Rethinking the Airline Bailout

December 1, 2003

Susanna Dokupil

Susanna Dokupil*

Our President has encouraged us to respond to the vicious terrorist attacks on this country by returning to business as usual as quickly as possible. Yet, the government bailout of the air carriers may distort the market forces directing this industry for many years to come. Rather than administering a direct transfer of wealth from taxpayers to airline company shareholders, Congress should have expedited the bankruptcy proceeding for those companies that found themselves insolvent after the attacks.

Public support of the bailout is predicated on a fallacious assumption: If airlines went bankrupt, they would cease to provide services [1]. Certainly the airline industry provides an indispensable service to our modern economy, but bankruptcy will not rip up runways, demolish airports, or destroy airplanes. Midway Airlines, for example, was operating in Chapter 11 on September 10. TWA and Continental have both continued operations through bankruptcy in the past.

A company in Chapter 11 continues to operate while negotiating with its creditors about how to restructure the company. Usually the stockholders lose their equity, and the bondholders become the equity holders. It is appropriate for the stockholders to lose their money because they purchased a risky asset. In addition, hijackers have posed a threat to air travel for decades, and the risk they entail should have been taken into account by the market price of the stock.

Perhaps most insidiously, the airline bailout creates significant government entanglement with the industries. The government plan not only places restrictions on the salary and severance packages of industry executives, but it envisions taking equity stakes in the airlines themselves. Because the government will want to protect its investment, this bailout may pave the way for future interventions on the air carriers' behalf.

I. Airlines had financial difficulties before September 11.

Before September 11, a slowing economy had already hurt the airline industry by reducing demand for business travel [2] . Moreover, individual factors had jeopardized the financial health of several major industry players. For example, American Airlines Chief Financial Officer Thomas Horton noted, "We were headed for a loss in the third quarter and a pretty sizable loss. The industry was in pretty dire condition prior to September 11." [3] A pilot's strike plagued Delta's subsidiary Comair [4] . U.S. Airways' stock declined 88 percent after its proposed merger with United failed in July [5]. By contrast, Southwest Airlines and Alaska Airlines, which had relatively strong positions before September 11, have avoided job cuts and other drastic measures [6].

While terrorism has hurt all airlines financially by reducing the demand for air travel, the post-9/11 downturn has generally exacerbated existing problems. Continental Airlines is the exception. Before the attacks, it posted a profit for the first half of 2001, but afterward, it lost roughly $30 million per day [7]. Financial analysts suggest that the bailout saved Continental from filing Chapter 11 [8], but the airline is still slashing costs to stay afloat.

II. The demand for air travel after September 11 declined, perhaps permanently.

Even after the bailout, almost every air carrier has grounded planes to reduce capacity and some of the largest airlines "have eliminated 15 to 25 percent of their employees to stem massive losses." [9] Delta, one of the better-positioned airlines, has initiated voluntary job reduction programs for non-union employees [10] . As of September 21, 2001, the combined layoffs in the industry approached 100,000 [11] . Analysts expected that the airlines would lose $2 billion this year before the terrorist attacks-they project a $5 billion loss after the bailout [12].

The biggest problem for the industry is the drastic reduction in demand for air travel. Continental and American both reported an over 30 percent drop in the number of passengers from September 2000 to September 2001 [13]. While supporters of the bailout correctly note that this drop in demand affects the economic health of motels, restaurants, and towns that depend on tourism, they falsely believe that giving the airlines money will somehow make more people fly [14]. To believe that subsidizing the industry is to restore consumer confidence assumes that the reduction in demand stems from a fear that the airline industry may go bankrupt. In fact, concerns over the airlines' financial health probably has far less impact on consumer demand than concerns about aviation security or a general decrease in spending due to the current economic slowdown. The airlines and their shareholders must address these underlying problems in order to recover, and a government subsidy to the industry in the interim will only postpone that process by reducing the incentives to do so. Perhaps more importantly, if the airlines continue to founder, legislators may intrude again.

III. The Bailout Transfers Wealth from Taxpayers to Air Carrier Shareholders While Ignoring These Underlying Problems.

The president signed the Air Transportation Safety and System Stabilization Act ("ATSSA"), Pub. L. No. 107-42, into law on September 23, 2001. This $15 billion aid package offered $5 billion in direct relief and $10 billion in loan guarantees. The act passed by a 96-1 vote in the Senate and 356-54 in the House [15]. It offers direct aid, loan guarantees, tax relief, insurance, and limitations on liability to qualifying air carriers.

