SPEAKERS CONTENTS INSERTS
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H.R. 2891, TO PRESERVE THE CONTINUED VIABILITY OF THE UNITED STATES AIR TRANSPORTATION SYSTEM
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
Page 2 PREV PAGE TOP OF DOCSEPTEMBER 19, 2001
Printed for the use of the
Committee on Transportation and Infrastructure
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
DON YOUNG, Alaska, Chairman
THOMAS E. PETRI, Wisconsin, Vice-Chair
SHERWOOD L. BOEHLERT, New York
HOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
WAYNE T. GILCHREST, Maryland
STEPHEN HORN, California
JOHN L. MICA, Florida
JACK QUINN, New York
VERNON J. EHLERS, Michigan
SPENCER BACHUS, Alabama
STEVEN C. LaTOURETTE, Ohio
SUE W. KELLY, New York
RICHARD H. BAKER, Louisiana
Page 3 PREV PAGE TOP OF DOCROBERT W. NEY, Ohio
JOHN COOKSEY, Louisiana
JOHN R. THUNE, South Dakota
FRANK A. LoBIONDO, New Jersey
JERRY MORAN, Kansas
RICHARD W. POMBO, California
JIM DeMINT, South Carolina
DOUG BEREUTER, Nebraska
MICHAEL K. SIMPSON, Idaho
JOHNNY ISAKSON, Georgia
ROBIN HAYES, North Carolina
ROB SIMMONS, Connecticut
MIKE ROGERS, Michigan
SHELLEY MOORE CAPITO, West Virginia
MARK STEVEN KIRK, Illinois
HENRY E, BROWN, Jr, South Carolina
TIMOTHY V. JOHNSON, Illinois
BRIAN D. KERNS, Indiana
DENNIS R. REHBERG, Montana
TODD RUSSELL PLATTS, Pennsylvania
MIKE FERGUSON, New Jersey
SAM GRAVES, Missouri
C.L. (BUTCH) OTTER, Idaho
MARK R. KENNEDY, Minnesota
JOHN ABNEY CULBERSON, Texas
Page 4 PREV PAGE TOP OF DOCBILL SHUSTER, Pennsylvania
JOHN BOOZMAN, Arkansas
JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
PETER A. DeFAZIO, Oregon
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
ELEANOR HOLMES NORTON, District of Columbia
JERROLD NADLER, New York
ROBERT MENENDEZ, New Jersey
CORRINE BROWN, Florida
JAMES A. BARCIA, Michigan
BOB FILNER, California
EDDIE BERNICE JOHNSON, Texas
FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi
JUANITA MILLENDER-McDONALD, California
ELIJAH E. CUMMINGS, Maryland
EARL BLUMENAUER, Oregon
MAX SANDLIN, Texas
ELLEN O. TAUSCHER, California
BILL PASCRELL, JR., New Jersey
Page 5 PREV PAGE TOP OF DOCLEONARD L. BOSWELL, Iowa
JAMES P. McGOVERN, Massachusetts
TIM HOLDEN, Pennsylvania
NICK LAMPSON, Texas
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
BRIAN BAIRD, Washington
SHELLEY BERKLEY, Nevada
BRAD CARSON, Oklahoma
JIM MATHESON, Utah
MICHAEL M. HONDA, California
RICK LARSEN, Washington
Text of H.R. 2891, to preserve the continued viability of the United States air transportation system
Anderson, Richard, CEO, Northwest Airlines
Donofrio, Susan, Senior U.S. Airline Analyst, Deutsche Banc Alex. Brown, New York, New York
Page 6 PREV PAGE TOP OF DOC Gibson, Scott C., Senior Vice President and Managing Officer, SH&E, Inc., New York, New York
Hall, Sonny, President, Transportation Trades Department, New York, New York
Harris, Hollis L., President and CEO, World Airways, on behalf of the National Air Carriers Association
Hoffa, James P., General President, International Brotherhood of Teamsters
Horton, Tom, CFO, American Airlines
Kelly, John, Chairman, President and CEO, Alaska Airlines
Mullin, Leo F., Chairman and CEO, Delta Air Lines
Neidl, Raymond, Airline Analyst, ABN AMRO, New York, NY
Parker, Douglas, Chairman, President and CEO, American West Airlines
Roach, Robert, Jr., General Vice President, International Association of Machinists and Aerospace Workers, Upper Marlboro, Maryland
Skeen, Kerry, Chairman and CEO, Atlantic Coast Airlines Holdings, Inc., representing the Regional Airlines Association
Smith, Frederick W., Chairman, President and CEO, Fedex Corporation
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Page 7 PREV PAGE TOP OF DOC Carson, Hon. Brad, of Oklahoma
Clement, Hon. Bob, of Tennessee
Cummings, Hon. Elijah, of Maryland
Hayes, Hon. Robin, of North Carolina
Johnson, Hon. Eddie Bernice, of Texas
Menendez, Hon. Robert, of New Jersey
Mica, Hon. John, of Florida
Moran, Hon. Jerry, of Kansas
Oberstar, Hon. James L., of Minnesota
Rahall, Hon. Nick J., II, of West Virginia
Shuster, Hon. Bill, of Pennsylvania
Tauscher, Hon. Ellen O., of California
Thune, Hon. John, of South Dakota
Underwood, Hon. Robert A., of Guam
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Gibson, Scott C
Harris, Hollis L
Hoffa, James P
Page 8 PREV PAGE TOP OF DOC Kelly, John
Mullin, Leo F
Roach, Robert, Jr
Smith, Frederick W
SUBMISSION FOR THE RECORD
Neidl, Raymond, Airline Analyst, ABN AMRO, New York, NY, report, ''The Airline Industry Major Carriers: Reports of My Death Have Been Greatly Exaggerated,'' May 2001
ADDITIONS TO THE RECORD
Gemini Air Cargo, Thomas A. Corcoran, CEO and President, statement
Morgan Stanley, Gerry Pasciucco, Managing Director, Fixed Income Capital Markets, and Nelson Walsh, Managing Director, Investment Banking, letter to Hon. Paul O'Neill, Secretary of the Treasury
Page 9 PREV PAGE TOP OF DOCH.R. 2891, TO PRESERVE THE CONTINUED VIABILITY OF THE UNITED STATES AIR TRANSPORTATION SYSTEM, AND ON THE FINANCIAL CONDITION OF THE AIRLINE INDUSTRY IN THE AFTERMATH OF THE EVENTS WHICH OCCURRED ON TUESDAY, SEPTEMBER 11, 2001
Wednesday, September 19, 2001
House of Representatives, Committee on Transportation and Infrastructure, Washington, D.C.
The committee met, pursuant to call, at 10 a.m., in Room 2167, Rayburn House Office Building, Hon. Don Young [chairman of the committee] presiding.
Mr. YOUNG. The hearing will come to order. I would first like unanimous consent that Mr. Abercrombie from Hawaii be allowed to sit at the dais; Mr. Underwood from
Guam sit at the dais; Mr. Doggett sit at the dais. Does not mean they will participate in the questioning or comments at this time.
We are here today to address the threat to the continued stability and viability of our U.S. air transportation system. The terrorists who attacked our country last week were trying to destroy our way of life and our economy. We must not let them do that. They have murdered thousands of innocent people, destroyed billions of dollars in property and dealt a terrible blow to the air transportation system that is vital to the economic health of our country.
On September 11, 2001, the FAA grounded every airplane in this country within the 2-hour period. This was necessary for the safety and protection of our country and our people.
The committee is not in order.
I want to commend the FAA and the air traffic controllers especially for their quick response and decisive action. I also want to commend the aviation industry for their cooperation and willingness to put the safety of others first.
Page 10 PREV PAGE TOP OF DOC Unfortunately, we are now facing a serious crisis in our air transportation system, which I recognize today is this terrible tragedy. The reduction in schedules, in flights and layoffs have been announced. The capital markets are not coming to the aid of most of the airlines. We are seeing the ripple effect in our economy as layoffs occur in other related industries. Our economy is at risk.
