Copyright 2002 The Chronicle Publishing Co.  

The San Francisco Chronicle
SEPTEMBER 25, 2002, WEDNESDAY, FINAL EDITION
SECTION: BUSINESS; Pg. B1

LENGTH: 740 words

HEADLINE: Airlines ask Congress to help cover their losses

SOURCE: Chronicle Staff Writer

BYLINE: David Armstrong

BODY:
Seeking to pull out of their financial tailspin, airline executives asked Congress on Tuesday for a package of fee cuts and a cap on the soaring costs of war insurance to help stanch billions of dollars in losses.

"Our industry today is at a point where its viability is seriously in question -- much more so than last year," Delta Air Lines Chief Executive Officer Leo Mullin said.

Mullin was joined in testimony Tuesday before the House Aviation subcommittee by American Airlines CEO Donald Carty, who also called for relief for the industry.

Congressional relief, if approved, would come on top of $5 billion awarded to the nation's airlines after the Sept. 11, 2001, terrorist attacks.

Last fall, Congress also authorized $10 billion in federal loan guarantees, but few airlines have applied for loans because of what they see as onerous conditions, including government equity stakes. Tuesday's testimony came from executives of carriers that have not applied for loans.

Hammered by the Sept. 11 attacks and by the economy, which was in trouble well before that, the nation's airlines lost a record $7.1 billion in 2001. Some industry executives say losses could approach another $7 billion this year, fueled by high security costs.

Mullin estimated that security costs for the airline industry could reach $4 billion this year. Among other things, the airlines said they are saddled with higher government fees, soaring terrorism insurance costs and costly equipment changes such as replacing cockpit doors. In addition, the revenue shortfall has been blamed on government restrictions on carrying U.S. mail and other freight and the need to provide free seats for air marshals.

No. 3 airline Delta alone has been socked with a $150 million jump in terrorism insurance costs, a $20 million tab for new cockpit doors, $90 million in revenue lost as a result of air cargo restrictions and $35 million in ticket revenue lost from having to accommodate federal air marshals for free, Mullin said.

The carriers want the U.S. government to hold down airport security fees, give airlines $160 million to help pay for replacing cockpit doors and offer war-risk insurance at below-market cost for another year, said Michael Wascom, a spokesman for the Air Transport Association.

Airlines also want the government to suspend fuel excise taxes and other taxes and fees in the event the United States goes to war with Iraq, Wascom said.

United Airlines, the Bay Area's dominant carrier, with half of all flights and passengers at San Francisco International Airport, is following a flight path different from most of the other majors.

For one thing, United is applying for a federal loan guarantee, asking for $1.8 billion.

For another, the carrier's new chief executive officer, Glenn Tilton, is not planning to testify before Congress, said United spokesman Chris Brathwaite.

However, Brathwaite said, United supports some form of industry relief from post-Sept. 11 security costs. Citing company policy, he declined to specify United's security costs.

United's loan application will be completed, Brathwaite said, when the carrier, the nation's No. 2 airline, receives and incorporates a proposal from its unions on how to reduce its costs. It is anticipated that the union plan, expected this week, will play a pivotal role in United's decision on whether to file bankruptcy protection.

House Aviation subcommittee members said they are willing to give the airlines some temporary help, but some lawmakers said the industry needs to fix problems it brought upon itself.

"The carriers seem unable to muster the discipline to reasonably price their product," Rep. James Oberstar, D-Minn., said.

Rep. John Mica, R-Fla., chairman of the House Aviation subcommittee, said that although he opposes giving bailouts to the airlines, Congress should be willing to consider helping them in other ways.

"This country is extremely dependent on the aviation industry," he said. "If it goes down the tubes, we're in big trouble."

Liability insurance, for example, has risen for some airlines from several million dollars annually to hundreds of millions annually. Mica wants the government to extend the war-risk insurance policies it issued after Sept. 11.Chronicle news services contributed to this report. / E-mail David Armstrong at davidarmstrong@sfchronicle.com

LOAD-DATE: September 25, 2002