In fairness, many members of Congress oppose a bailout whose terms do not generally track the market [16]. Indeed, most government news releases stated specifically that this measure should not allow the government to pick "winners and losers." [17] Even if the legislation perfectly parallels what the market would have done absent the terrorist attacks, however, no legitimate reason justifies the taxpayers' subsidy of the airline industry shareholders. Moreover, this carefully crafted subsidy may actually slow the recovery of the industry by decreasing the incentives to adjust to new conditions.

A. Direct relief
The $5 billion in direct relief provides $4.5 billion to passenger carriers and $500 million to cargo-only carriers based on available seat mile capacity as of August 2001 [18]. The funds compensate for "direct losses incurred beginning on September 11, 2001, by air carriers as a result of any Federal ground stop order" and "incremental losses incurred beginning September 11, 2001 and ending December 31, 2001 . . . as a direct result of such attacks," [19] provided that the airline can produce appropriate documentation of the los [20]

This policy is based on two premises: (1) that the airlines should be compensated for losses due to federal action [21]; and (2) that the airlines should be compensated for losses due to the decrease in demand after the terrorist attacks. Neither are true.

First, the airlines grounded themselves before the federal government took any action. American and United both ordered all their flights to land at the nearest airport before the Federal Aviation Administration extended that policy to all airlines. Indeed, at this point United discovered a fourth plane that was hijacked when that plane did not respond. The federal government arguably would not have taken action so quickly had the airlines not led the way themselves.

Even assuming arguendo that the action is a taking, the airlines would have great difficulty proving damages. For example, a constitutional taking may have occurred if the government deprived the airlines of all economically viable use [22]. But in order to recover damages, the airlines must prove that they, in fact, had some economically viable use on those days. Similarly, the government action is arguably a taking if it deprived the airlines of legitimate, investment-backed expectations [23]. The airlines, however, did not have such a well-founded expectation in the wake of the terrorist attacks. To portray the FAA's order as a taking, one must believe that air traffic would have resumed its normal patterns on September 12.

Second, the legislation directly compensates the airlines for reduction in passenger demand. Decreases in demand, like hijackings and crashes, are fundamental known business risks. Although the terrorist attacks involved an unusual risk from a quantitative perspective, from a qualitative perspective they are indistinguishable from the normal, garden-variety risk that airlines face on a daily basis.

Why, then, should the federal government pay for the grounding of the airlines? On September 11, the airlines, not the government, were responsible for security. When terrorists breached that security, the airlines, not the government, should pay the consequences [24]. Any reimbursement to the air carriers is a meritless transfer of wealth from the taxpayers to the airline shareholders.

B. Loan Guarantees

Section 102 of the ATSSA creates an Air Transportation Stabilization Board ("Board") "to review and decide on applications for Federal credit instruments under section 101(a)(1)." [25] The Board consists of the Secretary of Transportation (or designee), the Chairman of the Board of Governors of the Federal Reserve System (or designee), the Secretary of the Treasury (or designee), and the Comptroller General of the United States (or designee) as a nonvoting member [26] . It authorizes this Board to issue Federal credit instruments to air carriers if (1) the air carrier cannot reasonably obtain credit elsewhere; (2) the debt is "prudently incurred"; and (3) the "agreement is a necessary part of maintaining a safe, efficient, and viable commercial aviation system in the United States." [27]

The statute itself has one particular caveat: Air carriers applying for loan guarantees must agree (1) to cap the compensation any officer or employee whose salary exceeded $300,000 in calendar year 2000 (and was not determined through a collective bargaining process) at that level for two years; and (2) not to offer a severance package which exceeds twice that officer's or employee's maximum compensation for the year 2000 [28]. For the government to control the salaries of executives in private companies is highly intrusive. Moreover, it sets a precedent for similar invasive measures in the future.

The Office of Management and Budget ("OMB") sets minimum requirements for air carriers applying for the federal credit instruments [29]. The Board has discretion to set additional terms and conditions [30] and to enter contracts in which the Government takes an equity stake in the airlines [31].