My colleague Mr. Oberstar and I introduced H.R. 2891 to keep U.S. air transportation systems viable as we work with all the affected parties on other legislation. We expected and wanted to pass that last week and were unable to do so.
In the coming weeks we intend to address other issues such as safety, security, economic impacts and other affected businesses in how to address the future viability and insurability of this industry. Certainly the airports and general aviation sector and air cargo industry and manufacturers all have valid concerns which need to be considered in the future. I am sure that Chairman Mica and the Aviation Subcommittee will thoroughly review all of these issues as hearings continue this week and next week.
H.R. 2891 authorizes the President to provide loans, loan guarantees and other assistance to the air carriers, and also to compensate those carriers who can document direct losses because of the action of our government to protect our national security. This assistance is intended as a short-term emergency response to keep the air transportation system operating for the benefit of the American people. We will take further action in the near future to address solutions for other airlines and airport functions such as further upgrading airport security. I know many of you are concerned about airport security and the losses sustained by other businesses; however, I urge all of the members of this committee to focus today on the issue of how best to ensure the continued operation of our air transportation system.
We have additional hearings, and I am sure additional legislation, next Friday and next Tuesday on airline security issues and other issues. I urge you to participate in those hearings to learn what is being done right now using the emergency funds already appropriated to increase security for the flying public.
Page 11 PREV PAGE TOP OF DOC The current crisis requires this bill to become law as quickly as possible to protect the well-being of all Americans by preserving a functioning air transportation system. I urge the members of this committee to fully support the effort to pass this legislation this week. I know some would like to delay and also add to, and I understand that. But keep in mind this is a beginning of a product. This is a two-way street. We have to go to the Senate, and the Senate has to act, and the administration has to act, and we have to get this done as soon as possible or we will not have an air transportation system.
I believe this is an important hearing, and we need to hear from these witnesses. I want to bring this bill to the attention of the House floor as soon as possible. Therefore, in the interest of moving quickly and ensuring that all Members have an opportunity to have their questions answered, I would ask that we refrain from lengthy opening statements and would ask unanimous consent of the Members to limit their opening statements to no more than 2 minutes. And if you can see your way, do not use those 2 minutes. We will welcome written statements, which will be introduced into the record for those proceedings.
At this time, I recognize the gentleman from Minnesota Mr. Oberstar.
Mr. OBERSTAR. Thank you, Mr. Chairman, first of all, for recognizing the urgency of the situation and scheduling the hearing in the aftermath of last Friday's unfortunate circumstance on the House floor.
We meet at an extraordinary moment in aviation history, under the most inconceivable scenario for commercial aviation, a confluence of forces that has put this industry, a $600 billion sector of our national economy, 10 percent of our $6-1/2 trillion gross domestic product, teetering on the edge of an economic abyss. Our challenge is to restore public confidence in air travel and to revive airline finances so that this cornerstone industry, which represents American mobility and economic growth, can recover in the shortest possible order. But if we address only the dire financial circumstances of the industry and do not at the same time elevate security, air travelers will have little confidence that they can fly safely, and airline load factors will not improve. But if we elevate security without addressing airline financial liquidity, there will be no aircraft for passengers to board.
Page 12 PREV PAGE TOP OF DOC The industry's current dire circumstances resulted directly from the September 11 terrorist attack and the U.S. DOT ground stop order ordering all aircraft not to fly. There is no comparable precedent. Not the Lockheed situation, not Chrysler, not New York City in the 1970s, not natural disasters, not even the Gulf War wreaked such havoc on one industry.
Today's hearing will focus on the industry's financial problems. There are three essential points. A strong airline industry is essential to our national economy. The airline industry has suffered immense and unprecedented financial damage from September 11 and its aftermath. Third, unless substantial financial assistance is made available immediately, a major portion of the industry will fail over the next several months. We will come out of a recovery period, if we do, with, at best, a noncompetitive, weak industry of only a few carriers, no viable survivors, no low-fare competitors and the prospect of government reregulation or government takeover. Higher fares, less service will be the result.
We can invest now and try to restore a sound aviation system, or we can ignore the problem and incur greater costs, severe economic damages and the loss of our aviation system. There is no doubt in my mind that a healthy commercial airline system is vital to the U.S. economy and to our national defense. Last year 1,200,000 U.S. airline employees served 670 million passengers traveling 700 billion miles carrying 25 billion ton miles of freight.
Aviation, 10 percent of the gross domestic product, is the cornerstone upon which all other elements of our society rely for economic growth. The opportunity in the U.S. and abroad to travel by air for business has fostered enormous economic growth in electronics, manufacturing of aircraft, communications and tourism, which itself is a $1.6 trillion economic sector. Leaders at every level are emphatic that the pivotal element in expanding business is aviation. In addition, the credit markets have over $150 billion of exposure to U.S. airline debt and lease obligations.
The Federal Government benefits from a robust aviation sector. Last year this industry generated $30 billion in government revenues in the Aviation Trust Fund, airport charges, user fees; $10.2 billion in employee and Federal and State income taxes and Federal Social Security taxes paid by airline employees; $2.2 billion in Federal corporate income and property and other taxes.
Page 13 PREV PAGE TOP OF DOC The primary aircraft and engine manufacturers are also major U.S. defense contractors. If this industry slides into bankruptcy liquidation, our defense sector will be seriously undercut.
The catastrophic events of last Tuesday have left this industry reeling. This industry each day incurs expenses of $300 million whether they operate or not. Each day that aircraft are grounded, they are losing operating expenses of $120 billion a year, which translates down to $300 million a day. Not only have load factors dropped to 40 percent with flights flying at 80 percent of pre-September 11, but yields are also down. That is a reduction of almost 50 percent of revenue. If this industry is operating at daily revenues of $150 million, the losses are colossal; cannot sustain those losses for long. Witnesses will go into more detail. But I just want to emphasize that a failure to act will drive the airlines into bankruptcy and liquidation.
Final comment: The front line against terrorism is not airport security positions. The front line of security is our national intelligence and counterintelligence services, and I am haunted by an observation made in our Presidential Commission on Aviation Security and Terrorism. The Commission recommends a specific unit within the Intelligence Community whose principal function will be long-term strategic thinking and planning on terrorism. The object is to anticipate future terrorists' strategies and tactics rather than simply react to incidents as they occur. That recommendation has never been put into effect. That, I think, is a reason we are here today.
Mr. YOUNG. I thank the gentleman.
I am using my prerogative as the Chairman, if Mr. Hoffa were to come on the first panel, I would deeply appreciate that if there is room down at the end of the table. James Hoffa is the general president of the International Brotherhood of the Teamsters.
At this time, I recognize Mr. Petri for 2 minutes if he wishes to use it.
Page 14 PREV PAGE TOP OF DOC Mr. PETRI. Thank you. I would like to commend you and the Ranking Member for promptly addressing this urgent situation and scheduling this important hearing.
The tragic events of September 11 have touched us all. In particular the airline industry has been devastated by the terrorists' attacks and by their aftermath. Just yesterday, Midwest Express Airlines from my home State announced it was cutting its operations by 15 to 20 percent in October, which will obviously have a significant impact on jobs.
The devastation that has wreaked so much havoc in the airline industry has ripple effects throughout our economy. It is appropriate that the airline industry, which has been directly impacted and is so important to our economy and to our way of life, receive assistance under these circumstances.
However, I am also concerned about where we draw the line for assisting those industries affected by these tragic events. Many industries and businesses will surely have credible claims that they too, have been adversely impacted by these attacks and deserve government assistance.
So I look forward to working with my colleagues as we finalize an appropriate package to assist the devastated airline industry, and I thank you, Mr. Chairman.
Mr. YOUNG. If the gentlemenyou are up, Mr. Borski.
Mr. BORSKI. Thank you very much, Mr. Chairman. I want to compliment you and our distinguished Ranking Member for holding this hearing.
This committee room, Mr. Chairman, has been the scene of many great successes because we work so well together in a bipartisan fashion, and I have great confidence that you and Mr. Oberstar will lead us through this crisis as well.
