U.S. airlines turn to
Congress for help

The favors sought include tax breaks,
less regulation and more subsidies

» A look at the major carriers
» Judge could impose concessions
» What will happen to passengers?

The U.S. airline industry, with three of its four biggest companies operating in bankruptcy after record-high fuel prices, may get help from Congress, U.S. senators said.

"I don't think we should ignore any option," Sen. John McCain (R, Ariz.), said yesterday in Washington. "The airlines have been in crises in the past, but I'm not sure I have seen anything quite approaching this."

Delta Air Lines Inc. and Northwest Airlines Corp., the No. 3 and 4 U.S. carriers, filed for bankruptcy protection yesterday. UAL Corp.'s United Airlines, the second-largest airline, is already operating in Chapter 11. Carriers through their Washington trade group are seeking a one-year suspension of a 4.3-cents-a-gallon fuel tax, saving the industry $600 million.

Sen. Ted Stevens (R, Alaska), chairman of the Senate Commerce, Science and Transportation Committee, asked airlines to get their requests to an aide for possible inclusion in disaster-recovery legislation that may "move pretty quickly" next week.

"Let us know if there's anything we can do to help you get through this period," he said.

The airlines' Washington trade group, the Air Transport Association, described its aid request at a hearing of the committee's aviation panel. Jet-fuel prices have increased about 239 percent over four years, and airlines will pay $9.2 billion more for fuel this year than last year, said James May, the group's president.

"Just when you think it can't get any worse, it does," he told the panel.

May said that with Delta's and Northwest's filings, 47 percent of U.S. seat capacity is held by carriers in Chapter 11. Capacity is based on the number of available seats.

US Airways Group Inc., the seventh largest U.S. carrier, is also operating in bankruptcy. AMR Corp.'s American Airline, the world's largest carrier, is the only one of the four largest airlines currently operating outside of Chapter 11.

Congress may give carriers the fuel-tax break and more time to pay pensions, said James Corridore, an equity analyst at Standard & Poor's in New York.

"A major bailout like we saw after 9/11, I don't think that that's in the offing," Corridore said. "I don't think the Bush administration is looking on that very favorably."

The fuel-tax break is one of three aid requests by major carriers. They also want Congress to suspend the 7.5 percent ticket tax on a portion of airfares they call "fuel surcharges" that help pay energy costs. Carriers asked the Transportation Department to let them separate the surcharges from fares in advertisements and instead disclose those costs in fine print.

Transportation Secretary Norman Mineta said in a letter to May yesterday he plans to begin the process to consider the advertising request. He will also consider completely rescinding agency regulation of airfare advertising, he said.

"We are placing the project on a fast track," Mineta told May.

Regional carriers, including Delta's Comair unit, have separate aid requests before Congress. To help defray fuel costs, the carriers want a $25 million increase in the $102 million they receive from the government to serve rural airports, Deborah McElroy, president of the Regional Airline Association, told the aviation panel.

The regional group also wants Congress to rescind a law that forces carriers to pay up front 24.4 cents-per-gallon in fuel taxes, and then get refunds to reflect the 4.3 cents they owe, McElroy said. That provision, enacted last year to cut down on fuel tax fraud, hurts the carriers' cash flow, she said.


A look at the
major carriers

Here are the four major airlines in bankruptcy and two others that for now are safe from it.

» Delta Air Lines Inc.

The Atlanta-based company filed for Chapter 11 yesterday. The nation's No. 3 carrier will spend the next several months or even longer working on a reorganization plan. It will continue to operate during that time.

» UAL Corp.

The Elk Grove Village, Ill.-based parent of United Airlines, the nation's No. 2 carrier, has said it intends to emerge from bankruptcy Feb. 1 after 38 months in Chapter 11 -- more than twice as long as expected. The company, which filed for Chapter 11 in 2002, used the leverage of bankruptcy law to slice $7 billion from its annual costs and dump its pension obligations. It said it expects to return to profitability next year, but that projection is based on much lower oil prices.

» US Airways Group Inc.

