash -- what we're expecting with respect to cash going forward, which is really drawing it really quickly.

And the other big concern now from investors that I'm hearing is that these lines of credit that everybody thought was kind of a cushion are going to be drying up.

LATOURETTE: Thank you very much.

Thank you, Mr. Chairman.

MICA: I thank the gentleman.

Let me recognize Mr. Boswell.

BOSWELL: Thank you, Mr. Chairman.

I -- Mr. Roach, Mr. Hall, just direct it to you, just a comment maybe. It seemed like that had part of the story left out that we received from Mr. Anderson about what would happen with layoffs as far as the agreement that is in place does not address health and some of those things.

ROACH: Absolutely. The Northwest agreement -- Mr. Anderson's from Northwest -- the Northwest agreement does not address any health insurance for people who are going to get furloughed in this process.

BOSWELL: Yes. Well, I think that maybe he just didn't tell the whole story. And as I felt like when I asked him to finish answering the question of Mr. DeFazio about the buy America side as far as relying on overseas aircraft versus not U.S., and he gave the comments about -- I thought it was pretty good comments about, you know, sticking with the engine manufacturers and so on. But then I got information from somebody that 15 percent of Airbus is made in the U.S. versus 80 percent of Boeing. Do you have any information on that comment?

ROACH: We represent people at Pratt & Whitney, GE and Boeing. Eighty percent of the Boeing aircraft is American; 15 to 20 percent of Airbus is the correct figure.

BOSWELL: So he left out a little bit there too, then.

ROACH: Right.

BOSWELL: Yes. Well, I'm glad we got that straight in the record.

I would like to change over to Ms. Donofrio. In your testimony that much of the industry is already in debt, maybe already burdened with heavy debt, what federal program would you recommend we do?

You may have said this earlier. I had stepped out for a phone call. I've been here all day, but maybe if you've addressed this, I'll just check the record.

DONOFRIO: Right. I think over the near term, it appears to be pretty clear that cash is needed. I think with respect to a longer- term fix, it's not my area of expertise.

BOSWELL: Well, it seems like, Mr. Chairman, everybody today is agreeing that we need to get on with this assistance. And so I don't see any exception with the other panels or this one. So thank you again for having this hearing. And let's get down to business and see if we can't get some legislation moving.

HALL: Could I respond just quickly to the congressman, and joining my Brother Roach, is that within my testimony -- in the heart of the testimony, if you have the opportunity to read it later, really specifies where the shortfalls are within our respective labor agreements in terms of the health care and what's needed both by the carrier to extend more as they get more money, and also where the federal government needs to step in in a special way.

BOSWELL: Thank you, Mr. Hall for being here to give us that information we need to know. We need to hear that.

MICA: I thank the gentleman.

Let me recognize the gentleman from North Carolina, Mr. Hayes.

HAYES: Thank you, Mr. Chairman.

And let me assure each of you fine panelists that because you're here late in the day, you're no more less appreciated than anyone that's come. So thanks for your patience.

Along the lines of Mr. LaTourette, let me help for just a moment refocus on our purpose in being here, and that's to discuss how the federal government can financially assist the airline industry. You know, the airline industry is the heart of this discussion. From the industry flows all other very important things and individuals that we've discussed today.

Now, having said that, Ms. Donofrio -- is that -- I'll check with Mr. LaTourette, he's from further north than I am.

But as a representative of the markets, you, Mr. Neidl and Mr. Gibson -- on Friday we had a discussion and Mr. Young and Mr. Oberstar very wisely brought with a strong sense of urgency and immediacy this issue of financial assistance for the airline industry to the attention of the Congress. Because -- and I remember very vividly -- we did not want the stock market to open on Monday morning and have because of this tremendous uncertainty, the airline industry stocks lead the plunge that draws the market down.

So the reason for bringing it up and trying to do it immediately was in no way to exclude anyone -- and they're being brought to the table now -- but it was the immediacy of sending that signal.

Now, you've been here a long time. You've heard a lot of things, all important. As a representative of the market, are you assured -- or reassured as to the commitment -- you've heard different angles, but I've heard unanimity of support for the industry and everything that it includes. As the market representatives, are you all encouraged? And do you feel a resolve here that's going to be appropriate?

DONOFRIO: I feel much better going in today. I was very concerned when I got here this morning given the fact that Friday nothing did get done. And I do feel much better that it is getting addressed. And it does appear that you do understand that this isn't a bailout.