I spent a couple of hours yesterday in Philadelphia, meeting with our airport director and his close staff. And I just want to echo what Mr. Oberstar had mentioned in the beginning of his statement, Mr. Chairman. I know this hearing is on the viability of the airlines, but there is no question in the people running the airport in Philadelphia that the viability of the airlines will never be complete until people feel secure that they can fly safely. And I know we will have hearings in a day or 2 on security, but, again, I think it is a crucial piece of anything that we move to go forward to make sure that security is dealt with in an even manner.
Page 15 PREV PAGE TOP OF DOC I am also extremely concerned, Mr. Chairman, while there is little doubt that we need to step up to the plate and to help the airline industry in a significant fashion, there are also many questions that I have, however. We have heard recently the staggering numbers of layoffs that are to be taking place. Will they happen even if we are able to come up with a significant financial package? If not, what is the money that we are being asked to go for?
Again, Mr. Chairman, let me thank you for having this, and I look forward to hearing from our witnesses.
Mr. YOUNG. I thank the gentleman.
Mr. BOEHLERT. Thank you, Mr. Chairman.
While we continue to struggle with the reality of last week's attacks and the unimaginable toll these events have taken, we are here today to face yet another crisis, the stability of our Nation's airline industry, and we have reason to be greatly concerned. One need only to look across the Potomac at Reagan National Airport to comprehend the economic devastation inflicted upon our air carriersplanes grounded, silence in the terminals, local unemployment lines packed with many victims over the veritable breakdown experienced by the service industry.
Similar scenes are playing out all over the country. Major carriers are operating at only a fraction of their capacity. This is not a sustainable condition. Airlines are of critical importance to our Nation's mobility and economy.
This hearing is an important first stepand I emphasize first stepin averting a tide of economic havoc. We need to start with a comprehensive and responsible stimulus package to revive our air carriers. This should include an immediate stopgap cash infusion.
Although financial stability is our primary focus today, the safety of our Nation's air service is and should remain our primary concern, and that will be the subject of other hearings. I for one wish to give serious consideration to the federalization of airport security. Let me add, though, that we must be mindful of the additional funding that will likely be required to meet these critical safety mandates. In this instance let me suggest it is not as important to count the cost as it is to consider the cause. Thank you, Mr. Chairman.
Page 16 PREV PAGE TOP OF DOC Mr. YOUNG. Thank you.
Mr. DEFAZIO. Thank you, Mr. Chairman.
First my condolences to the representatives of the airlines here today for the direct losses suffered by members of the airline family.
The terrorists will win if they destroy our vibrant aviation industry, so it is appropriate this committee take action. But we also have to look to precedents in doing this, and there are ample precedents. We have Chrysler, Lockheed, New York, and most recently steel. Every one of those has a model, and the model is not followed in the proposed legislation. You set up an emergency loan guarantee board made up of Federal Reserve, Commerce Secretary, Treasury Secretary and others. They audit the request. They have a process to follow. We just don't hand out 2- or 5- or $10 billion. We need to look to those sorts of precedents. We need to build in those sorts of procedures.
I am looking for a shared burden here. I have already heard an awful lot about the tens of thousands of employees who are losing their jobs. In these past assistance packages, the burden has been shared by management, by stockholders, by other creditors, and, most assuredly, by the insurers. We need to make certain that we are not preempting those responsibilities and that there is shared burden in this legislation.
There are others who are directly related to the airlines. I have heard they are going broke already: travel agents; general aviation is still suspended for VFR; hotels; airports; airport businesses. We cannot restrict ourselves to this one part of the industry if we are going to have a vibrant and comprehensive travel-tourism-transportation sector.
Finally we need to address security. This is a precondition with me in supporting anything. I introduced my first bill on enhanced aviation security screening at airports and baggage in 1987, and every time I have raised those issues over 14 years, the ATA and representatives of the industry have come in and said it costs too much. I want to know that we will get wholehearted support for measures like a ticket surtax and others to pay for needed security measures before I vote on any assistance.
Page 17 PREV PAGE TOP OF DOC Mr. YOUNG. Thank the gentleman.
At this time, Mr. Duncan.
Mr. DUNCAN. Thank you very much, Mr. Chairman. And I certainly appreciate you calling this hearing and the attendanceyour calling this hearing and the attendance here today by members and all of the people who are here today, and certainly indicate the gravity and seriousness of the problems with which we deal. And I think Mr. DeFazio has made several good points. And I believe that whatever package we craft out of this situation will have a burden that is shared by all.
I, too, am concerned about other parts of the industry. Just yesterday I had a call from an owner of a travel agency who said he was about to go under. I had a call from an owner of a car rental agency, and he said he was about to go under. Just as I left Knoxville this morning, an airline employee came up to me and told me he had been given 2 weeks' notice on being laid off.
So this is a tremendous problem. I don't believe thatI am already starting to work with you, Mr. Chairman, and others in coming up with some proposals, and I think we can come out of this with a good package. We do need to help the aviation industry in the strongest way that we possibly can because it affects everything else that we do in this country.
One last thing I would say is I certainly hope that we open National Airport up and back up as soon as possible. We need to remember that the most serious losses were in New York City, and the Pentagon attack came from Dulles Airport. If we are going to keep National Airport closed, we might as well close down every major airport in this country. So we need to get things back to normal as quickly as possible, and your calling this hearing and the actions that you have demonstrated thus far, Mr. Chairman, are big steps in that direction, and I salute you, and I want to work very closely with you and Ranking Member Oberstar in coming up with the proposals that we need to enact at this time.
Page 18 PREV PAGE TOP OF DOC Mr. YOUNG. Thank the gentleman.
Mr. CLEMENT. Thank you, Mr. Chairman.
I agree with Mr. Duncan, we should open up Reagan National Airport again as well as our concern for general aviation as well that is really suffering.
The stunning acts of terrorism committed against our Nation last Tuesday have forever altered our country's consciousness. As we all watched with horror, two great symbols of American prosperity and strength were severely damaged. The World Trade Center collapsed in the rubble, and the Pentagon sat torn, scarred and burning. But another great symbol was damaged as well. The weapons deployed against us were not foreign missiles or homemade bombs, but our own aviation industry. Four high-jacked commercial jetliners, symbols of American mobility and freedom, were turned into machines of destruction. As this happened, our entire transportation network came to a shuddering halt. Our economy stopped, and our freedom of travel was suspended. One of our most essential industries had become the third target of the terrorists' aggression.
Today the industry reports that it has sustained upwards of $3 billion in losses following Tuesday's tragedy. The future looks even worse with a sluggish economy and an anxious and grieving public. Air travel demand is expected to severely decline at levels up to 60 percent within the next few months. Already airlines have cut thousands of workers, and the continuing hemorrhaging of cash as well as the impending liability issues stand to throw several carriers into bankruptcy and even eventual liquidation.
Tuesday's acts of terrorism are directly responsible for the current economic crisis facing the U.S. airline industry. If we do not come to the assistance of this essential sector, we will have let such terrorists' acts claims hundreds of thousands of more victims. Collectively our Nation was unprepared.
Page 19 PREV PAGE TOP OF DOC Mr. YOUNG. The gentleman's time.
Mr. CLEMENT. for the sophistication and scope of these attacks. We must not let them also destroy our mobility, our workers' livelihoods and the economic solvency of our great Nation.
Mr. YOUNG. I thank the gentleman.
Mr. GILCHREST. I thank you, Mr. Chairman.
Sixty years ago Franklin Roosevelt said, I quote, this generation has a rendezvous with destiny. And it has now happened again. This generation, the one we are a part of, has a rendezvous with destiny, and it is time for the collective heart and mind of America to be focused to meet the challenge.
Thank you, Mr. Chairman.
Mr. YOUNG. I thank the gentleman.
Mr. Costello. He is not here. Ms. Norton.
Ms. NORTON. Thank you, Mr. Chairman.
The September 11 terrorists have already scored a short-term victory with the close-down of National Airport. You close down National Airport, and you are one of these terrorists. For them that is the functional equivalent of closing down the Nation's Capitol, because many, many Americans cannot get there to here.
