Bush to Offer Airline Rescue Proposal

The Bush administration proposed a two-step plan to shore up the distressed airline industry by offering an immediate $5-billion cash infusion and other assistance Wednesday as the nation’s two biggest airlines said they were eliminating a total of 40,000 jobs.

The proposal, according to a senior administration official, also includes $3 billion to beef up airline security and some liability protection for American Airlines and United Airlines, whose planes were hijacked and crashed Sept. 11 in New York, Virginia and Pennsylvania.

The official said the White House also plans to introduce a second proposal at a later date that would deal with loan guarantees for the airlines.

“We consider it essential to get the airlines back into the air on a safe and stable basis, and we believe these proposals do that,” the official said.

It was not immediately clear how much the entire package would be worth. But airline officials spent the day in Washington urging lawmakers to approve at least $12.5 billion in loan guarantees and $5 billion in cash.

During a House Transportation and Infrastructure Committee hearing, lawmakers from both parties expressed support for an airline industry rescue plan. The Senate Commerce, Science and Transportation Committee has scheduled a hearing on the issue today.

Since the Sept. 11 attacks, U.S. carriers have slashed their flights by about 20% and announced more than 68,000 job cuts or layoffs, and analysts predict as many as 100,000 are likely. On Wednesday, No. 1 carrier American said it will cut at least 20,000 jobs, and United said it will lay off about the same number, or 20% of its work force.

“I have declared a state of emergency at American Airlines,” American Chairman and Chief Executive Donald Carty wrote in a letter to employees. “This declaration is an official recognition that--hard as it may be to accept--our company’s very survival depends on dramatic change to our operations, our schedule and, worst of all, our staffing levels.”

The $600-billion airline industry is projected to post a record-breaking loss of about $7 billion for the full year--and most airlines’ cash reserves are expected to run out within a month.

Douglas Parker, chairman, president and CEO of America West Airlines, told the committee that several airlines are waiting to see what Congress does, “and if something can’t be done, [they] would very likely be forced to file bankruptcy in a number of days.”

Airline stocks further stabilized Wednesday, after the sector suffered a 40% drop Monday.

American’s parent AMR Corp. was unchanged at $20; United parent UAL Corp. fell 23 cents to $18.76; No. 3 carrier Delta Air Lines rose 73 cents to $23.66; and Continental fell 26 cents to $17.46, all on the New York Stock Exchange. Northwest fell 84 cents to close at $12.07 on Nasdaq.

A number of lawmakers and union leaders, led by Teamsters President James P. Hoffa, said any aid package should include financial relief for displaced workers. “If we are helping the airlines survive, we should do no less for their employees,” Hoffa said. Late Wednesday, Sen. Jean Carnahan (D-Mo.) said she plans to push for $2.5 billion in aid for laid-off employees that would be used to help fund job training and extended benefits.

Bush administration officials and members of Congress have objected to calling any aid plan a “bailout,” and industry executives were mindful of the semantics. “Our proposal is only intended to stabilize the financial condition of this industry,” said Delta Air Lines Chairman and CEO Leo F. Mullin. “It is not a bailout. . . . The need to deal with the situation is absolutely urgent.”

Lawmakers also suggested that airline executives curb bonuses and other management perks before they receive federal financial aid. Some members of Congress are considering seeking to limit executive pay.

“I strongly support providing aid to the airline industry to help them through this rough period, but I do not support signing a blank check,” said Rep. Robert Menendez (D-N.J.). “I think it’s fair to ask some things in return that in the end will ultimately benefit us all, things like taking proactive responsibility for safety issues, guarantees for labor and considering limitations on executive pay and management bonuses.”

“Sacrifices need to be made by all,” Menendez said.

In response, Mullin said airline executives are going to pay an enormous price because their compensation is tied to performance and stock options.

But even with aid from the government, Mullin said, “there will still be substantial layoffs.” On Tuesday, only 29% of Delta’s airline seats were filled with passengers. Delta has not yet announced layoffs but is widely expected to.

Airline executives said it might take a year to get back to the passenger levels that existed before the terrorist attacks.

The carriers have not yet detailed the job cuts or layoffs, leaving employees on edge and labor leaders scrambling to keep up with the succession of announcements.

“Like everything else in the last week, the magnitude is like nothing we’ve ever seen. . . . It’s going to take a couple of days just to figure out how to lay off 20,000 workers,” said Michael Buckley of the AFL-CIO.

A number of lawmakers said they were worried about other industries--from travel agents, hotels, rental car companies to the King Nut Co. in Solon, Ohio, which puts peanuts in the bags that are passed out on planes.

The Bush administration’s rescue plan would provide American and United airlines with a cap on their liability for so-called collateral damage--deaths or property damage on the ground caused by the hijackings. The measure would consolidate all such claims and prohibit punitive damages.

Addressing this issue, Mullin told the Senate committee that unless Congress resolves the liability issue, “the massive response time and uncertainty as to the outcome of litigation will almost certainly frustrate airlines’ ability to raise needed capital in the short term.

“In addition, it may well prevent airlines from purchasing necessary insurance until such time as the litigation is concluded. And what’s more, some carriers are reporting drastic increases in premiums, and other carriers fear that insurance may not be available at any price,” Mullin said.

Many insurance firms have notified airlines of “astronomic premium increases,” Mullin said, adding that these increases could approach $1 billion for the U.S. airline industry.

Under the White House plan, the $5-billion cash infusion would be allocated to companies based on their size and “passenger miles” and done under Transportation Department supervision.

The $3 billion in airline security funds would come from the $40-billion recovery package approved by Congress last week.

Rep. James L. Oberstar (D-Minn.), the committee’s top Democrat, added that the $600-billion airline industry is “teetering on the edge of an economic abyss.”

“A healthy commercial airline system is vital to the U.S. economy and to our national defense,” Oberstar said.

Last year, Oberstar said, 1.2 million U.S. airline employees served 670 million passengers traveling 700 billion miles, carrying 25 billion ton-miles of freight.

“Aviation, at 10% of the gross domestic product, is the cornerstone upon which all other elements of our society rely for economic growth,” he said.

*

Times staff writer Nancy Cleeland contributed to this report.