DONOFRIO: I mean, all we're really trying to do is reset the bar back to where the industry was financially, and then let the marketplace decide who are the winners and losers. So I'm very encouraged.

HAYES: Well, unfortunately, the press was here in mass this morning. I hope the word is getting out to the appropriate folks late in the day just what you said.

Mr. Neidl, would you and Mr. Gibson comment?

NEIDL: When I came in this morning, I was pretty confident that you people had a good understanding of how severe the situation was. And after listening to everybody talking today, coming out from different angles, I felt very good that we weren't going to let this whole industry go into Chapter 11, like one commentator last night said they should, which would be disastrous to our economy.

So I think that you guys have all the information that you do need and you know what has to be done. And like you, I'm disappointed that the media is not here now to report it. I just hope we have more positive headlines tomorrow.

I understand the stock prices of airlines went way down today again, with the market. And what we need is to get that word out to the media tonight that the government is not going to let this industry en masse go chapter 11. And if that's the case, I think that should stabilize the markets.

HAYES: Mr. Gibson?

GIBSON: I would agree. I think this is certainly very encouraging. But I think that to some degree, people are going to be waiting to see that something actually does come out and happen, and that the markets will be skittish until action is actually taken.

One of the questions that was asked before was what impact there was on the airlines by not acting last week. The fact is, no one else went bankrupt, but what happen was several airlines in a sense began the process of defaulting on payments to aircraft lessors and lenders. And so, what we're doing is upstreaming the airlines problem into the financial industry. The more time that goes on, the more that will occur as airlines try and prevent having to go do a chapter 11 filing or something even more extreme.

HAYES: I hope and trust the market is listening. I hope the media is listening. And that you all's participation should reinforce that commitment to supporting this vital part of our commerce, which is the airline industry.

Excuse, Mr. Hall -- thank you for your enthusiastic support early on in your comments.

HALL: Yes, I just wanted to comment on that we are enthused by the way this committee conducted itself last Friday and also today. But I would like to repeat, we are not yet confident with the oral commitment from the carriers in terms of their employees. And I want to repeat that that's one of the concerns we have. And we hope that in the first legislation that gets passed, that it's not an oral commitment that the carriers are making to their employees; that it's a written one.

HAYES: I heard them very clearly say, "We are committed to our employees." And that's easy to say. But I believe that, and I know you all in your heart of hearts believe it.

Mr. Chairman, my time has expired. Thank you very much.

MICA: I thank the gentleman.

Let me recognize Mr. Menendez.

MENENDEZ: Thank you, Mr. Chairman.

You know, we do have C-SPAN and they go to millions of people in this country, and I'm sure that we're going to get the word out in that regard about the commitment of the committee to having this industry survive and rebound. I'm sure that word will get out.

But I'd like to start with Ms. Donofrio. Would it not be fair to say that notwithstanding any actions that might have taken place last Friday, that the airline industry was going to take a hit on the stock market on Monday?

DONOFRIO: You mean if Tuesday didn't occur?

MENENDEZ: No, no. On last Friday, lack of action has been portrayed as possibly creating undesirable results. And your answer was in part, the stock market and its affects upon stocks. But you could not possibly tell the committee that even if the committee had acted last Friday that stocks would not have plunged somewhat for the airline industry.

DONOFRIO: Well, you had fear of terrorism, obviously, being in peoples' minds. I can point to the Gulf War period where a fear of terrorism did reduce airline stock prices by roughly 25 percent, just to give you some type of magnitude. Clearly, the signal on Friday probably exacerbated the situation and pushed it down to 50 percent.

MENENDEZ: So even in the set of circumstances in which no airline was used in the Gulf War, no commercial airline was used, it dropped 25 percent because of consumer confidence issues. So the airlines were going to take some hit on Monday, and hopefully they'll rebound as we move forward.

But I would hate it to be portrayed that that lack of deliberate action, which we've heard many questions raised today, and we've gotten some good answers, that the American public needs to be convinced of in order for us to give $20-or-so billion of its monies to an industry, even for good causes. And I'm sure you all on Wall Street would want us to act in prudent judgment or else you might be thinking we'd be acting irrationally, too, which sometimes people do believe around here.

But let me just make one statement to my good friends representing working men and women. I'm glad to hear some of the responses you gave later on. I was a little confused at the beginning, and now I fully understand your position. I disagree with Mr. Gibson that the government should provide relief and in essence have government intervention in abrogating a collective bargaining agreement, even under these exceptional circumstances.