We must not give them another victory in the close-down of major airlines and the effect that would have on countless workers and communities.
Yesterday members of the Virginia and D.C. Delegations met with Jane Garvey of the FAA on her way to the National Security Council. You could imagine we gave her an earful. We also discussed everything you have been hearing about, federalization and locked cockpits. We said, you ought to make this region the pilot for the rest of the country because if you can show you can keep National Airport open, you will be able to keep every airport open.
Page 20 PREV PAGE TOP OF DOC At Dulles some pilots had to go out the window last night. We thought there was another high-jacking because we still don't have it together. Of course, that was a false alarm. But we stressed to her not only the need to open National Airport with its huge symbolic and economic ramifications for our country, but the domino effect. First you close National Airport, or you leave it closed for too long, next you cripple the airlines that use National with radiating effects on other airlines, and finally you have major long-lasting effects on the American economy itself. All of these effects are vitally linked to security.
Saving our airline industry is a two-sided problem. First there is a financial problem so they will be able to fly, but that is vitally linked to the security problem so people will want to fly, especially to National Airport.
Finally, may I say that I think our Congress, beginning with this committee, has a separate problem. Can we get our act together in time to save aviation as we have known it? It starts with this committee. And I have already felt the effects here where I live. We have got to take this care of this right now before the rest of you feel the same effects.
Mr. YOUNG. Mr. Horn.
Ms. HORN. Thank you, Mr. Chairman. Let us get going. I yield back my 2 minutes so we can get to work.
Mr. YOUNG. I thank the gentleman in his wisdom. Mr. Menendez.
Mr. MENENDEZ. Thank you, Mr. Chairman. I think it is important to say at the start that everything we do in dealing with this tragedy we need to keep foremost in our minds the families who lost their loved ones, many from my district, including the passengers and employees of our airlines. Human tragedy is our largest toll. But make no mistake, we need to make sure our Nation's air carriers survive this crisis. Air travel is critical to us all. It is no longer a luxury, it is a necessity.
Page 21 PREV PAGE TOP OF DOC Our airlines are the arterial vein of American commerce. They are essential to our travel and tourism industries. They bring our people together, making sure families spread across the vast Nation can stay connected. They employ hundreds of thousands of people, such as Continental Airlines in my own district in Newark.
Part of pulling together as a Nation is rallying behind those sectors of our economy that are hurt by this tragedy. And as we do this, the safety of the flying public needs to be job one. It is clear to me that you can have all the high tech devices in the world, but without well-trained people operating and monitoring them and without a comprehensive security plan, of which technology is just one part, they are of little value. It may be time for the Federal Government to step in and take over the security function, but we are still going to need the industry's full participation and cooperation.
Lastly, I strongly support providing aid to the airline industry to help them through this rough period, but I do not support signing a blank check. I think it is fair to ask some things in return that in the end will ultimately benefit us all, things like taking proactive responsibility for safety issues, guarantees for labor and considering limitations on executive pay and management bonuses.
I know you can agree it is not fair to lay off employees and ask the American people to use taxpayer dollars at a time like this if that money is used for executive compensation. Sacrifices need to be made by all. There is no doubt in my mind that the airline industry will thrive again just as America will.
Thank you, Mr. Chairman. I yield back the balance of my time.
Mr. YOUNG. Mr. Mica, chairman of the subcommittee, will also conduct this hearing as time goes by. Mr. Mica.
Mr. MICA. Thank you, Mr. Chairman. And let me announce to the members that the Aviation Subcommittee will meet in this room at 10 o'clock on Friday. And we will begin the hearing process on security issues.
Page 22 PREV PAGE TOP OF DOC Next Tuesday at 10:30, we will take up other issues and others affected by this tragedy.
I want to take a minute just to thank you, Mr. Chairman, for the leadership not only today but the work you did last week and behind the scenes and on the floor trying to get this measure to the Congress immediately. I also want to take a minute and thank the ranking member and others who have worked tirelessly the last week in trying to get our aviation system back to normal, and also the staff. Staff have been working round the clock to try to get, again, us back flying and in place.
My colleagues, never before in the history of American aviation has our air service industry faced a disaster of this magnitude. In addition to the unprecedented loss of life and property from the terrorists' acts of September 11, the economic damage to the United States will have both a short and long-term impact on all of us. Without our aviation industry returning to normal, business industry and tourism and travel have no hopes for recovery. Aviation accounts for nearly 11 percent of our gross domestic product in the United States. It impacts every part of our economy.
I also want to say that I have been contacted by hundreds and literally thousands of folks about general aviation. I am pleased that the administration will probably announce today the restart of some general aviation on an incremental basis, we have been informed. Hopefully that will take place today because I know that thousands of small businesses who rely on our air system are in danger of closing their doors.
Finally, Mr. Chairman, again, I want to thank you for your leadership and others and look forward to working with you in the days and weeks ahead.
Mr. YOUNG. Thank you, gentleman.
Ms. BROWN OF FLORIDA. Thank you, Mr. Chairman, and thank you for holding this hearing. First of all, if there is a roll call vote on opening Washington National Airport, I vote to open it. We cannot let the terrorists win. Last Tuesday, the terrorists' attack crippled the airline industry, which is the heart of the American economy.
Page 23 PREV PAGE TOP OF DOC USAir, which is my carrier, has already been laying off large numbers of employees and cutting operations. Without this legislation, most airlines will be forced to file for bankruptcy by the end of the year. Even more unfortunate, this slowdown affects not only the airline carriers but the airports, the vendors, cab drivers, rental car companies, manufacturing and many other business.
Today's hearing was set to see how Congress can assist. There are many questions. And I am looking for how we can assist in making sure that what happened on September 11 never happens again. Thank you, Mr. Chairman.
Mr. YOUNG. I thank the lady for her shortness of her statement, too. At this time, Mr. LaTourette.
Mr. LATOURETTE. Thank you, Mr. Chairman. Mr. Chairman, last Friday, I was heartened when we left the Republican Conference to know that you intended to bring forward a piece of legislation that would have addressed the ailing Nation's airlines and send a message when they opened on Monday that the markets were going to be okay and help was on its way. I was also gratified but not surprised that the distinguished ranking member of this committee was fully behind the effort. I have to tell you I was stunned and I was saddened when that measure was blocked by the failure to receive unanimous consent and extend the sending a message that the House was ready to help and the Senate would be back this week to help consider as well.
We sent nothing. The airline industry and anxious investors heard the silence of the House loud and clear. Continental Airlines, which has a hub in the great City of Cleveland, Ohio, announced layoffs of 12,000 people in the face of this inactivity by the House. It has lost $30 million a day, and the value of its stock dropped $20 on Monday alone. Our major airlines have slashed flight schedules and employment rolls and still teeter on the brink of bankruptcy. Those who block this legislation are shortsighted. It is not just the airlines and it is jobs on the line. There are thousands who build supplies, service and support the industry who are suffering, from Boeing, GE, Pratt and Whitney to the small machine shop, the repair stations and even the King Nut Company in Solon, Ohio that puts the peanuts in the bags that you get when you get on the plane. Jobs are in jeopardy. And it is not, Mr. Chairman, because of bad business decisions.
Page 24 PREV PAGE TOP OF DOC The government ordered the planes out of the sky last Tuesday, and failure to act on our part will take our domestic airline industry to its collective knees. Thank you.
Mr. YOUNG. I thank the gentleman. Mr. Filner.
Mr. FILNER. Thank you, and I thank Mr. Young and Mr. Oberstar for their leadership in making sure that we do get the airline industry back on its feet.
My City of San Diego, of course, relies on this as much as anybody, and we need to pass legislation and we will pass legislation. I think we ought to heed Mr. DeFazio's call for a shared burden here, and I want to add a couple of comments to his, which I subscribe to.
We have to make sure as we go through with legislation to keep in mind the needs of the industry's working people and the passengers. After all, they are the two most important cogs in the machine that keep this industry moving. We must have some assurance of job security. And I hope that when these negotiations take place, we don't just have Mr. Hoffa sitting symbolically at the table with the industry, but we have at the real table Mr. Hall and Mr. Roach and Mr. Wytkind and the other leaders of the labor movement. They are to make sure that we do assure the working people their jobs and, if necessary, pass some sort of disaster adjustment assistance for airline workers, which would include taking into account their health insurance and other benefits.
