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Federal Document Clearing House Congressional Testimony
September 19, 2001, Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 2258 words

COMMITTEE: HOUSE TRANSPORTATION

HEADLINE: AIRLINE BAILOUT LEGISLATION

BILL-NO:

 
H.R. 2888             Retrieve Bill Tracking Report
                      Retrieve Full Text of Bill

TESTIMONY-BY: KERRY SKEEN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER

AFFILIATION: ATLANTIC COAST AIRLINES HOLDINGS, INC.

BODY:
Kerry Skeen Chairman and Chief Executive Officer ATLANTIC COAST AIRLINES HOLDINGS, INC.

Testimony before the House Transportation and Infrastructure Committee

September 19, 2001

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 carriers' ability to continue current and future operations. Without immediate and sufficient emergency assistance, many regional carriers 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 carriers 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 carriers. 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 carriers 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 carried 85 million passengers, or 12% of all domestic passengers traveled on a regional carrier. 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 Million25 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 carriers. 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 carriers. 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 carriers and if continued, are likely to lead to staggering losses for many of the carriers.

Despite these close working relationships with major carriers, 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 carriers. 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 carriers in any relief package to be provided to the major airlines, and urge that the support be provided directly to the regional carriers. 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 camer 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 carriers 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 carriers 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 carriers 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 hearing and government assistance, we thank you sincerely for your efforts.



LOAD-DATE: September 19, 2001