IN THE TURBULENT aftermath of Sept. 11, 2001, Congress quickly passed legislation to bail out the shell-shocked airline industry. It provided for $5 billion in direct aid to repay the airlines for their immediate losses as a result of the attacks and up to $10 billion in loan guarantees to ensure the availability of credit to the already struggling firms. This made sense at the time: It was in the national interest to avert an industry-wide collapse and keep in place a vital part of the national transportation system. The outright cash was quickly divvied up, but appropriately stringent conditions were attached to the federal guarantee, and the airlines' ability to obtain private credit limited demand for the loan program. Most major airlines chose not to apply. In all, the Air Transportation Stabilization Board, which administers the guarantees, has issued just $1.6 billion in loan guarantees, the bulk of which went to US Airways.
One politically charged question remains, though: a request for a loan guarantee for United Airlines, the nation's second-largest airline. The airline argues that it needs the federal boost to help it emerge from bankruptcy. Having been turned down twice, United is deploying its considerable political resources in a last-ditch effort to bully the board into backing down. Its chief weapon is House Speaker J. Dennis Hastert (R-Ill.), whose state includes United's headquarters. As the board was considering United's second application, Mr. Hastert went over the head of the Treasury Department's representative on the board, Undersecretary for Domestic Finance Brian C. Roseboro, and phoned his boss, Treasury Secretary John W. Snow; the speaker called again after United's request was rejected, with Mr. Roseboro and the board's chairman, Federal Reserve Governor Edward M. Gramlich, voting against it. The third representative, from the Transportation Department, said the airline deserved more time to make its case. According to the New York Times, a senior White House official also phoned Mr. Snow to express concern. With Treasury issuing a statement advertising its willingness to consider a revised request, United is trying for an unprecedented third bite at the apple.
The board doesn't seem inclined to give in to this political pressure, and it shouldn't. Nearly three years after Sept. 11, United's financial woes have less to do with terrorist attacks than with high wage and pension costs and other long-standing structural problems. In December 2002 the board rejected United's first request, for a $1.8 billion loan guarantee, because United's business plan wasn't financially sound and the guarantee would therefore "pose an unacceptably high risk to U.S. taxpayers." A few days later, United filed for bankruptcy.
The board based last week's rejection of the airline's second request, for a $1.6 billion guarantee, on its sound conclusions that United could obtain credit on its own and that the guarantee wasn't essential to preserve the aviation system as a whole. Now United is coming back with a request for a $1.1 billion guarantee and promises to trim costs further. But the board's rejection was not based, as in the first round, on the risk of default but on the absence of other justification for a government bailout. That remains the case -- no matter how loudly the politicians insist otherwise.