There is legislation that we passed with regard to NAFTA that we could extend, but there are other approaches that any final package ought to make sure that we are looking to these protections for our airline workers.
And I think while we are doing this, the passengers have certain needs beyond security. Security is the first concern. But we have triedmany of usto get a passenger's bill of rights passed in this House. The airlines resisted it. You now are coming forth with a need for a bailout. Well, I think, now more than ever, we need to give our passengers the assurance of information and compensation if things are not done in the right way. And I hope, Mr. Chairman and Mr. Ranking Member, that we incorporate some sort of the legislation such as H.R. 1734, a bipartisan airline passenger bill of rights.
Page 25 PREV PAGE TOP OF DOC Mr. YOUNG. The gentleman's time has expired.
Mr. FILNER. Let us make sure we meet the needs of the working people and our passengers as we do this.
Mr. YOUNG. I thank the gentleman. I believe Mrs. Kelly. We are going on seniority, my friends, because some people switched around here, And I watched this very carefully. You are not going to get ahead of the bus.
Mrs. KELLY OF NEW YORK. Thank you very much, Mr. Chairman. We have all been shaken by last week's events. Those of us in the New York City area obviously have particularly been hard hit. We are coming to terms with our loss. We are still grieving and still working to console our friends, still worrying about how to care for our new orphans and those whose lives have been totally devastated by this terrorist act. But New Yorkers are strong. Even in these days filled with sadness, we know that the work of America must continue, that we must do what is necessary to keep critical businesses and transportation systems viable during difficult times.
Our first priority ought to be providing assistance for emergency efforts in New York, Virginia and Pennsylvania. The emergency appropriations package passed last week was a great achievement, but it is only a down payment on the amount that will be needed to restore New York City and the Pentagon. The potential collapse of the airline industry puts our economy and indeed our national security at risk. The airlines are a vital component of our national transportation infrastructure, and every aspect of the national economy is going to be impacted by this terrorist act. Jobs will be lost and average Americans will be the hardest hit.
Stuart International Airport in my district has already felt the impact of the events of last week. Carriers are eliminating flights with more cuts expected. New York ought not to have to absorb yet another blow to its economic viability. Such cuts will do that. America cannot afford the loss of thousands, hundreds of thousands of jobs, as is being predicted. Though I do not want to give the airline industry a blank check, it is clear Federal assistance may be required. While the dollar amounts are high, the cost to America and American workers will be incalculable if we don't take action.
Page 26 PREV PAGE TOP OF DOC I look forward to the testimony of today's witnesses. Thank you very much, Mr. Chairman.
Mr. YOUNG. Thank you, Mrs. Kelly. Ms. Johnson?
Ms. JOHNSON OF TEXAS. Thank you, Mr. Chairman, and thanks to your leadership and Mr. Oberstar's for having this hearing so quickly.
I represent an area that has as its airport the economic engine, and so clearly, I am very concerned about the airlines succeeding as well as all of the workers that go into making this whole airline industry successful. They include the workers at the airports as well as all of the support systems. This will affect immediately about 50,000 people at our airport. But it affects close to probably a million people directly because of the meaningfulness of the Dallas-Fort Worth Airport.
I have gottenmy office has been inundated by calls from American Airline employees as well as persons who own concessions within the airport. It spans the whole gamut. I do think it is an emergency. I stand ready to assist the airlines. I am concerned how we are going to address all of the job loss.
In addition to aiding the airlines, I want to know what is in the picture to assist those other families that will lose their income as well. Thank you.
Mr. YOUNG. I thank the gentlelady.
And I know I shouldn't say this, but I am the chairman. With all due respect, if we can try to speed this up a little bit. We are just about an hour now. We have a panel sitting and we have a lot of questions to ask.
So at this time I recognize Mr. Simpson.
Mr. SIMPSON. Mr. Chairman, thank you for observing the seniority system. First, I appreciate that and I will be very quick.
I just want to note that I am one who has some reservations about this package, because as others have said on this panel, there are more than just the airline industry that was affected by this. There are many, many, many businesses throughout this country, and I think we have to look at a complete package of how this has affected our economy in total. Besides that, I would like to look at and see how this package, the bailout if you will, how much of that is due to decisions that were made by management prior to September 11 and how much of it is due to the acts of terrorism that occurred on September 11. If we are bailing out bad decisions that were made prior to September 11, then I have some concerns. I want to look at the total package and see how that is going to affect us and our economy as a whole. And I thank the Chairman. I look forward to the testimony.
Page 27 PREV PAGE TOP OF DOC Mr. YOUNG. I thank you for the short statement. Ms. Millender-McDonald.
Ms. MILLENDER-MCDONALD. Thank you, Mr. Chairman. I would like to thank you and the ranking member for convening this in such a swift and deliberate fashion.
I would like to thank you for bringing Mr. Hoffa to the table because hopefully this is the beginning of this industry working with the labor industry, because we have now joined in partnerships and I think it is only fitting that we see this type of partnership at the table.
I will not continue in that I do have a statement for the record, but I would simply say that as we listen to your testimony, I hope that we hear air security, airport security. I have talked with all of the airport folks in myin California, throughout Californiaand that is one critical issue, airport security, so that we can restore the confidence of those who are the travelling public, along with Members of Congress who travel each week back and forth.
I am also concerned about job security. As we look at oft times, the sky caps, those travel agencies and othersand bear in mind that as chair of the Women's Caucus, 82 percent of travel agencies are headed by womenI do hope that all of this represents this particular financial package that we are speaking to.
Thank you, Mr. Chairman.
Mr. YOUNG. Thank the good lady. Mr. Isakson?
Mr. ISAKSON. Thank you, Mr. Chairman. In the interest of time, I will submit my statement for record, but make one comment for all of us on the committee. As much as I and everyone are concerned with many of the ancillary issues and industries that have been discussed, our concern for them will be magnified greatly if we fail to immediately deal with the problem before us, which is the financial stability of the industry.
Page 28 PREV PAGE TOP OF DOC Secondly, shared responsibility is critical. We should not look totally to New York or Lockheed or Chrysler to be a model for that, because in part those difficulties were self-imposed or economically imposed and business-decision imposed. The crisis we face now was imposed by causes almost totally out of control of the industry and anybody else in this room, and I think we need to keep that in our consideration as we address the issue before us, and I yield back the balance of my time.
Mr. YOUNG. I do thank you. Mr. Cummings.
Mr. CUMMINGS. Thank you very much, Mr. Chairman. I will be very brief. I want to thank you for calling this hearing. And certainly all of us mourn the deaths and all that has happened as a result of September 11.
Mr. Chairman, I might add that I am 100 percent for this package. I realize that we must not let the terrorists succeed. What they want from us is fear and for us not to continuefor us not to be the country that we are. And I think that if we don't lift up the airline industry, we play right into their hands.
On the other hand, my colleagues and I have made it very clear that we want something from the industry, too. We want employee guarantees. On my way down here from Baltimore, I listened to C-SPAN radio. And out of about 25 callers, I would say 23 of them said we don't mind helping the airline industry, but those executives making all that money, what about the little guy? We want to make sure the little guy gets their break and their opportunities and are able to take care of their families.
The other thing that certainly we are concerned about is airport safety. And while the people at Baltimore-Washington International Airport have told me they have never seen as many Congressmen and women come into our airport, we are anxious to see National Airport reopen. I think it is very, very important we do that, consistent with not letting the terrorists get away with what they are hoping for, and that is placing fear in our hearts.
Page 29 PREV PAGE TOP OF DOC So with that, Mr. Chairman, I look forward to the testimony of our witnesses.
Mr. YOUNG. I thank the gentleman. Mr. Hayes.