It seems to me that what the industry should have done, and should do, is to sit down with the representatives who in essence are the human capital of their businesses, and say, "We're in this together." And you've so eloquently both said, Mr. Hall and Mr. Roach, that we are in this together. You recognize that if there is no industry, there are no jobs. So you've recognized that. But the industry needs to recognize that that human capital, which is essential for them to fly, needs to be an important part of the equation.

And I wish I had known when they were all sitting here, based upon the statements I heard, that they haven't engaged you. That's ridiculous. And that's why I'm concerned. As much as I want to help the industry, that if they haven't had the foresight to meet with the representatives, who in essence are at the forefront of the human capital of their companies, which are essential no matter how much money we put into them for them to prosper and flourish, that they didn't even talk to you about, "How can we work together to minimize the effect, lose less of our experienced employees, preserve our human capital as we get the Congress to give us $20 billion." That's alarming.

And so I hope the clear message that goes from this hearing, which is why I came back at this sector of the hearing, is to make sure that there's something in this bill that says, "You've got to deal with some of these consequences." I understand there are going to be loses. Mr. Hall, I saw your statement and I read it here, and what you're referring to I think is not only reasonable, but minimal.

And so I certainly hope that, number one, we don't do anything in this legislation to abrogate collective bargaining agreements. That's governmental intervention in the marketplace in a perverse way because the marketplace, you, your members and the airlines decided what they could both afford and what they could give. So we shouldn't have the intervention in that context.

And lastly, I do hope the airline executives understand that they will have many members who will have serious problems, even though they support the industry, that they're not speaking to the leadership of the human capital that is so important for them to fly.

Thank you, Mr. Chairman.

MICA: I thank the gentlemen.

Mr. Carson, did you have something?

CARSON: A couple of questions.

MICA: Yes. You're recognized.

CARSON: A couple of questions for our analysts, if I could.

First of all, Ms. Donofrio, in your testimony, you speak quite compellingly about the risks of more loans to a highly leveraged industry already, and perhaps a scenario where airlines are forced to discount tickets, and you get into this vicious cycle of people undercutting one another, making it just that much more difficult to service their debts.

Given the fact that we're offering $12 billion in loans or loan guarantees today, I'd like for you to comment on whether you think there is any possibility that the legislation we're talking about could actually exacerbate an underlying crisis in the airline industry?

DONOFRIO: I think that's a great question, and I do think you need to be careful about that. I think one way to address it is to have the various airlines justify why they need the money. And your goal is to maybe take how they were financially before, and your goal is really to get them back there, not to prop them up and push them up further.

CARSON: Does anyone else on the panel have any comments about any potential dangers from extending loan guarantees to already highly leveraged industries?

GIBSON: Yes. The way I interpret these loans, if they were enacted, would they would be very short term to get the industry stabilized. And I don't see any harm in that. I would see harm if the government got involved long term. But this is an extraordinary situation. It would be additional way for some airlines to raise cash, but it should be very short term until the industry stabilizes. And then if they couldn't pay back their loans, then they should go bankrupt, once the industry stabilizes.

DONOFRIO: Maybe you can use a demand level, or some type of barometer and really check to see how quickly demand is coming back, because that's just something we can't quantify right now.

CARSON: The $5 billion in direct assistance that we're granting the airline industry, in your minds is that sufficient to get them to resolve the liquidity problems that we're seeing and kind of get them back to where they were before the terrorist incident?

DONOFRIO: I believe it is, but I have to do further analysis.

CARSON: One other question, then, for everyone. We heard this afternoon American Airlines is laying off 20,000 workers. Continental just did 12,000. Can you discuss where, given the problems with the softening business climate in the world and the troubles the airlines were already having, kind of what your projections the airlines would have been absent what we saw this past week?

Were they going to be laying off workers? What was the financial situation that we could use perhaps as a benchmark from which to compare the calamitous layoffs that we're witnessing?

NEIDL (?): What the industry was really looking at going before this was capacity reductions on the order of 1 to 2 percent. And what we're now looking at is 20 to 25 percent. So, I think that's probably a good benchmark for what the potential impact was on labor before and after.

CARSON: Ms. Donofrio, would you comment?

DONOFRIO: We had relatively flat employment rates, really very little change. What we were seeing was capacity growth this year of a little under 2 percent. And next year we're about 1.5 percent. So, it appeared to us that the employment level was pretty stable.

