Airline stock swap plan for financial help draws criticism

  • Friday, December 28, 2001 9:00pm
  • Business

Associated Press

WASHINGTON — In exchange for its financial help, the government may buy stock in airlines, a concept that worries some aviation analysts.

"There’s an inherent conflict of interest here," says Darryl Jenkins, director of George Washington University’s Aviation Institute. "You could not be secretary of Transportation and own stock in an airline."

The stock purchase was made possible by a provision in a $15 billion bill to help the airline industry, still hurting from a loss of business following the Sept. 11 terrorist attacks.

The precedent for taxpayers buying a piece of private companies was set during the 1979 Chrysler bailout.

Proponents of the deal say taxpayers should get the same benefits as anyone else lending money to a financially troubled industry; some airlines were struggling even before the attacks. Others, however, argue that the government shouldn’t own part of a business that it deregulated in 1978.

"When we deregulated, the whole idea was to get government’s hand out of the airline business. This kind of lets them in the back door," said Dean Headley, associate professor of marketing at Wichita State University and co-author of an annual study on airline quality.

Congress voted to provide $5 billion in cash payments and $10 billion in loan guarantees. At the time, lawmakers told airlines that wanted taxpayer guarantees for their loans that they should allow the government to buy stock in their companies.

"When they come and ask for support, we ought to get the same economic advantages of anyone else who would make a loan," said Sen. Jon Corzine, D-N.J., an author of the provision. "I don’t know why the citizens of the U.S. should take a lesser economic position. We ought to get paid just like anyone else for making those loans."

Corzine said that with the Chrysler bailout, taxpayers profited by a rise in the automaker’s stock once federally backed loans helped turn the company’s fortunes around.

But airlines are not eager to let the government buy into their companies, and the requirement that they do so may discourage loan applications, said John Heimlich, director of economic and market research for the Air Transport Association, the trade group for the major airlines.

"Yielding ownership to the government is certainly not something that was volunteered prior to the terrorist attack," Heimlich said. "From a company’s standpoint, it’s something you’d rather not do."

America West was the first airline to apply, asking the Air Transportation Stabilization Board, the government agency making the loan guarantees, for $445 million. Vanguard Airlines also has asked for a government-backed loan.

Some airline experts say they’re not concerned about government stock purchases.

"If the warrants were issued, they would be simultaneously sold," said Paul Hudson, director of the Ralph Nader-founded Aviation Consumer Action Project. "It does provide some extra security to the government for its loans and it’s less likely there will be a windfall to the airlines as a result of this bailout."

Corzine insisted the airlines shouldn’t get the benefits of government guarantees for free.

"The argument is they are coming and looking for loan guarantees, and they want to do that without a cost," he said. "That is not representing, in my view, the people appropriately."

Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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