Airlines to Get Up to $15 Billion in Federal Aid

Congress is preparing an aid package of up to $15 billion for the nation’s airlines, which are moving perilously close to insolvency following the terrorist attacks on America, congressional staffers said Friday.

The airlines are bleeding cash as they struggle to resume full operations after the unprecedented two-day shutdown of U.S. airspace. The industry has fixed costs--bills that must be paid--of more than $340 million a day “regardless of whether they operate a full schedule or none at all,” said Darryl Jenkins, head of the Aviation Institute at George Washington University.

Yet many airlines have only two or three weeks’ worth of cash reserves, so the shutdown “seriously damaged their liquidity position,” Jenkins said. Industry analysts say one or more airlines could be forced into bankruptcy.

And the carriers are bracing for more trouble Monday when the stock market reopens, with airline shares expected to tumble because of the carriers’ rapidly weakening condition.

One of the weakest carriers, US Airways, demanded Friday that flight attendants and other non-pilot employees of its shuttle service, MetroJet, take a 25% pay cut, according to Jeff Zack, a spokesman for the Assn. of Flight Attendants, the union that represents employees at numerous airlines.

The workers had until today to decide, and about 900 flight attendants would be affected. “To do it now is completely tasteless,” Zack said. “But I wouldn’t be surprised to see others follow.

“There’s going to be pressure on the airlines to survive, and one of the things they always tend to do when they get in a financial crisis is come to the employees and ask for concessions.”

US Airways couldn’t be immediately reached for comment.

Moody’s Investor Service on Friday lowered the credit ratings on US Airways and another airline, America West, because the debt-rating agency expects the carriers to incur “significant losses” following the terrorist attacks.

Moody’s also said it might downgrade the ratings of other airlines because passenger traffic is expected to drop in response to the attacks and new, heightened security measures at U.S. airports will make the airlines’ operations less efficient and more costly.

Also Friday, Northwest Airlines told its pilots’ union, the Air Line Pilots Assn., that the carrier is considering a pilot layoff in light of “current industry conditions,” said union spokesman Will Holman. Minneapolis-based Northwest, the nation’s fourth-largest airline, could not immediately be reached for comment.

Northwest spokesman Bill Mellon declined comment about possible layoffs but said the carrier is studying what would be “an appropriate flight schedule” in the coming weeks. Once that’s determined, “we will brief our employees’ union leaders,” he said.

The federal package would include $2.5 billion in direct aid, along with up to $12.5 billion in loans, credits and loan guarantees, said Jim Berard, a spokesman for Rep. James Oberstar (D-Minn.), who coauthored the plan.

Much of the aid would come from the $40-billion relief package that Congress passed Friday to help the country recover from the attacks, although specific funding sources have not been fully determined.

“The industry is going to be hurting from this crisis,” and the airlines are “an important industry that we need to help right away,” said Kori Bernards, a spokeswoman for House Democratic Leader Richard Gephardt (D-Mo.).

The U.S. aid package “is warranted, for the economy of the country and the whole world,” said Terry Trippler, airline analyst at OneTravel.com, a travel services firm. “After going through three days of no air service, we can see it’s truly much more important to our economic well-being than anyone ever thought.”

Trippler also said, “I hope this is a bailout that helps keep fares down and within reason . . . and has nothing to do with [paying for] new security, because I feel the government should foot the bill for airport security.”

Kevin Mitchell, head of the Business Travel Coalition advocacy group for business fliers, said congressional action was vital ‘to prevent the wholesale failure of the domestic U.S. airline industry that is nearly certain without federal action.”

But U.S. carriers aren’t the only ones hurting. The Mexican airline Mexicana said that if the ban preventing many foreign airlines from resuming flights to the U.S. lingers another week, it would mean “Mexicana will not be able to continue operating given its lack of cash flow,” said spokesman Fernando Martinez in Mexico City.

U.S. airlines already were expected to lose a combined $2.5 billion to $3 billion this year because of the weakening U.S. economy, which sparked a severe drop in business traffic--the most lucrative segment of the market for the airlines. Now that loss figure is expected to climb by at least another $1 billion because of the terrorist attacks.

The air travel shutdown was ordered because the terrorists used four hijacked commercial jetliners to wreak their havoc. And although planes are again flying, the airlines are bracing for a steep drop in demand from passengers too afraid or anxious to fly.

One small carrier, Midway Airlines, already is a victim of the shutdown. The North Carolina-based regional airline, which had filed for bankruptcy reorganization even before the attacks, ceased operating and laid off its 1,700 employees earlier this week.

The rescue package could help the remaining airlines avoid the fate of Pan American World Airways. The famed airline never recovered from the terrorist bombing of its Flight 103 over Lockerbie, Scotland, in 1988 and ultimately folded in 1991--when the industry also was hit with a sharp drop in traffic because of the Persian Gulf War.

This time, even some airline workers are worried about flying again. Leslie Mayo, national communications coordinator for the Assn. of Professional Flight Attendants, a separate union that represents American Airlines attendants, said that some flight attendants are too nervous to work their regular flights at this point but that others have volunteered to work in their place.

“I’m a flight attendant too, and I don’t know how I would feel about stepping onto a plane,” she said.

The industry’s fragile financial condition also raises tensions between the airlines and organized labor, as the carriers strive to slash costs while airline employees seek greater compensation for an increasingly risky job, said Ray Abernathy, a media relations consultant with the AFL-CIO in Washington.

The carriers’ heavy losses will “drive down settlements, wages and benefits,” he said. “You hate thinking about those things when people are still grieving, but it’s there.”

Congress is mulling other help for the airline industry, including giving large-scale protection against lawsuits to American Airlines and United Airlines, which are the main divisions of AMR Corp. and UAL Corp., respectively.

Hijacked American and United jetliners were used in the attacks, and those two airlines and some analysts are worried that the companies could face bankruptcy if they are exposed to thousands of lawsuits from the victims’ families and affected businesses.