Mr. HAYES. Thank you, Mr. Chairman. We have the obligation as Congress to support America's best interest. A strong viable airline industry is in the best interest of America. That strength comes from this committee. Job security flows from that. We must have the public return to its normal flying habits, and in conclusion, America at work showing our resolve to meet the needs of our people and freedom-loving people around the world is the other crucial component. This is being done with courage, conviction and magnificent resolve. American people are doing their part. We must show similar resolve and appropriate response. Thank you.
Mr. YOUNG. I thank the good gentleman.
Mr. SANDLIN. Thank you, Mr. Chairman, for calling this meeting, and thanks to the ranking member and the leadership of both of you. First, we sincerely thank the invited witnesses for being with us today. Aviation is a critical part of our infrastructure and commerce and affects our entire economy. Congress cannot and will not allow terrorists to destroy our system.
We are reaching out to the industry. I think it is important that the industry work in partnership with us toward these common goals. The executives within the industry, I think, that are making millions of dollars in earnings pointing fingers at Congress and saying Congress is responsible for the layoffs is irresponsible. I hope we can work together. Even before last week's attacks, there were problems within the industry. There were projected losses of $3 billion for the year. And I know that the losses as a result of this will be much higher. And we certainly want to work with you. We have short-term and long-term problems. We need to act immediately and decisively to make sure there are families taken care of. We want to keep the airlines flying, the workers paid and the public assured that flying is safe, And that is why we are here today and I am sure we will accomplish that goal.
Page 30 PREV PAGE TOP OF DOC Long term, I would like to follow the lead of the President of the United States and say that we need to be patient, we need to be focused and we need to get all the facts and we need to do some long-term planning, and we can do some long-term planning to bring stability to the industry, and I would support the President in his approach in making sure that we do that. And I know that you will have questions. We need to include the lenders to make sure we have new capital and we are not addressing problems from the past. We want to make sure employees are rehired, that people feel safe. And I think working together, we can do that and we pledge as a Congress to do that. And thank you, Mr. Chairman, and I yield back the balance of my time.
Mr. YOUNG. Thank you, Mr. Sandlin. And Mr. Sandlin, may I personally apologize to you for my shortness of temper. You and I are the same ilk.
Mr. SANDLIN. Thank you, Mr. Chairman. I will take that as a compliment.
Mr. YOUNG. We had a difference of opinion and I publicly will apologize.
Mr. SIMMONS. Thank you, Mr. Chairman. Three points. My nephew is a flight attendant with the airlines flying in and out of New York City. My heart and prayers go to all of those who work in the industry.
Secondly, I have flown three times in the last 5 days. The flights were safe, secure and on time. And I think it is important that as Members of Congress and as public officials we get back in the air. I think that is a personal testament that we have to make.
Finally, I represent Connecticut. Connecticut is the insurance capital of the world. I know there are some issues involving insurance and the airlines. It would be my hope that through this testimony and through the work of this committee that we will not point fingers, but make sure that the insurance industry and the airline industries work together so that we can keep these industries vital and get America back into the air.
Page 31 PREV PAGE TOP OF DOC Mr. YOUNG. I thank the gentleman. Some of the witnesses have to be in other places in the congressional body to also testify, and I deeply appreciate if we could expedite this process as fast as possible.
Mrs. Tauscher, you are up next.
Mrs. TAUSCHER. Thank you, Mr. Chairman. Gentlemen, thank you for being here. I think it is very clear that our economic security and national security have been inextricably
intertwined for quite a long time as we lived in peace and prosperity prior to September 11. I am for a bunch of things. I am for the $5 billion cash infusion to get you back to September 10, which is a place where many of us can never go again. I am for working on the liability issues so that you can have access to the capital markets. My concerns in the short term about the loan guarantees are that I believe we should not be in the government bailout business and we should not be doing things that will create another board where we are in your knickers and reading your books, and frankly we don't have time for that. I would much prefer that we let the capital markets take the lead and at least have some commitment from the capital markets for these loan guarantees up to maybe 20 percent and then the government could step in. That way, we have a litmus test for viability for you and a security test for the money that we are going to be putting in from the American people.
I look forward to work with you, and thank you, Mr. Chairman.
Mr. YOUNG. I thank the good lady.
Friends of my side, do we have to talk? Mr. Brown, if you want to talk, you can. But you get a lot more brownie points if you.
Mr. BROWN OF SOUTH CAROLINA. In the interest of time, I yield.
If I may make one statement that I don't think has been covered here today, I know that when I left home this morningI woke up at 3 o'clock to catch a 6 o'clock flight out of Charleston to come here today--there were only 10 people on a plane that had a capacity of 50.
Page 32 PREV PAGE TOP OF DOC And, Mr. Chairman, I would just hope in the remarks today that we would have some kind of management plan that would encourage people to fly again. I think this would help our problem.
I certainly applaud you for the financial support and am supportive of that effort, but I truly would like to see a management plan that would bring the people back to the airways.
Mr. YOUNG. I do appreciate that.
Mr. KENNEDY. I would just like to thank you, Chairman and ranking member, for having these hearings, to welcome our fellow Minnesotan, Richard Anderson, and say we need to make sure that our airlines stay strong. It is vital for our economy. And it is vital for small business. Thank you.
Mr. YOUNG. Thank you.
Mr. REHBERG. Thank you, Mr. Chairman.
Real quickly. I haven't heard anybody mention this. We are talking about short-term and long-term solutions. I wholeheartedly support you on the short-term solutions.
On the long-term solutions, I want to hear something from CEOs specifically to service guarantees, especially for rural States such as, Mr. Chairman, you in Alaska and me in Montana, because we are already starting to see cancellations over and above what is normal, I believe. So when it comes to guarantees, let's take a look at the rural States as well.
Mr. YOUNG. I thank the gentleman.
Mr. Pascrell. I do apologize. I jumped.
Mr. PASCRELL. That is okay, Mr. Chairman.
Page 33 PREV PAGE TOP OF DOC Three quick points, if I may.
Number one, anytime unions and CEOs are at the same table without negotiating contracts is a good sign for America a lot of good is going to come out of this horrible tragedy, and I congregate all of you and our chairman and ranking member.
Number two, we can go back over what the airlines did or didn't do over the last 5 or 6 years to secure passengers and product. I think that is really counterproductive right now. I want us to come to our senses and do something by the time we leave, whenever we leave this week.
And, three, Mr. Chairman, yesterday, I know the resolve of Americans. No problem is too big for us. I was at Fishkill yesterday, put a mask on, and saw the resolve of all of those volunteers going through the debris, going through everything, and we know what they were looking for.
No problem is too large for us. We can address it. We can do it smartly and quickly and deal with the minutiae later on.
So God bless you. Let's solve this problem today.
Mr. YOUNG. I thank the gentleman.
Mr. BOSWELL. Thank you, Mr. Chairman. I will try to give part of my time back.
I appreciate you calling this meeting. You have assembled a very knowledgeable group of witnesses. We have CEOs, CFOs. We have the general officers, if you will. We have the generals, Mr. Hoffa here at the table. We got the troops. I have never seen any operation take the hill without having the troops as well. So congratulations for having the troops here as well. I appreciate that very much.
Today we are confronted with the very future of our aviation systemcommercial, general aviation, aircraft manufacturing, many thousands of Americans employed in industry. We have said it and businesses of all kinds depend on moving for this type of mobility.
Page 34 PREV PAGE TOP OF DOC I don't want us to see a newspaper ad some years hence that says that we failed to act. If we do not move quick to approve a financial assistance measure, and I mean this week, we will lose either all or certainly a significant part of our aviation system, and this includes general aviation.
We certainly have VFR ground. I have an airplane. I fly it frequently. I can file IFR. I do. I can fly a short-legs VFR. As soon as I get close to a terminal I contact them, of course, as we are required to do. But I could have done that this weekend. I could have flown to Des Moines or Kansas City. There is no security out there. So why are we penalizing those operations of fixed-base operators when it accomplishes nothing?
So, anyway, let us hear this testimony today that will document the perilous conditions of our security in aviation and approve this assistance by the end of the week. We simply can't wait.