CARSON: Very good. I yield back the remainder of my time.

MICA: I thank the gentleman.

Let me recognize Mr. Boehlert.

BOEHLERT: Thank you, Mr. Chairman.

Following up on Mr. Menendez' comments, it's an area of concern that we share on both sides of the aisle, and I had expressed that earlier in the day in my questioning of Mr. Hoffa. I don't know if Mr. Hall or Mr. Roach either one were here when I talked to Mr. Hoffa about that. But it's a very important point, and I was reassured by the responses.

I was somewhat concerned about the response from Mr. Hoffa that there hadn't been adequate consultation. But I am reassured by what Mr. Mullin said representing the industry -- the recognition of a very valid point he makes that the human capital is such an important part of this overall equation. And the way I compared it earlier is that we're all in this together. And I saw a lot of nodding of heads, starting with Mr. Hoffa, right down the line.

It's critically important that the industry work with organized labor to work out the solution in the best interest of the industry. And the industry is not just equipment, it's people. And the people are vitally important to make certain that equipment functions. So I would once again, say what I said earlier in the hearing, and I'm sorry Mr. Menendez wasn't here because we're sort of singing from the same hymnal on this one, that we're all in this together and we'd better work together to get us where we want to get.

Thank you very much, Mr. Chairman.

MICA: I thank the gentleman.

Let me recognize the ranking member, Mr. Oberstar.

OBERSTAR: Thank you, Mr. Chairman, for sitting here for all this time, and especially our witnesses for waiting so long and for their splendid testimony -- very crisp and sharp and clear and to the point, each one. Mr. Donofrio, I appreciate your crisp, clear, sharp presentation. Mr. Niedl, you said so well, airlines became a victim last Tuesday. I would add in Tuesday's assault, America was the target, not America's airlines. Just as PanAm 103 -- in that tragedy, the American flag was the target, not PanAm.

Mr. Gibson, what you described, watching the strikes and the tower collapse, must have been a bone-chilling experience and an inextinguishable memory. But it certainly hasn't dulled your ability to do financial analysis. The question I have is how long can the airlines wait, given their cash burn and the numbers that you cited, which we don't need to revive here -- how long can they wait? And I raise the question because we keep hearing, well, we've got time to wait on this. We're a week since we tried last Friday, almost. How long can that wait?

GIBSON: To a degree it varies airline by airline. There are some which have, I think, John Kelly from Alaska Airlines said he 110 days worth of cash at his current burn rate. There are some smaller, vulnerable carriers that we're talking days, literally. And the question is, when we say "cash burn," you make a whole bunch of assumptions. The question is, what do you not pay to keep yourself in business? And when does the creditor then try and foreclose and shut you down against your wishes? So it's very hard to know exactly.

But again, I think the main thing that we can look at is -- and I'm relying on Gordon Bethune's public statements; I know he wasn't here today -- but he said about four days ago that he had 22 days worth of cash, with the assumption of him ceasing certain payments. And I think we're starting to see that. The $70 million that Continental did not pay last Friday is basically three days worth of continuing operation for that company.

So airlines are already doing things to avoid the sort of Damocles, but I think for some of the smaller, more vulnerable guys, it's soon. And the question is, again, what the ripple effect is of them not paying certain of their bills and what the impact is on other folks upstream.

OBERSTAR: And the likely first fall-outs are going to be the new entrant, low-fair carriers, a consolidation of the industry in the very short term that will leave the competitive force in the market stranded or out of business.

GIBSON: Absolutely. The most vulnerable segment is that segment. You've got to put Southwest off to the side, but the low- fare segment of the industry, folks like America West who spoke here today, and the smaller new entrant side are the ones that are most financially vulnerable, and are the ones that are providing the bulk of the low-fair competition today.

OBERSTAR: Thank you.

Mr. Hall, in your response to Mr. LaTourette, I understood you to say that if the airlines don't provide satisfactory verbal assurances to the employees, the first legislative package should require the airlines to protect employees. What types of protection are you thinking about? How should it be included? And is it your position that amendments should include the concepts of the Trade Adjustment Assistance Act?

HALL: Yes, I think that's one. I think another one is...

OBERSTAR: Or were you saying that they should be deferred to a phase two? I wasn't clear.