The OMB director, Mitchell E. Daniels, explained that "[t]he goal of this statute, in its loan guarantee section[,] was to promote a viable commercial air system . . . . [and] to protect the American taxpayer by maximizing the chance that any loans the taxpayer guarantees will be repaid." [32] Any air carrier that suffered losses due to the terrorist attacks, even bankrupt air carriers, may apply for these loan guarantees before June 28, 2002 [33]. Loans must be repaid no later than seven years from the date the loan is made, and the federal guarantee must be for less than 100 percent of the amount of principal and accrued interest of the loan [34]. For this privilege, borrowers "shall pay an annual fee determined by the Board," which "will escalate for each year that the loan is outstanding" at a rate left to the Board's discretion [35].

The OMB established three factors for the Board to consider:

  1. The borrower's ability to repay the loan;
  2. Protection of the Government's financial interests; and
  3. The lender's ability to administer the loan [36].

It further limits the Board's discretion by requiring it to give preference to applications that demonstrate:

  1. a financially sound business plan;
  2. greater participation in the loan by non-Federal entities;
  3. greater participation in the loan by private entities as opposed to non-Federal public entities;
  4. warrants or other equity instruments that will allow the federal government to participate in the gains of the company;
  5. concessions by creditors, employees, or others that will strengthen the financial condition of the company;
  6. that the loan proceeds will not be used for payment or refinancing of existing debt; and
  7. a reduction in the risk of default to the government by reducing the length of the loan, by pledges of collateral, and by other financial structures that minimize the Federal government's risk and cost associated with making the loan guarantees [37].

Although one cannot properly analyze these criteria without more information about how the Board will apply it in practice, they have certain seemingly positive aspects. First, the OMB regulations intend to favor airlines with the most potential viability, thus creating an incentive for failing air carriers to reorganize [38]. Second, airlines with more private participation in the credit guarantee will receive preference over those with public participation, thus reducing the amount of risk to the taxpayers. Third, the criteria prefer applications that give the government an equity stake in the transaction, thus allowing the taxpayers to share in any upside of the airline's fortunes [39].

Unfortunately, these provisions have several serious problems. Under these criteria, the strongest airlines may be precluded from applying for these loan guarantees because they will be able to get credit elsewhere [40]. Hence, the 'second-tier' airlines may get funding, but not the strongest or the weakest. This policy distorts the market by promoting poorly run airlines to the detriment of well-managed ones.

Moreover, the regulations do not require an airline to meet obligations to creditors or prohibit an airline from declaring bankruptcy after receiving federal funding [41]. Although the Board presumably will not give money to the poorest of credit risks, an airline could conceivably file Chapter 11 after taking government money, and the taxpayers' equity stake would likely zero out. The government is essentially forcing Americans to invest in the airline industry for a rate of return not commensurate with the level of risk. More ominously, if the government has an equity stake, it may feel obligated to protect the taxpayer's investment by pouring more money into failing airlines.

The government bailout will not stop the massive amounts of cash hemorrhaging from the airline coffers due to a decline in demand. Industry-wide traffic was still down 28 percent at the end of October [42]. Airlines with higher debt-to-equity ratios suffered larger losses initially, but even airlines like Southwest, with more access to capital, risk losing money if demand does not return to pre-recession levels [43]. Despite Congressional generosity with the taxpayers' money, airlines still have to adjust to a long-term decrease in demand or face large losses.

C. Continuation of Air Service

Perhaps the most egregious provision of the bailout is the authorization for the Secretary of Transportation to "take appropriate action to ensure that all communities that had scheduled air service before September 11, 2001 continue to receive adequate air transportation service and that essential air service to small communities continues without interruption." [44] One can scarcely conceive of a more counterproductive strategy than forcing an airline to maintain an unprofitable route as a condition of receiving government funding [45].

Two theories might explain this strategy. One conceives of airlines as utilities rather than as ordinary businesses. A utility is a natural monopoly with high infrastructure costs offering an indispensable service that is uneconomical to provide to everyone. Like utilities, air transportation involves heavy infrastructure investment. The airports themselves, however, not the airlines, provide the bulk of that investment. Air carriers merely travel over the expensive infrastructure-much as long-distance carriers use existing telephone lines. Moreover, unlike electrical wiring or water pipes, air service to certain rural routes must have been economical when established, or it would not exist. Further, air transportation has better substitutes (e.g. interstate highways) than does electricity or running water (e.g. generators and wells).

