Copyright 2002 The Seattle Times Company  
The Seattle Times
September 21, 2002, Saturday Fourth Edition
SECTION: ROP ZONE; Business; Pg. C1

LENGTH: 744 words

HEADLINE: War prospect alarms airlines

BYLINE: Robert Dodge; Dallas Morning News

DATELINE: Washington

BODY:
THE BELEAGUERED industry fears it would prompt an additional drop-off in passengers and a spike in jet-fuel prices.

WASHINGTON The nation's airlines are telling Congress that the industry remains in desperate condition and that a war with Iraq could push many carriers into crisis.

Airline executives delivered that dire message and responded to questions about the effects of a war with Iraq in recent meetings on Capitol Hill, industry officials and congressional aides said. And they are scheduled to testify before a House panel next week about new relief they want from Congress.

While they haven't asked for a second round of cash subsidies, industry executives want government relief from skyrocketing costs of insurance and heightened security, and from taxes.

"We are in a financial mess," said Michael Wascom, a spokesman for the airline trade group, the Air Transport Association (ATA). "The industry is still experiencing an unprecedented financial crisis and further bankruptcies are a real threat."

Congressional leaders met last week with Donald Carty, chairman and chief executive officer of American Airlines, Herb Kelleher, chairman of Southwest, and 10 other airlines executives, Wascom said. Next week, Carty will be among the industry's representatives testifying before the House Transportation Committee.

In discussions with lawmakers, the airline executives said a war with Iraq could prompt an additional drop-off in passengers and a spike in jet-fuel prices. The airlines, which were in better shape a decade ago, took a similar hit during the 1991 Persian Gulf War.

According to the ATA, jet-fuel prices rose as high as $1.30 a gallon during that war, up from 60 cents the year prior. Jet fuel now goes for about 72 cents a gallon.

Furthermore, the airlines would be unable to operate flights to parts of the Middle East, and some flight personnel who are in the military reserves would be called to duty. "It could complicate an already precarious financial condition," said Wascom, adding that the industry would stand behind President Bush and U.S. troops if the country goes to war.

The airline industry received $5 billion in cash and $15 billion in loan guarantees after last year's terrorist attacks. Since then, travelers have been slow to return, and stayed away en masse last week with the anniversary of Sept. 11.

"If something happens with respect to Iraq, we will see another hit on the traffic side," said Jon Ash, an aviation consultant with Global Aviation Associates of Washington.

One Wall Street analyst this week predicted that U.S. airlines would lose $7 billion in 2002 and $3.3 billion in 2003. Those losses would come as airline stocks already have been hammered. For the year, American Airlines is down 78 percent; Delta Air Lines is down 58 percent; United is off 81 percent.

"The picture is not pretty, as you know," Leo Mullin, chairman and chief executive officer of Delta, told reporters and analysts Thursday at a conference in Atlanta. "What we find here is that the revenues for the airline industry have simply not come back anywhere near where we hoped."

Mullin said the industry has "suffered an enormous penalty" because of rising premiums for war-risk insurance. He said the airlines are paying about $950 million for coverage this year, up from $20 million the year before the terrorist attacks.

"As we look out into the immediate future the picture does not look like it is going to improve anywhere in the immediate term," Mullin said. "So we are going to have to struggle with both the economic and security challenges that we face."

Even without a war with Iraq, the airlines said they need additional help from Congress. Executives told lawmakers they are suffering because of increased costs for war-risk insurance, improved security such as secured cockpit doors, additional screening for catering, flying sky marshals and restrictions on transporting mail.

The industry wants Congress to essentially underwrite some of its insurance, possibly creating a government-backed pool of terrorism coverage. The airlines may also seek a temporary suspension on federal taxes and fees, including the levy on jet fuel.

Wascom said the airlines have no plans to ask Congress for another cash subsidy. If there is a war, he said the airlines might ask Bush to tap the Strategic Petroleum Reserve to help moderate fuel prices.

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