Hollis L. Harris, chairman of Continental Airlines, suggested yesterday that Congress allow airlines to keep the full 10 percent ticket tax as a loan until the industry recovers from high fuel prices and low traffic caused by the Persian Gulf War and the recession.
Harris was one of a number of airline chief executives, including Alfred A. Checchi of Northwest and Edward Beauvais of America West, who are pushing for various forms of federal relief.
Proceeds from the tax, introduced in 1970, are funneled to the government's Aviation Trust Fund to pay for maintaining the nation's airport equipment and facilities.
Transportation Secretary Samuel Skinner dismissed the idea of giving tax revenues to the industry. In testimony before the Senate Commerce Committee, however, Skinner suggested Congress might increase the level of voting stock foreign airlines are allowed to hold in domestic carriers. The limit is now 25 percent.
But a relaxation of the ownership rules wouldn't be of much help, Checchi told the committee. "Quite frankly, even unrestricted foreign investment in U.S. carriers would do little to solve the industry's capital problem," he said.
Continental is in bankruptcy reorganization proceedings, and a number of other airlines are considered in danger of bankruptcy or liquidation following a period of severe fuel price increases caused largely by the initial uncertainty in the Persian Gulf over oil availability, and a drop in passenger traffic attributed to the recession and to fears of terrorism. Northwest Airlines Inc. said yesterday it had canceled nearly 20 percent of its international flights for March because of traffic problems.
The ticket tax proposal would have a tough time in Congress, particularly since the industry does not speak with one mind on any suggestion for relief.
United Airlines Inc. is reported to be opposed to the ticket tax loan, while the other two members of the big three, Delta and American, are ambivalent.
Harris, in a speech to the International Aviation Club and in a news conference, estimated his airline will take a $25 million to $30 million "hit" in February because of all the problems facing the industry. In the last quarter of 1990, the industry lost $1.7 billion, bringing losses for the year to $2 billion. Some analysts say losses could be even deeper in this year's first quarter.
Harris said he has seen some evidence that the crisis is easing. Fuel prices, while still high, have slipped considerably from their zenith, he said, and advance bookings are coming back following a good Presidents' Day weekend.
"We see some evidence in the last 10 days that traffic is reversing itself," Harris said.
Nonetheless, he said, Continental and several other airlines will face a liquidity crisis in the near future because of the drubbing they have already taken, and that, he added, will continue for a while despite encouraging signs.
Harris said airlines should be allowed to keep "for the duration of the acute financial crisis" the tax they must collect on every ticket. At the end of the period, which he said would be determined by Congress, airlines would repay the loan with interest.
However, he said the loan could not be secured by the assets of the company, meaning the government would be stuck with a loss if an airline liquidated.