I am drafting legislation for security. Others are, too. I applaud that. Together we will have something good which will federalize all security operations on national airports. After dealing with the financial aspect of this crisis, we must properly turn to dealing with the security aspect.
This morning, just before I walked in this room, the police department in Des Moines, Iowa, called me and said, we are ready to be trained an extra couple of hours, whatever it takes. We are already trained to assist, in our free time, to be sky marshals or whatever we can do to help the airlines. Because we want the airlines to continue to function, and we are ready to step forward.
I applaud them. I bet they are that way all across the country.
Last night I.
Mr. YOUNG. The gentleman's time has expired.
Mr. BOSWELL. My message is, let's keep doing what we have to do and tell the Americans that we are not going to let bin Laden or anyone else of his ilk disrupt our American way of life.
Page 35 PREV PAGE TOP OF DOC Mr. YOUNG. Thank you.
Does anybody else wish to be heard?
Mr. Lampson. Just a little bit, guys.
Mr. LAMPSON. I will give you my statement, Mr. Chairman.
But I do want to make the statement that at least on Monday and Tuesday of this week I talked with airline officials and employees that work at airports in my district, such as Houston's Bush Intercontinental and Southeast Texas Regional Airport in Beaumont and Port Arthur. While they were terribly saddened by the events, they are working with the FAA and other government officials to instill confidence in the flying public which we all know is so critical.
A significant component of restoring this confidence will be addressing the issue of aviation security, which has already been said and several of us will be attempting to be do, including myself, including federalizing the baggage screening process and other airport security.
This committee I know will expeditiously plan to get on to that. We must address today the financial stability of our airline industry. There is no doubt in my mind that Congress and the White House must approve a relief package which includes any number of tools including direct aid and loan guarantees, and I am ready to get down to work to do it.
Mr. YOUNG. Thank you, sir.
Mr. BALDACCI. Thank you very much, Mr. Chairman; and I appreciate the opportunity.
Democracy sometimes is not easy, and opportunities to speak to the issues are important, and I think the amount of money that we are dealing with here and the circumstances warrant a little bit more of a discussion. I appreciate that opportunity, and I appreciate the opportunity that our subcommittee is going to have on this issue.
Page 36 PREV PAGE TOP OF DOC These attacks not only claimed 5,000 innocent lives, but they also dealt a blow to the U.S. economy. These tragic events also demonstrated the importance of the aviation industry to a proper functioning of the U.S. economy.
Many companies across Maine and the Nation rely on the major airlines to ship their products to domestic and international markets. In addition, some businesses, even hospitals, rely on just-in-time delivery to keep their shelves stocked with critical components and emergency medical devices. Accordingly, many businesses in Maine were negatively affected, as they were across the country, with this disruption in service.
We all recognize the financial damage the airlines are experiencing at the moment, and I commend the chairman and ranking member for scheduling this hearing. The U.S. economy would not be well served by raising airline tickets and a string of airline bankruptcies.
I am eager to work with this committee. Also, Mr. Chairman, I would like to point out that what good did come from all of this is the outpouring of pride, courage, unity and good will across America to demonstrate the strength of the American spirit.
Mr. Chairman, I will put the rest of my remarks in the record. Thank you.
Mr. YOUNG. I appreciate that.
At this time, again, I am going to use the Chairman's prerogative. Mr. Hoffa is going to testify first. His testimony is short, and as he does have to go to another meeting immediatelyand I apologize to the rest of the CEOs. Mr. Hoffa.
And, by the way, he is not symbolically sitting at this table. He asked to be at this table because he knows the importance of the workers of the American airlines and the contribution that they make. So, Mr. Hoffa, you are up.
Mr. OBERSTAR. Mr. Chairman, I just wanted to announce that Mr. Nadler and Ms. Berkley are not able to attend today because of their commitment to the Jewish holidays.
Page 37 PREV PAGE TOP OF DOC Mr. YOUNG. We believe that.
TESTIMONY OF JAMES P. HOFFA, GENERAL PRESIDENT, INTERNATIONAL BROTHERHOOD OF TEAMSTERS
Mr. HOFFA. Thank you, Mr. Chairman and members of the committee. My name is Jim Hoffa. I am appearing on behalf of the 1.5 million members of the International Brotherhood of Teamsters. Thank you for inviting me to testify today on behalf of the 50,000 Teamsters who work for the airlines and the more than 100,000 Teamsters who work in the airline-related industries, such as engine overhaul, food catering, car rental and parking, all of which are adversely affected by the terrorist attack in New York and here in Washington.
The Teamsters union is deeply concerned about the impact of the recent shutdown of the airline industry.
From an economic perspective, it is a disaster for the airlines as well as for the supporting vendors and, of course, most of all for our members.
The attack has fueled fear of flying that translated into reduced business travel, leisure travel, and the desertion of customers in the short segments and the long segments.
As the one Congressman said today, 10 people on the flight, 8 people on the flight, that is what I am hearing about peopling coming into Washington today. It is amazing that so few people are traveling because of the fear that has come over this economy. This in turn affects supporting vendors, airport businesses and leisure markets such as hotels and restaurants in places like Las Vegas, Hawaii, Disney World,just to name a few. Even rental car companies, where we have most of the people, are affected in these areas.
Unfortunately, many of these workers are hard hit and can least afford this displacement. The layoff of thousands of workers only undermines consumer confidence and accelerates the downward trend of our Nation's overall economy.
Page 38 PREV PAGE TOP OF DOC Regional carriers such as Allegheny, Great Lakes, Horizon Air, where we represent pilots and flight attendants and ticket agents that serve communities that are also on the long haul and short haul segments of this industry now have virtually no customers. In order to preserve service in those smaller communities, an immediate subsidy program should be initiated to both sustain such operations and help restore consumer confidence in our air transportation system.
Major passenger carriers have already begun reducing operations by, and 20 percent across the board is heard commonly. That affects our members as much as anybody else.
Aircraft are grounded for a lack of business and may result in a cancellation of new aircraft orders, which will affect Boeing.
Cargo carriers, like UPS and Airborne, where our members' work have also suffered a financial setback from the grounding and should be included in any financial package. Job losses in the air transport industry can well exceed well over 100,000 members.
These are not the results ofthat we need for our Nation. The International Brotherhood of Teamsters, therefore, recommends the following actions affecting air transportation financial assistance.
One, provide protection against liquidity crisis through a combination of tax holidays, tax, repeals rebates, cash infusion and grants, loan guarantees and other instruments, on a proportional basis for air carriers demonstrating a need.
Among these are major passenger carriers such as Continental, Northwest and Southwest, cargo carriers such as Airborne, and UPS, regional carriers such as Allegheny, Horizon and Great Lakes, and supplemental carriers such as Air Transport International, Champion Air, and World Airways.
Two, provide subsidies for regional careers on those routes made nonprofitable by the consumer lack of confidence following the September 11 tragedy, particularly where these are performed as essential air services.
Page 39 PREV PAGE TOP OF DOC Three, provide guarantees of hull and liability insurance against disproportionate increases, that is, basically stop the increases in insurance.
Support legislation for liability protection regarding damages to persons and property on the ground arising from the terrorist acts.
Five, provide antitrust protection for airlines to discuss scheduling concerning national air space for up to 6 months.
Six, expand the air mobility command, Civil Reserve Air Fleet program to support national defense needs.
And, seven, restrict foreign ownership of U.S. airlines at the current rate of 25 percent.
Transportation labor stands ready to support emergency aid to the airline industry. We do not feel, however, that our members alone should bear the burden of management decisions designed to overcome the hemorrhaging occurring in the air transport and associated industries as a result of this disaster. This committee should give strong consideration to including a financial relief component for displaced workers to any airline package. We have to make sure the workers are the ones that have been hurt perhaps the most.
There has to be an equality of sacrifice in any program we come up with. Everybody should have to tighten their belts with regard to what we are going to be doing with regard to this crisis. That could take the form of longer-term unemployment benefits and job placement and job training for those who have been displaced. We should also consider that the workers have their health care considered. And when they don't have their jobs, they are drawing unemployment, to make sure that they continue to have health care.
