Copyright 2001 Federal News Service, Inc. Federal News Service
September 19, 2001, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 2219 words
HEADLINE:
PREPARED TESTIMONY OF KERRY SKEEN CHAIRMAN AND CHIEF EXECUTIVE OFFICER ATLANTIC
COAST AIRLINES HOLDINGS, INC.
BEFORE THE
HOUSE TRANSPORTATION AND INFRASTRUCTURE COMMITTEE
BODY: Mr. Chairman, Mr. Oberstar, and distinguished
members of the Committee, thank you for inviting me to appear before this
panel.
I testify before you here today as Chairman and
Chief Executive Officer of Atlantic Coast Airlines Holdings, Inc., based in
Dulles, Virginia and as a Board Member of the Regional Airline Association
(RAA). ACA, which is headquartered in Dulles, Virginia, operates a fleet of 118
aircraft and provides service to 66 cities in the U.S. and Canada, and employs
over 4,000 professionals.
Before beginning my
testimony and on behalf of the 4000 aviation employees of Atlantic Coast
Airlines, I would like to extend our most sincere thoughts to the victims and
families and rescue workers and all those whose lives have been forever changed
by the acts of war carried out against all Americans last Tuesday. Our employees
live and work and serve in the cities of Washington, DC and New York, and none
of us will ever forget this tragedy. We are heartened by the rapid action of the
United States Congress in passing H.R. 2888, the 2001 Emergency Supplemental
Appropriations Act, to provide funding for the victims of these tragic acts of
terrorism and to help prevent such a horror from recurring. As the people of
Atlantic Coast Airlines pause to grieve and reflect on these horrific acts, we
must also focus our attention toward the commitment we have made to our
customers and employees to keep air travel safe and reliable.
Regional airlines, like major airlines, depend and rely on a consistent
source of revenue to keep their fleets in operation. The three-day grounding of
commercial airlines during the aftermath of these terrorist acts inflicted
staggering losses across the regional airline industry. At a minimum, the
financial losses resulting from the nationwide groundstop and subsequent
reduction in passenger traffic will put a tremendous burden on regional carders'
ability to continue current and future operations. Without immediate and
sufficient emergency assistance, many regional carders will be forced to cease
operations, leaving passengers in small and medium sized rural communities in
nearly every state of the nation without access to the nation's air
transportation network.
Furthermore, while the main
headline for the regional airline industry over the last five years has been the
rapid replacement of turboprops with regional jets, the ability of regional
carders to continue the transition from old technology to new technology, and to
dramatically improve the quality and reliability of service to hundreds of
communities, is likely to come to a grinding halt without some help. Atlantic
Coast Airlines, for example, operated with 60 turboprops in its fleet last year.
We were on track to retire all of those turboprops and to replace them with
state-of-the-art regional jets by year-end 2003. To meet this commitment to
providing better service to communities with faster and more comfortable
aircraft, ACA has 81 regional jets on firm order in addition to the 77 regional
jets already in our fleet. Without some form of government support, it will be
extremely difficult, if not impossible, for us to continue financing and
obtaining insurance for regional jets in today's environment.
Background
Before moving on, I would like to
provide some background so that you may better understand the regional airline
industry and its contribution today. Last year, the regional airline industry
accounted for 1 out of every 8 domestic passengers who flew in the United
States. Of all the airports in the United States, nearly 70% percent have no
mainline service at all but are instead served exclusively by regional carders.
Regional airlines provide the only link to the national transportation network
for 271 airports in the lower 48 states. Their importance is even more
pronounced in Alaska and Hawaii, where regional carders provide the only
scheduled airline service at 198 of these states' 222 airports. For the last few
years, regional airlines have been the fastest growing segment of commercial
aviation. In the year 2000, regional airlines carded 85 million passengers, or
12% of all domestic passengers traveled on a regional carder. Regional airlines
accounted for 42 billion available seat miles and 25 billion revenue passenger
miles in 2000.
FIGURE A.
Regional Airline Transport Statistics in 2000:
Passenger Enplanements (Millions) Revenue Passenger Miles (Millions)
85 Million 25 Billion
Many
regional airlines work in close cooperation with the major airlines through code
sharing agreements. Of the 95 regional airlines in the United States today, 14
of them are wholly owned by major air carders. Three of the regional airlines
are partially owned. Still, other airlines like Atlantic Coast Airlines are
independent, publically traded companies that operate under codeshare or
marketing agreements with one or more major carders. Atlantic Coast Airlines has
codeshare agreements with both United Airlines and Delta Air Lines. As such,
Atlantic Coast Airlines relies heavily upon the survival of United and Delta for
our own continued viability. The significant capacity reductions recently
announced by many major airlines are already having a serious impact on regional
carders and if continued, are likely to lead to staggering losses for many of
the carders.
Despite these close working relationships
with major carders, regional airlines operate as separate financial entities and
have been impacted by the aftermath of last Tuesday's terrorism in many ways
that are unique to our particular segment of the airline industry. Whether or
not a major airline has an equity position (ownership or part ownership) with a
given regional, that regional carrier cannot support and maintain employees,
cannot finance the acquisition of new aircraft, and ultimately, cannot continue
to provide service to small and medium sized communities across the nation if it
does not generate sufficient passenger traffic. In light of this, we recommend
that all financial assistance be distributed in a way that allows regionals to
receive direct financial assistance as separate entities rather than through a
method which is reliant upon major airlines to mitigate regional airline
losses.