The more likely explanation is that the provision does not reflect any economic philosophy but merely illustrates the ability of the people's representatives to supply their constituents with pork [46]. Rural municipalities with airports do not want to lose the convenience of air travel, and local authorities have every incentive to lobby their representatives to ensure its continuance.

Section 105 authorizes the Secretary of Transportation to spend up to $120 million to subsidize unprofitable routes each year. If a route is profitable, air carriers will continue to serve it. If not, the government should not intervene to the contrary.

D. Insurance

After September 11, airline insurers announced that they planned to limit liability for death and injury to persons on the ground to $50 million per carrier, far below the $1.5 billion that banks and aircraft leasing companies require [47]. Without this required insurance, airlines could not operate without violating their contracts.

Before September 11, 49 U.S.C. § 44302 allowed the Secretary of Transportation to insure aircraft in foreign air commerce if the President deemed it necessary to further American foreign policy [48]. The bailout package expands this authority to include domestic flights [49]. Significantly, the Secretary may only provide such insurance when it "cannot be obtained on reasonable terms from an insurance carrier." [50]

The insurance provision also allows the Secretary of Transportation to reimburse an air carrier for six months for any increase in its insurance premiums for coverage ending before October 1, 2002 [51]. Moreover, the Secretary may limit the liability of airlines for injuries to non-passengers due to acts of terrorism to $100 million on a case-by-case basis [52]. For the six-month duration of this provision, the government becomes the insurer for any additional liability [53]. Further, the provision prohibits any award of punitive damages against the carrier or the government under a cause of action arising out of a terrorist act [54]. Finally, the Secretary may extend these prerogatives to "vendors, agents, and subcontractors of air carriers." [55]

Short-term government-sponsored insurance to the airlines is justified. Because the insurers needed time to adjust to the post-terrorism economic conditions, the private sector could not offer insurance to the air carriers for a brief period. Essentially, a market failure occurred. During this adjustment phase, the government properly filled the gap in available insurance from a theoretical perspective [56]. Even though the insurance market needed time to adjust, however, the government intervention still slows that process by reducing the incentive for the insurance companies to reprice and return to the market. If the airlines lost all insurance, though, they would be grounded. The intervention here, unlike in other areas, is justified because the cost to the economy from the total deprivation of air service could well exceed the benefits of having the insurance market adjust their pricing strategy more quickly.

E. Taxes

The law gives the airlines an additional benefit in the form of deferred taxation. Normally, the air carriers must pay certain excise taxes, FICA, and wage withholding taxes to the government, but Section 301(a) allows the airlines to defer certain payments until January 15 [57]. Such deferral allows the airlines the benefit of the time value of money. Again, the government indirectly subsidizes the airlines.


IV. Chapter 11: A Superior Solution

Chapter 11 allows a corporation to declare bankruptcy while preserving its value as a going concern, an arrangement that may benefit creditors more than liquidation. A corporation in Chapter 11 continues to operate its business. Several airlines in the late 1980s and early 1990s operated in Chapter 11 for years [58]. Thus, conceivably, all the major airlines could operate in bankruptcy without any serious disruption to air travel. Indeed, some analysts have predicted that many airlines will go into bankruptcy even with the government aid [59]. If so, then why did the government bail them out?

Allowing the airlines to operate in Chapter 11 rather than giving their shareholders taxpayer money would induce the industry to stanch the hemorrhaging of dollars and adjust to new market conditions more quickly. Moreover, it forces carriers to internalize more of the cost of their own negligent security practices. Those who view these practices as a result of negligent government regulation would disagree, arguing that the government should internalize the cost of abdicating its own responsibility. But this argument erroneously assumes that the market will not provide the necessary level of security without government intervention. Surely, the sharp decline in demand after September 11 indicates that passengers require a certain level of confidence in air service in order to purchase it. The air carriers are perfectly capable of competing to provide security that meets the necessary confidence level in a cost-effective manner.

Chapter 11 usually requires that the shareholders lose the bulk of their investment. This is entirely fair and appropriate, as the shareholders purchased risky assets.

