Fitzgerald

Who Will Bailout the American Taxpayer? Senator Peter Fitzgerald (R-IL) October, 2001 The Treasury Department recently began wiring $5 billion to the bank accounts of U.S. airlines. After it completes these up-front cash payments, the Treasury will then be obliged to guarantee up to $10 billion in airline industry loans, all as part of a $15 billion bailout bill passed by Congress. This package is unfair to workers and unfair to taxpayers. It sets a troublesome precedent for how to deal with other industries which have in some way been affected by the events of September 11. The airlines claim that a taxpayer-funded bailout was necessary to save the industry and preserve air travel in the United States. Not so. Many of the airlines had sufficient liquidity to weather the storm following the terrorist attacks. Southwest Airlines, for example, had and still has a fortress balance sheet and may even show a profit for the quarter. A few of the airlines are in serious trouble, and remain at risk despite the bailout. But some of their problems long predate September 11, and may have as much to do with ordinary management decisions as with an extraordinary national crisis. In any event, a case may have legitimately been made to compensate the airlines for the temporary government-ordered shutdown of air travel. Instead, Congress, acting precipitously and with little examination of the airlines’ books, gave them many times the amounts that they lost. According to industry testimony, the shutdown cost $340 million a day in lost revenue. That adds up to $1.36 billion (even assuming a four as opposed to a three-day shutdown). But how much was the bailout? Fifteen billion dollars. Five billion in cash, ten billion in loan guarantees. And who exactly is the "industry"? How about the airlines’ one million employees? Layoffs are coming fast and furious and what is Congress doing about that? Remarkably, the federal aid package includes no help for flight attendants, baggage handlers, mechanics or pilots. There are no requirements that the airlines – the beneficiaries of the taxpayer magnanimity – in turn treat their employees with care and generosity. Prior to the bailout, one investment adviser was enthusiastically noting the upside of the crisis: the industry could get billions while at the same time blowing out employee contracts by citing events "beyond their control." A twofer. For a fraction of what it cost to save airline industry shareholders, Congress could have greatly reduced the hardship experienced by furloughed workers. Instead, Congress bailed the investors and booted the skycap. The bailout was as unfair to taxpayers as it was to workers. Evaluating airline stocks before the bailout, a Wall Street analyst observed, "It’s simple. Either the shareholders or the taxpayers will take the hit." Guess who Congress chose? Sure enough, the taxpayers took the hit. The people I represent will have to work awfully hard, for an awfully long time, to recoup a potential $15 billion loss. The fundamental inequities here are extraordinary. The shareholders are, in many instances, sophisticated investors. They may be people familiar with any inherent risks in airline stocks. They will be protected. The people who will pay, on the other hand, are the ordinary Joes – the men and women who go to work every day, feed their families, and may not have two

nickles to invest in the market in the first place. It’s a dark irony that these men and women are being called upon to belly up for the sophisticates who’ve seen their stock head south. Finally, by compensating the airlines for more than their losses during the government shutdown, Congress has created an already haunting precedent. Many other industries have also experienced a general decline in their business since September 11. Airport concessionaires, theme parks, car-rental companies, are claiming that they, too, need a bailout. Hotels and restaurants are hurting; so are cab drivers. Railroads and steel companies are coming in the wake of the terrorist attacks. Having indemnified the airlines for September 11 "related" losses, by what principle do we now deny aid to others? Congress has created a legislative morass, and many are already crying foul. If Congress had constructed a responsible package, while demanding concessions for the workers and protections for the taxpayers who paid the bill, the effort to assist the airlines in a rough time could have been a legitimate enterprise. But Congress effectively wrote a blank check with no strings attached. It may be poised, now, to do it again and again. At some point, however, someone may ask: who, finally, will bail out the American taxpayer?