Panel Suggests Lower Taxes for Ailing Airline Industry : Transportation: The preliminary report by the federal commission appears to ignore calls to re-regulate the industry.

The U.S. airline industry--which has lost more than $10 billion during the last three years--needs tax relief, and financially troubled carriers must be closely monitored if the industry is to recover from its financial woes, a federal commission said Monday.

Industry groups hailed the proposal on taxes, while airline observers said it appears the commission for the most part has ignored calls to re-regulate the industry and reimpose government price controls.

However, airline analysts warned that the commission’s proposals for tax relief--which would need congressional approval--and other recommendations face an uphill fight.

“It’s going to be extremely difficult to persuade the Congress to provide tax relief to any industry because of the enormous deficit,” said Paul S. Dempsey, head of the transportation law program at the University of Denver.

The National Commission to Ensure a Strong Competitive Airline Industry, whose members were appointed in May by President Clinton and congressional leaders, said its preliminary recommendations could be modified before a final report is issued in a month. But former Virginia Gov. Gerald L. Baliles, the commission chairman, said the proposals--including tax relief--will be the basis for the panel’s finished product.

“The federal government imposes a large and disproportionate tax burden on the airline industry that impedes its return to financial health,” the commission said in its preliminary report.

Some of the commission’s preliminary findings and recommendations include:

* Roll back airline passenger ticket and cargo taxes to pre-1990 levels--a move that airline groups say would save airlines $4 billion a year. Exclude jet fuel from a proposed fuel tax hike and exempt carriers from the so-called alternative minimum tax.

* Create a panel to alert the government about questionable industry practices such as the wave of mergers and junk bond deals of the 1980s. Many carriers added to their problems by running up huge debts. * Impose a one-year limit on the right of a bankrupt airline to reorganize. Many airlines have complained that carriers under Bankruptcy Court protection cut fares to unprofitable levels, forcing healthier carriers to match them and hurt profits.

* Allow foreign companies to own as much as 49% of the voting stock of a U.S. carrier--provided the firm’s country maintains a liberal aviation policy--to attract investment. Currently, foreign ownership of voting stock is limited to 25%.

* Spin off the air traffic control functions of the Federal Aviation Administration to an independent government corporation.

Aviation consultant Barbara Beyer said she doubts the airlines can win special exemptions from federal tax and bankruptcy laws, which other troubled industries would also love to have.

“Why are you taking bankrupt carriers and treating them so differently than other bankrupt corporations?” asked Beyer, president of Avmark, a Washington-based consulting firm. “Every other U.S. company can go bankrupt and do very well.”

Large U.S. carriers might also oppose expanded foreign ownership of domestic carriers, industry analysts say. “It effectively allows foreign airlines to invade the domestic market,” said Dempsey at the University of Denver.

Commission members said they wanted to make it clear the proposal would not mean a return to federal regulation of airline fares and routes, and some fretted that the plan might create the impression that the commission wants to bail out faltering carriers.

“It should not be our job to protect the dinosaurs in Jurassic Park,” said commission member Daniel Kasper, who heads his own management consultant firm in Boston.

Recommendations for Airline Industry

The federal commission studying the troubled airline industry has issued these preliminary recommendations.

* Reduce passenger and cargo taxes and exclude jet fuel from proposed tax increase.

* Monitor industry practices that could lead to problems, such as large increases in debt.

* Give airlines under Bankruptcy Court protection only one year to reorganize.

* Attract investment by allowing greater foreign control of domestic airlines.

* Let the air traffic control department operate independently of the Federal Aviation Administration.