The major airlines have identified several
areas where airlines are in critical need of government assistance and are
asking for $24 billion in aid. Estimates of the support necessary for the
regional airlines are proportionate to those loses estimated by the majors based
on the regional airline industry available seat miles for last year. The
regional airline industry last year accounted for just under 5 percent of the
available seat miles produced by the major carriers. The Regional Airline
Association estimates total industry short-term losses will equal roughly $1.3
billion. While our specific funding needs differ slightly from those of the
major airlines, our request is line with the request of the major airlines
considering our proportionate available seat miles.
There are other factors, besides the immediate losses related to the
groundstop imposed last week, that are likely to have a material impact on
regional carders. These include the inability of airlines to obtain reasonable
insurance rates, the inability to obtain reasonably priced capital or in some
cases credit at all, higher costs associated with additional security measures,
reductions in equipment utilization resulting from the increased passenger
processing times, higher oil prices, lower share prices, and reduced consumer
confidence.
We therefore urge Congress to include
additional support for regional carders in any relief package to be provided to
the major airlines, and urge that the support be provided directly to the
regional carders. That support could take the following form:
1. An immediate cash infusion in direct grants earmarked for regional
airline industry to help mitigate losses associated with last week's
groundstop.
2. Federalization and government financial
sponsorship of security screening. In instances where regional airlines are
uniquely impacted by additional security measures--a particular concern for
regional airlines who exclusively serve cities and who operate small aircraft we
urge federal assistance for implementation of any security directives. Since the
government holds the intelligence information, and currently must filter it
through FAA, to airlines, a more effective system would be to place security in
hands of government so they could take immediate and appropriate countermeasures
without the delay and added confusion of human factors.
3. Financial assistance in the form of low interest loans to provide
working capital until passenger confidence levels improve and airline load
factors return to sufficient levels to sustain carder operations. The regional
airline industry by nature is capital intensive and therefore highly leveraged
and as a result needs access to capital at reasonable rates. Airlines expect
difficulty financing aircraft acquisition; some carders have even experienced
difficulty obtaining replacement parts and spare parts because of supplier
concerns over short-term airline fiscal health and commensurate ability to
pay.
4. Assistance dealing with rapidly escalating
insurance costs. All carders face enormous rate hikes, and many with near-term
policy extensions worry that insurance may not be available at all.
Additionally, aviation underwriters have begun to impose significant surcharges
on existing coverages starting next week. Significant could mean a 10 to 50
percent increase in existing liability premiums, surcharges of $1.25 per
passenger per segment, and 700 to 1000 percent increases in airline hull
insurance. Some form of assistance in this area, either through government
guarantees, government underwriting, or the establishment of a war-risk insurance program, are absolutely critical to the
recovery of our industry.
5. Additional funds for the
Essential Air Service program to provide DOT latitude for real-time rate
adjustments to offset carders losses and prevent service terminations associated
with the drastic reduction in traffic. Additionally, such cash is necessary to
continue subsidizing service at current and soon-to-be designated EAS markets.
This is especially critical considering the announced capacity reductions; many
markets not currently receiving subsidy may qualify and put an enormous cost
burden on the program. Additionally, DOT must immediately consider incremental
subsidy rate increases to cover cost increases and revenue reductions associated
with the drastic reduction in traffic.
The Regional
Airline Association arrived at these numbers after discussions with member
airlines on the financial impact of Tuesday's events and the new security
mandates that are now in place. Based on these responses, RAA anticipates
revenue losses per airline will range from $130 thousand to $3.7 million per day
(depending on the size of the operation) due to the federally issued nationwide
groundstop. Beyond these losses, revenue loss forecasts for the next four months
are anticipated to be between from $8 million to $20 million per airline and
total long-term revenue losses for some of the larger regional airlines could
approach $100 million, based on conservative estimates of reduced capacity and
traffic, but not including costs associated with higher insurance premiums and
aircraft financing.
Most regional airlines responding
to this question said that, without some form of financial relief, airlines will
undergo drastic downsizing, reduce service to communities, and in some cases
completely cease operations. Regional airlines form the transportation backbone
that supports the economies of many smaller and medium-size communities, and the
ripple effect of dramatic service cutbacks or termination of service to those
communities will have staggering impact on the economy of the United States at
large.
CONCLUSION
We at
Atlantic Coast Airlines take our commitment to our passengers traveling to and
from smaller and mid-sized communities seriously. Government assistance in the
forms described above will provide the necessary life support our industry needs
for the short term so that we can recover as an industry and be here to serve
our communities for the longer term. As we continue to strive to keep air travel
safe and reliable for our passengers, and for our employees, we respectfully
request that Congress step up now and help us ensure that the regional airline
industry along with service to almost 669 communities throughout the United
States does not become the next casualty from the acts committed against the
United States on September 11.
Mr. Chairman, this
concludes my prepared statement before the Committee. I thank you and all the
members of this Committee for your timely response and immediate efforts to
secure assistance for airlines struggling under the weight of this national
tragedy. Atlantic Coast stands ready to assist you in any way we can as you
continue those efforts. Because the very viability of our industry depends upon
the timeliness of this heating and government assistance, we thank you sincerely
for your efforts.
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