HALL: Well, no, I don't think it should be deferred to a phase two. I think those things need to be clarified in the beginning, even to the point of perhaps saying if you're going to receive, for a number, $6 billion, that $1 billion of that has to be to help your employees -- to soften the impact of layoffs, to make sure that you can give them benefits that allow their families to survive. We're not talking about layoffs that could occur and come back two or three months later.

I heard earlier a CEO saying that well, you know, they can go from one facility or another. This is far more severe than that. We're going to lose workers who are not going to have jobs, unless somebody does something about it, for years, if ever. So you need to go beyond that, and I think that's an obligation not only of the federal government, but of the carriers who are going to receive billions of dollars of relief.

OBERSTAR: We have to be very clear about what your concerns are and what you would like to have included, because my hope and Chairman Young's hope is -- an expectation is that we will bring a legislative package to the House floor by week end; get it through the House. So if labor's going to be part of the proposition, we have to have something very clear what it is you're concerned about, and how we can do this without getting into an institutional problem of sequential referral, because the Speaker said he doesn't want to have a whole bunch of committees wrangling over this package either.

OBERSTAR: So I would just like to say to the gentleman from Ohio, Mr. LaTourette, that I will include in the committee hearing record a statement of the progression of events on the criminal background check issue, dating from our Aviation Security Commission recommendations and the 1990 Aviation Security Act. The airlines resisted 10-year criminal background checks, and I will spell that all out for the gentleman.

Finally, I know there is at least one more member to speak and the chair, but I think we need a high note. And President Chirac of France today addressed the French community in America, concluding (SPEAKING IN FRENCH), "Once more, as in the past, democracies will prevail, together we shall prevail. Long live the United States. And long live France."

HALL: Mr. Congressman, I could also add that detailed anticipation of what we need in terms of labor has been presented to the committee by the Transportation Trades Department, and maybe that should be the document used, if you will, to talk to the CEOs who were here earlier talking about oral commitments and commitments to their employees.

Well, what do you think about this? Before we pass this bill, we have time at least until the end of the week or at least Thursday or Friday to simply say, "This is what labor says they need in fairness with the money we're going to give you." And if you can get them all to sign something, it would be very helpful.

MICA: I thank the gentleman.

Did you have a quick question or comment, Mr. Hayes?

HAYES: Comment -- for Wall Street's sake, I think it's crucial that this issue and this bill be kept clean and that the issues that you raise, as important as they are, they can be and will be included in subsequent discussions. But for the purpose of today, the initial idea of Mr. Oberstar and Mr. Young, to get this support out there, we need to keep it clean.

MICA: I thank the gentleman.

Let me just ask a couple of questions in closing to the financial analysts first. This week or next week or later on, for the package, can you respond -- what should Congress do? Pass it this week or later?

GIBSON: As quickly as possible. They asked the question before, "Were you disappointed that it didn't pass over the weekend?" And at first I was, but now that I think about it, it's much better doing it this way, having the hearing, getting the information, making sure...

MICA: The question is acting from this point forward...

GIBSON: From this point forward, as quickly as possible now.

DONOFRIO: I agree.

MICA: Just for the record, could you comment?

NEIDL: Yes, I would agree.

MICA: One of the other questions is we have air cargo included in this package. Some have said that they haven't had the impact that the major airlines and other passenger carriers have. From a financial analysts standpoint, if they're not included, what would be the results? Could you each comment briefly?

GIBSON (?): Well, I think that they were talking about -- my recollection was 15 percent, which in effect takes care of their portion of the impact. What I think Fred Smith was saying was that they were impacted by the shutdown, but their business has rebounded to more normal-type levels relatively quickly. So he was looking for basically something that could make him whole from the shutdown, but didn't have the ongoing problems that the passenger carriers did.

DONOFRIO: And I think the concerns from the air cargo carriers will be addressed with respect to security at airports, so that would be included.

GIBSON (?): Right, and their crisis isn't nearly as bad as passengers.

MICA: OK. Finally, we're getting inundated with calls that we've assisted the airlines or we're about to assist the airlines. We've had a hearing on the airline situation, but there are many other industries and businesses affected. Maybe very briefly you could tell me where else we may be looking to assist or having calls to assist and that may be justified.

DONOFRIO: You mean with respect to the impact from the airlines?

MICA: Right. Well, from the incidents of last week.

DONOFRIO: Right. Airlines, restaurants, lodging -- just to name a few. You can add on, Ray.