The downside to Chapter 11 filing is that the process for publicly traded companies takes about two years to complete [60]. During this time, the company receives operating money through "debtor-in-possession" financing by selling new debt claims [61]. To some extent, the federal loan guarantees function to encourage this type of financing without forcing the airlines to go through the Chapter 11 process. Instead of having the taxpayers take an equity stake in the airlines, Congress should have limited the loan guarantees to DIP financing for airlines filing reorganization petitions. It could have further expedited the process by providing a board to assist the airlines in drafting a reorganization plan. Moreover, the airlines may take advantage of the bankruptcy code's "prepackaged" Chapter 11 filing [62]. Under this provision, the debtor may obtain acceptances from creditors and equity holders before filing a petition for reorganization and receive confirmation of its plan within weeks of filing [63].

In the long run, the airlines will have to restructure in order to cope with reduced demand and increased security costs. While the government may be justified in acting as the insurer of last resort where there is a market failure in the insurance industry, other subsidies to the airlines are inappropriate. Increased costs per passenger should not be subsidized by the government, but should instead appear explicitly in the form of higher ticket prices.

A government subsidy to the airline industry will either allow the airlines to operate "business as usual," delaying needed restructuring in the industry, or the airlines will make sound business decisions despite the subsidy, rendering it unnecessary [64]. Government should neither save companies in the face of countervailing market forces nor deprive more profitable ones of the benefit of their competitive advantage. Such measures undercut the very foundations of our economy.

Finally, the large, commercial airlines should not get special privileges above other industries affected by the terrorist attacks. Numerous pilots of small aircraft and private flight instructors, for example, were prohibited from operating their business for days after the attack due to new regulations imposed by the federal government. Their case for compensation on takings grounds is far stronger than that of the large commercial airlines, but these individuals lacked the lobbying power of major corporations.
The airline bailout essentially changes the rules of the game after the players have placed their bets. The government ought not do such things as a matter of principle. Worse, though, is the precedent this legislation sets. Congress bowed to the rent-seeking efforts of a powerful industry in trouble to the detriment of the free market.

Instead of interfering with market forces, Congress should have created an expedited bankruptcy and reorganization procedure for companies rendered insolvent by the recent terrorist attacks. This plan would relieve the debt burden on the industry while placing the burden of the loss where it belongs - on the investors, not the American taxpayers.

 

