U.S. governemnt to move quickly with airline assistance measures if necessary


Aug 20, 2002
WASHINGTON (Reuters) -- The U.S. government acknowledged on Tuesday that a war with Iraq could hurt the nation''s airlines and said it was ready to move quickly with assistance measures if necessary.

We will be ready to move very quickly if the need arises, Transportation Secretary Norman Mineta told the Federal Aviation Administration''s annual forecast conference.

With a U.S.-led invasion of Iraq seen just days or even hours away, the FAA offered an assessment more understated than the alarming scenario delivered by the industry last week, but it still saw war as one of the greatest risks to recovery.

A war could further dampen demand for travel and send fuel prices even higher, after they more than doubled in the past year.

On Capitol Hill, Congressman James Oberstar, a Minnesota Democrat, plans on Wednesday to introduce an airline aid bill that includes federal loan guarantees to cover rising fuel prices.

Lawmakers were quick to assist the airlines with $15 billion in cash and loan guarantees after the September 11, 2001, hijack attacks, but both Congress and the administration have been mostly skeptical about additional handouts.

UAL Corp.''s United Airlines and US Airways Group are already operating under bankruptcy protection and the world''s biggest carrier, AMR Corp.''s American Airlines, is trying to slash billions of dollars in costs to stem losses.

The leading association for the major U.S. airlines said last week that an Iraq war lasting 90 days could drive the industry''s annual losses to $10.7 billion, force more bankruptcies and cost 70,000 jobs.

Mineta said the administration was in daily contact with airline executives.

The airlines are obviously very concerned about what may happen to the industry should hostilities occur in the Middle East, he said.

We too are focused on this very question, trying to ensure that we are prepared for any outcome, while continuing to do everything we can to restore economic viability to this very critical industry, Mineta said.

In its annual forecast for the aviation industry, the FAA said a war with Iraq could derail forecast recovery targets, which include a 2.3 percent increase in domestic air traffic this year followed by a 4 percent jump in 2004.

For some period of time, it would reduce passenger demand as well as drive operating costs higher. In its current financial condition, this would be difficult for the U.S. commercial aviation industry to absorb, the agency said.

The FAA expects domestic travel to return in 2006 to the levels that preceded the 2001 attacks. International traffic is forecast to rise by 2.1 percent this year and 3.4 percent next year.

Both domestic and international air travel declined in 2002, and the industry lost more than $10.5 billion.

The environment for recovery is uniquely poor, J.P. Morgan airline industry analyst Jamie Baker told the FAA conference.

At best, Baker saw 2 percent growth in airline revenues this year so long as any war with Iraq is short and barring any terrorist attacks or further huge spikes in oil prices.

Another concern of regulators is the potential for dramatic industry consolidation if the airlines'' financial problems worsen.

While consolidation may improve the financial health of individual carriers and the industry, the fear is that (it) could lessen competition in many markets, the FAA said. Less competition could mean higher fares and lower travel demand.

In addition to the uncertain outlook for United and US Airways, four smaller airlines have gone out of business since the September 11 attacks accelerated an industry downturn into its worst-ever financial slide.

After the 1991 Gulf War, three struggling airlines, Eastern, Midway and Pan American, ceased operations.