NEIDL: I think you should just stick with airlines, as callous as that sounds, this country can survive without restaurants and hotels. They cannot survive without the airline industry.

DONOFRIO: My point was that in addressing the airlines, you would actually impact all of those other industries as well, positively.

MICA: Mr. Gibson?

GIBSON: I would only make the caveat that, which is kind of an outcome of the airlines, the aircraft manufacturing segment which is such a key portion of the economy. What we're talking about here is where we are bordering on a very weak economy. And the package going forward with the reduction in airline capacity still means no more aircraft deliveries for some time. I don't think that's a situation that we really want to look at from the economy's perspective.

MICA: If you could briefly respond.

ROACH: I'm a representative of Boeing Aerospace and GE. Boeing announced 30,000 people will be laid off. And I would think at the very least that if aircraft purchases are going to be canceled, the Airbus should be first before we start canceling Boeing aircraft. It's 80 percent built in America. And I think there should be a concern about Boeing and the people that work at Boeing.

MICA: Yes, sir.

HALL: Just to add to that, that was the point I was trying to make earlier about phase two and three -- issues like even as Brother Hoffa raised earlier about the members that he represents in terms of rental of cars and those organization that would be badly hit.

That's something that can't be addressed right now. The airline industry recovering itself is what must be addressed and those issues can be talked about a little later.

MICA: Ms. Capito, did you have a final question?

CAPITO: Yes, I had one quick question. Thank you, Mr. Chair.

I come from a community -- Charleston, West Virginia -- who was informed yesterday that U.S. Air is pulling out from Charleston and laying off half of the 44 people that are working there. One of the layoffs comes with a gentleman who has the lowest seniority and he's been there 21 years. So this is going to devastate our small community. But our airport is also going to be devastated because they get their revenues from the passenger boarding.

Do you have any hope or any sense that in a rebound effect, Charleston, West Virginia and other areas in the community could ever see U.S. Air coming back in or a large carrier like that to serve our community? It's just going to devastate us economically.

NEIDL: Yes, if we can stabilize the situation and keep some of our smaller, discount carriers alive, that would be a perfect market for an airline like AirTran to go in there with low fares, and that's the type of markets they're looking for. But right now the situation is so bad, AirTran is retrenching. We have to stabilize the situation before we can think about new services, in my opinion.

DONOFRIO: Yes, and all I was going to add was that unfortunately, in a time of downturn like this that's so sudden, you really do look to cut costs as quickly as possible. And obviously, the marginal routes unfortunately are the ones that will be affected first. So as long as we can stabilize the situation and get things more profitable and back to where we were, we should see service again.

NEIDL: I think eventually, too, once we stabilize the situation, when more regional jets come in, smaller markets like that will be perfect for the regional jet. And you will probably end up with more service.

GIBSON: I think that we've seen even in the economic cycles, small communities lose service and regain it based on the overall health of the industry and the business environment. And so, what everyone is hoping is this downturn in passenger traffic is something that is not permanent. And to the degree it's not permanent, I am certain that they're going to be coming back to your community and others.

CAPITO: Yes. Thank you.

MICA: Thank you.

I'm going to take this opportunity to thank our witnesses both those from the financial industry, also from labor for being with us today.

It's been a very long day. We've been at this for over seven hours. We appreciate, again, your cooperation in working with us as we craft this legislation and hopefully get it passed through the Congress.

I want to thank the ranking member and the minority for their work in this effort and the members on both sides of the aisle.

We are going to leave the record open for an additional 30 days. We may have additional questions to submit to the witnesses. But on behalf of the full committee, I want to thank each of you .

There being no further business to come before the House Transportation and Infrastructure Committee, this hearing is adjourned.

END

NOTES:
???? - Indicates Speaker Unknown
    -- - Indicates could not make out what was being said. off mike - Indicates could not make out what was being said.

PERSON:  DON YOUNG (94%); CHRIS JOHN (70%); DON SHERWOOD (57%); HOWARD COBLE (56%); WAYNE T GILCHREST (56%); JACK QUINN (54%); SPENCER THOMAS BACHUS (54%); STEVEN C LATOURETTE (53%); RICHARD H BAKER (53%); JOHN COOKSEY (52%); WILLIAM ASA HUTCHINSON (52%); ROBERT W NEY (52%); FRANK A LOBIONDO (51%); JOHN R THUNE (51%); RICHARD W POMBO (50%); JERRY MORAN (50%); 

LOAD-DATE: September 22, 2001