* Susanna Dokupil is an associate with Baker Botts in Houston, Texas.
1. See, e.g., Mike Enzi, News Release: Senate Passes Airline Assistance Legislation ("Resumption of normal air travel is essential for our commerce and the mobility that has become our way of life. We had to act to keep our airlines flying.") (Sept. 21, 2001), available at http://enzi.senate.gov/airbail.htm.
2. Martin Wolk, et al., Ailing Airlines: An Industry in Crisis (Nov. 5, 2001), available at http://www.msnbc.com/news/651118.asp?pne=msn.
3. Id.
4. I d.
5. Id.
6. See id.
7. Id.
8. Id. Indeed, the bailout allowed Continental to post a third-quarter profit of $3 million.
9. Id. United Airlines, for example, has "posted a record third-quarter loss of $1.16 billion" and expects an even greater loss for the fourth quarter. Id.
10. Delta Cuts 13,000 Jobs, Girds for Air Travel Decline (Sept. 26, 2001), available at http://www.aviationnow.com/avnow/news/channel_finance,jsp?view=story&id=news/fdelt0926.xml.
11. Gary A. Seidman, President Signs Airline Relief Bill (Sept. 21, 2001), available at http://www.msnbc.com/news/631792.asp.
12. See Michael Arndt, et al., An Airline Bailout with Strings Attached (Oct. 8, 2001), available at http://www.businessweek.com/magazine/content/01_41/b3752735.htm; see also Martin Wolk, et al., Ailing Airlines: An Industry in Crisis (Nov. 5, 2001), available at http://www.msnbc.com/news/651118.asp?pne=msn. Related businesses, such as Boeing, a plane manufacturer, and Navigant, a corporate travel management firm, also plan to lay off significant numbers of employees. Gary A. Seidman, President Signs Airline Relief Bill (Sept. 21, 2001), available at http://www.msnbc.com/news/631702.asp.
13. Jim Ott, September Traffic Drops More than 30% for American, Continental (Oct. 2, 2001), available at http://www.aviationnow.com/avnow/news/channel_comm.jsp?view=story&id=news/ctra1002.xml.
14. See, e.g., Mike Enzi, News Release: Senate Passes Airline Assistance Legislation (Sept. 21, 2001) (observing that "[o]nly after such a drastic interruption of our normal air traffic pattern did we begin to understand how central our airlines are to other businesses" and suggesting that the legislation would "restore the confidence of airline consumers and industry investors"), available at http://enzi.senate.gov/airbail.htm.
15. See 147 CONG. REC., H5894-5918 (daily ed. Sept. 21, 2001), available at http://thomas.loc.gov.
16. See, e.g., Kyl, McCain Join Bipartisan Effort to Ensure Fair Treatment for All Airlines (Oct. 3, 2001) ("It was never our purpose . . . to provide a taxpayer funded 'bailout' for airlines doomed to fail even before the events of September 11."), available at http://www.senate.gov/~mccain/kylair.htm; Enzi Urges Fair Allocation of Loans Under Airline Relief Package (Oct. 4, 2001) (same), available at http://enzi.senate.gov/fairall.htm; see also Representative Ellen O. Tauscher's Statement before the House Transportation and Infrastructure Committee Hearing on HR 2891 and the Financial Condition of the Airline Industry (Sept. 19, 2001) (expressing concern that the measure is characterized as a "bailout" when the industry faced "major losses before the terrorist attacks grounded all flights"), available at http://www.house.gov/tauscher/issues/airstatement-09-19-01.html.
17. See, e.g., Kyl, McCain Join Bipartisan Effort, supra note 16; Enzi Urges Fair Allocation, supra note 16; Office of Management and Budget, News Release, available at http://www.whitehouse.gov/omb/pubpress/2001-43.html.
18. Airline Transportation Safety and System Stabilization Act, Pub. L. No. 47-102, I, § 103(b)(2)(A), available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=107_cong_bills&docid=f:h2926enr.txt.pdf. The ATSSA caps the amount of compensation payable to an air carrier at the lesser of (1) the amount of direct and incremental losses; or (2) the product of a formula using the passenger or cargo capacity as a benchmark. Id. Congressman John LaFalce (D-NY) has argued that using the passenger capacity, not passenger load, as a benchmark "provides windfalls to airlines who were in weak financial straits" before the attacks because it does not properly reflect the financial condition of these airlines. John LaFalce, Speeches and Statements: The Airline Bailout Bill (Sept. 21, 2001), available at http://www.house.gov/apps/list/speech/ny29_lafalce/ss010921airlinebill.html.
19. Airline Transportation Safety and System Stabilization Act, tit. I, § 101(a)(2)(A)-(B).
20. Id. § 103(a).
21. Even assuming arguendo that the taxpayers should compensate the airlines for the federally mandated grounding, $5 billion may grossly exceed the actual losses. According to John Samples at the Cato Institute, the decision to close the airports only cost the industry $1.2 billion. John Samples, Against Politics as Usual (Sept. 26, 2001), available at http://www.cato.org/current/terrorism/pubs/samples-010926.html.
22. See, e.g., Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015 (1992); Agins v. City of Tiburon, 444 U.S. 255, 261 (1980); Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922).
