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Tuesday, September 16, 2014
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Published: Wednesday, 4/9/2003

Subsidizing the airlines

When Congress voted $5 billion in cash to bail the airline industry out of its financial troubles following the 9/11 terrorist attacks, we characterized the action as “a terrible and unfortunate precedent.” We were right - the industry now has its hand out in Washington for up to $3.5 billion more.

Both the House and Senate versions of legislation to pay for the war in Iraq contain another windfall for the financially strapped airlines. If lawmakers fall for this scam again, taxpayers face the prospect not merely of a bailout but a continuing and extremely costly subsidy.

As we have repeatedly pointed out, the airlines' financial problems were, and continue to be, mainly of their own making, rather than due to public skittishness about flying in the face of terrorist and wartime threats.

More to blame is the wasteful hub and spoke system adopted in the wake of the 1978 airline-deregulation law. In addition to being expensive to operate, the system has led to reduced service to many mid-sized markets such as Toledo.

The initial bailout, voted by Congress just 11 days after the attacks on New York and Washington in 2001, did nothing to encourage basic changes in the way the airlines are run.

United Airlines, for example, got $774 million, but its parent company, UAL Corp., now is in bankruptcy. Most of the major carriers were lavishing ridiculously high salaries and bonuses on their chief executives, and several still are, even as they demand big pay and benefit cuts from pilots and other rank-and-file employees.

Should the taxpayers continue to reward wasteful organization and mismanagement? We think not.

This time, the least Congress can do is impose some substantial limits on how much the carriers can pay their executives. It should retain an amendment authored by Rep. Martin Sabo, a Minnesota Democrat, which would require the airlines receiving aid to freeze executive base pay and bonuses at 2002 levels.

The Sabo amendment already has produced some results. Leo Mullin, CEO of Delta Airlines, has agreed to cut his $795,000 base salary by 15 percent, which sounds generous except for the fact that his total compensation last year, including bonuses and other benefits, was $13 million. Delta, meanwhile, lost $1.3 billion.

Put another way, Mr. Mullins got a 104 percent boost in compensation from 2001 to 2002, while his company's shareholder return plummeted 58 percent.

Other airline parents, including UAL and AMR, which runs American Airlines, have been busy lately, cutting executive pay by nominal amounts. But this looks like an attempt to get the Sabo amendment removed from the aid legislation when it is reconciled by a House-Senate conference committee.

Limiting the pay of executives of private companies by statute may run counter to cherished principles of free enterprise, although there is nothing free about this legislation, especially to taxpayers.

Subsidizing the airlines is distasteful enough, but this is one case where government strings can rightfully be attached. Otherwise, they just take the money and fly away.



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