The Arlington, Va.-based parent of US Airways, the nation's No. 6 carrier in terms of revenue and No. 7 in terms of revenue passenger miles, filed for bankruptcy protection in September, its second filing since 2002. It is poised to emerge from bankruptcy late this month or early in October and merge with Tempe, Ariz.-based America West Airlines. A bankruptcy judge will hold hearings today to confirm US Airways' plan of reorganization.

» Northwest Airlines Corp.

The Eagan, Minn.-based airline, the nation's No. 4 carrier, filed for bankruptcy yesterday, entering Chapter 11 on the same day as its larger rival, Delta. The carrier said earlier this month it needs labor cost savings and changes in pension laws, and that it is hurting from high fuel prices. Doug Steenland, the company's chief executive officer, has acknowledged that the bankruptcy law changes that take effect Oct. 17 were a factor in the timing of the filing.

» Continental Airlines Inc.

The Houston-based carrier had a big cost advantage over other traditional airlines after it slashed expenses during two bankruptcy reorganizations in the 1990s. Recently, the company set a goal of winning $500 million in annual concessions from labor groups. It got $418 million and is still negotiating with flight attendants. The company flipped to a $100 million profit in the second quarter of this year and padded its cash and short-term investments to $2.05 billion.

» American Airlines

The nation's largest carrier, a unit of Fort Worth, Texas-based AMR Corp., may be the strongest financially of the traditional airlines, thanks to $1.8 billion in annual labor concessions it won in 2003, when it teetered on the brink of bankruptcy. AMR earned $58 million in the second quarter, only its second profitable period since 2000, but it has $3.4 billion in cash and short-term investments.


Judge could
impose concessions

Here are questions and answers on the impact of the bankruptcy filings by carriers Delta and Northwest Airlines:

Question: How will employees be affected?

Answer: They'll be in a much weaker position. A bankruptcy judge could void labor contracts and impose layoffs, pay cuts and work rule changes. The airlines could ask the court to impose the sorts of concessions they have been trying to negotiate with the unions, or they could seek even deeper pay and job cuts from the court.

Q: What happens to retirees?

A: The airlines could seek to dump pension obligations on the federal Pension Benefit Guaranty Corp., though it wasn't immediately clear if they will do that. The PBGC caps payments at $45,613 a year for pension plans canceled in 2005, which means pilots would take the biggest hit. Lower-paid work groups might see few if any changes in their pension checks.

Q: How will stockholders be affected?

A: They might lose everything. When companies emerge from Chapter 11, the new owners are typically secured creditors, such as banks and note holders. The losers could include unionized employees, who hold millions of shares through their work groups, and executives who've been granted stock as part of their compensation. "In bankruptcy, stockholders are the absolute end of the line to get paid," says Anthony Sabino, a business professor at St. John's University in New York.

Q: How will creditors be affected?

A: Secured creditors take priority, and unsecured creditors have to wait in line. In some Chapter 11 cases creditors eventually get all their money; in many cases they have to settle for a fraction of what they're owed.

Q: What will be the effect on the airline industry?

A: At this point, it is another chapter of bad news on top of other bad news. "After decades of airlines big and small filing for bankruptcy, the shock value is gone," Sabino says. "This doesn't come as a surprise anymore, unfortunately." New York bankruptcy lawyer William Rochelle says he believes "a successful reorganization, especially including lower wages, will present a major competitive threat for the other network carriers with higher costs."


What will happen
to passengers?

Here are some answers to questions raised by the airline bankruptcies.

Question: Why did the airlines file for bankruptcy now?

Answer: They have been squeezed hard by high labor and jet fuel costs, and each has lots of long-term debt hanging over its head, including underfunded pension plans. And on Oct. 17, changes in bankruptcy law will make it harder for companies to cancel their debts.

Q: What happens to passengers?

A: Probably not much. Both airlines promised to honor all tickets already issued. But the airlines are free to change schedules and cut routes, however. Anthony Sabino, a business professor at St. John's University in New York, said there could be some service disruptions.

Q: Will frequent-flier miles be affected?

A: "No, not unless they want to commit suicide with their customers," New York bankruptcy lawyer William Rochelle says. With past bankruptcies, the airlines have done their best to honor frequent-flier plans. But, Sabino says there is no certainty about bonus and promotion programs. "Due to the need to cut costs, that is something that will no doubt be examined and probably modified to some extent," Sabino says.

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