23. See, e.g., Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124 (1978).
24. For a discussion of whether government employees should run airline security, see Tara L. Branum, Aviation Security in the New Century, available at http://www.fed-soc.org/Publications/White Papers/nationalsecurity.htm. Michael Dokupil has proposed a market solution to the problem of airline security: Leave security in the hands of the airlines, but have the FAA send ten people per day with weapons or other contraband to various airports in the country. If one of these people slips past the airline, the FAA publicizes the failure and fines the airline $1,000,000. With such a high penalty, the airlines would quickly produce an efficient, effective solution to the problem. Interview with Michael Dokupil, Economist, in Houston, Tex. (Oct. 30, 2001).
25. Airline Transportation Safety and System Stabilization Act, § 102(b)(1).
26 . Id. § 102(b)(2).
27 . Id. § 102(c)(1)(A)-(C).
28 . Id. § 104(a)(1)-(2).
29 . Id. § 102(d)(2).
30. Id. § 102(c)(2)(A).
31. Id. § 102(c)(2)(A).
32. Office of Management and Budget, News Release, available at http://www.whitehouse.gov/omb/pubpress/2001-43.html. A strong application, according to the OMB, is one that "demonstrate[s] a business plan for a commercially viable entity and minimize[s] the risk of default to the government." Id.
33. Id. Bankrupt carriers must request the loan guarantees as part of a court-approved plan. Id.
34. Id.
35. Id.
36. Id.
37. Id.
38. See Office of Management and Budget, Press Briefing by OMB Director Mitch Daniels (Oct. 30, 2001), available at http://www.whitehouse.gov/news/releases/2001/10/20011005-13.html.
39. See id. (noting that the OMB has expressly precluded any voting rights for the government in that equity stake).
40. See id.
41. James D. Tussing & Stuart B. Herman, Government Acts to Bail Out U.S. Airlines, N.Y.L.J., Oct. 4, 2001, at 3.
42. See C.A.C. Tanner, Airline Bailout Won't Cover Losses, Help Others, FT. WORTH BUS. PRESS, Oct. 26, 2001, available at http://www.zwire.com/site/news.cfm?newsid=2552399&BRD=1427&PAG=461&dept_id=185827&rfi=6.
43. See id.
44. Airline Transportation Safety and System Stabilization Act, § 105(a).
45. See, e.g., id. § 102(c)(1) (authorizing the Secretary "to require an air carrier receiving direct financial assistance under this Act to maintain scheduled air service to any point served by that carrier before September 11, 2001").
46. See, e.g., Mike Enzi, News Release: Senate Passes Airline Assistance Legislation, (Sept. 21, 2001) (observing that he supported the bill because it benefited the small airlines that serve rural communities in Wyoming), available at http://enzi.senate.gov/airbail.htm.
47. Joseph B. Treaster, A Nation Challenged: The Insurers, N.Y.TIMES, Sept. 25, 2001, at C4.
48. See 49 U.S.C. § 44302 (a)-(b) (2000).
49. See Airline Transportation Safety and System Stabilization Act, § 201(a).
50. 49 U.S.C. § 44302 (a)(2).
51. Airline Transportation Safety and System Stabilization Act, § 201(a)(3).
52. Id. § 201(b)(2).
53. Id.
54. Id.
55. Id. § 202. Pursuant to this act, the FAA has already made insurance available to airlines and their lessors and lenders covering liability for non-passenger injuries due to war, terrorism, and hijacking. Tussing & Herman, supra note 55. 41, at 4.
56. In practice, critics may quibble with the implementation of the criteria "reasonable terms" and the scope of "vendors, agents, and subcontractors." At this stage, though, insufficient data is available to make a judgment.
57. Airline Transportation Safety and System Stabilization Act, § 301(a).
58. The following airlines operated in Chapter 11: Eastern Airlines, Mar. 1989- Dec. 1994; Continental Airlines, Dec. 1990-Apr. 1993; Pan Am-Jan. 1991-Dec. 1991, Feb. 1998-June 1998; America West-June 1991-Aug. 1994; Trans World Airlines-Jan. 1992-Nov. 1993, June 1995-Aug. 1995. Jayne O'Donnell, Could Airline Bailout Backfire? (Oct. 25, 2001), available at http://www.usatoday.com/money/biztravel/2001-10-18-bailout-backfire.htm.
59. Id.
60. B. Espen Eckbo, Commentary (Summer 2001), available at http://mba.tuck.dartmouth.edu/ccg/commentaries/Anatomy_TWA.html.
61. Id.
62. See 11 U.S.C. § 1128.
63. 7 COLLIER ON BANKRUPTCY, 1100.10 (15th ed. 2001).
64. As Stephen Moore of the Hoover Institution has observed,
"Federal subsidies to American businesses now cost the American taxpayers nearly $100 billion a year. If all corporate welfare programs were eliminated, Congress would have enough money to entirely eliminate the capital gains tax and the death tax. Alternatively, Congress could cut the personal and corporate income tax by 10 percent across the board. Either of these alternatives would do far more to enhance the competitiveness of U.S. industry than the current industrial policy approach of trying to help American companies one at a time."
Stephen Moore, Welfare for the Well-Off: How Business Subsidies Fleece Taxpayers, available at http://www.hoover.stanford.edu/publications/epp/88/88a.html.