After all, if we are helping the airlines survive, we should do no less for the employees that work for the airlines.
I urge the airline management to tighten their collective belts and to stand shoulder to shoulder with our thousands of members to reestablish our airline industry and the most profitable one in the world.
Page 40 PREV PAGE TOP OF DOC To that end, consideration should be given to curbing bonuses and other management perks until those companies return to profitability.
In addition to financial help, we must take other steps to restore confidence in airline travel if the airplane industry is ever to recover.
That means beefing up security and safety at the airports of America to prevent further terrorist attacks. In the interest of time, I have included several security recommendations, but I have put that in another cover, and I will not take up your time with that.
I want to thank you, Mr. Chairman, and other members of the committee, for the opportunity to testify here today, and especially to thank you for accommodating my schedule.
Mr. YOUNG. I thank you, Mr. Hoffa.
At this time I want to announce the first panel.
TESTIMONY OF LEO F. MULLIN, CHAIRMAN AND CEO, DELTA AIR LINES; FREDERICK W. SMITH, CHAIRMAN, PRESIDENT AND CEO, FEDEX CORPORATION; RICHARD ANDERSON, CEO, NORTHWEST AIRLINES; JOHN KELLY, CHAIRMAN, PRESIDENT AND CEO, ALASKA AIRLINES; DOUGLAS PARKER, CHAIRMAN, PRESIDENT AND CEO, AMERICAN WEST AIRLINES; AND TOM HORTON, CFO, AMERICAN AIRLINES
Mr. YOUNG. Mr. Mullin, I believe is going to speak for 15 minutes, approximately; is that correct. That is my understanding.
Mr. MULLIN. Yes, sir.
Mr. YOUNG. Then the rest of the panel is available for answering questions; is that correct?
Mr. MULLIN. That is correct, sir.
Mr. YOUNG. And Mr. Smith will make a short statement too. So at this time, Mr. Mullin, you are up.
Page 41 PREV PAGE TOP OF DOC Mr. MULLIN. Mr. Chairman and members of the committee, thank you for proving the opportunity to testify here today on behalf of the Air Transport Association and its member airlines.
I am joined here today with John Kelly, Chairman and President, CEO of Alaska Airlines. Doug Parker, Chairman American West. Fred Smith, CEO, FedEx Corporation. Richard Anderson, CEO, Northwest Airlines. Tom Horton, Chief Financial Officer of American Airlines. And I am pleased to be on this platform with Mr. Hoffa, also. Thank you.
We are extremely grateful to you, Chairman Young, and to you, Congressman Oberstar, for convening this hearing.
We look forward to working closely with all of you in the important work of rebuilding from enormous tragedy, and just as importantly, the work of restoring our Nation's confidence in the future.
On Tuesday morning, September 11th, the unthinkable happened and our lives were changed forever. The passing of a week has done little to lessen the shock and the grief of so many deaths and so much destruction. The airline industry offers our heartfelt sympathy to the families and friends around the world.
We join them in mourning the victims, including, passengers, crews and innocent bystanders on the ground.
On that horrendous day, as soon as we could move through the initial shock waves, the first priority for the U.S. aviation system was to bring all passengers and crews safely to the ground.
Through exemplary cooperation between the airlines, airports and the air traffic control system, our 2000 domestic airplanes landed safely at the nearest airports within two hours. And those were followed shortly thereafter by the safe landing of all international flights.
Page 42 PREV PAGE TOP OF DOC Once every person and every flight had been accounted for, the Nation's airlines joined forces once more with our government to tackle the awesome task of rebuilding the aviation security system. By Wednesday evening, the foundation for a new system was established. And the job of training airline personnel to implement these more rigorous security measures was underway.
By Thursday afternoon, a trickle of scheduled and ferry flight began to restore the flight of people and goods across our Nation. By Saturday, major portions of the U.S. aviation system, which had been geographically scattered and stopped completely for the first time in history with backup to as much as 70 percent of service.
This stunning recovery would not have been possible without the capable leadership and cooperative collaboration of so many here in Washington and the incredible employees who serve this industry.
I believe today many Americans share our industry's sense of pride in having so ably proved once more that no catastrophe can bring our Nation to halt for long. It is also true, however, that while the operational recovery of our air transportation system has been phenomenal, the financial damage is and continues to be devastating.
The initial shutdown of operations, plus the severely reduced schedule over the next few days has cost the U.S. airplane industry dearly.
Passenger demand since restart has been weak, with many industry analysts predicting that reduced travel patterns are permanent, with all agreeing that the total revenue hit in the coming weeks and months will be steep.
Many insurance companies have notified airlines of astronomic premium increases. And, in addition, the cost of heightened security measures, which we all agree are absolutely essential, will substantially increase the cost of doing business. These financial blows are coming fast and furious to an industry that even in good years faces intensive capital demands and razor thin profits and was already projecting losses for the year.
Page 43 PREV PAGE TOP OF DOC Mr. Chairman, and members of the committee, under current circumstances, and without immediate financial support from the government, the future of aviation will be severely threatened.
For many airlines, there are no private sources of capital available. Financial liquidity in the industry is poor. Already airlines have announced layoffs of 51,000 airline employees and that number is expected to grow. Even with the self-help that airplanes have already said will be taken, almost no airline is strong enough to survive for long facing the upcoming challenges.
Therefore, on behalf of the industry, I am here to ask your help in the development and approval of a package of transition aid so that, as Transportation Secretary Mineta said recently, we do not allow the enemy to win this war by restricting our freedom of mobility.
As airline operations began to return on Friday, the CEOs of the industry, under the aegis of the ATA, turned their attention to the looming crisis. Under the leadership of Chairman Young and with the assistance of members, such as Congressman Oberstar and others, this committee had quickly realized the importance of swiftly addressing this deteriorating situation.
This committee introduced legislation to provide the industry with much needed help. We deeply appreciate that effort, and the proposal we want to discuss today builds upon your legislative effort for the same purpose, which is to develop a recovery program that insures the security, safety and stability of this critical industry.
Our program has three key components. The first addresses the necessary financial underpinning required to maintain our capacity to serve.
The second relates to liability issues arising out of the tragic role cast on aviation in this brutal attack on America. And the third deals with the need to provide resources for the enhanced aviation security programs our Nation is undertaking.
Page 44 PREV PAGE TOP OF DOC Let me outline, first, the very serious financial issues we face. Our first task, Mr. Chairman, in developing this piece of the proposal, was to properly assess the magnitude of the financial impact, to establish the financial need.
In effect, we, as an industry, experienced roughly 4 days of near zero revenue while, due to our largely fixed costs, we continued to accumulate all expenses. Since the airline industry spends around $340 million a day, the direct cost of the four-day halt in operations was approximately 1.36 billion.
Looking beyond those 4 days, we have used the actual numbers so far as well as projections based on the Pan Am 103 and Gulf War tragedies to estimate the revenue kind of shortfalls that we expect in the September 15th to September 30 period, and that will likely reach only 40 percent of what we had expected prior to the events of September 11th.
Based on that, our estimated daily losses for that period related directly to the September 11th events totals 3.36 billion.
Adding together then the 4-day losses from September 11th to 14th, of 1.36 billion, plus the expected September 15 to 30 losses of 3.36 billion, brings the total losses to 4.7 billion for the ATA carriers.
If we add 300 million or so for losses by cargo and other carriers to the 4.7 billion number, we arrive at a cash infusion amount 5 billion, which would be required by the airline industry to take care of immediate term damage associated with September alone.
We then applied the system of analysis to the full fourth quarter based on estimates traffic would grow to 60 percent of previous expectations by the end of December; to 75 percent of expectations by the end of the first quarter 2002, and 85 percent of expectations by the end of the second quarter.
We then made forecasts of revenue expenses and cash flows associated with those revenue assumptions, and determined their effect on cash balances.
Page 45 PREV PAGE TOP OF DOC This measure best reflects our needs for funds to sustain and stabilize our industry. Prior to the events of September 11th, the industry had forecast an aggregate cash balance on June 30, 2002 of positive 8.5 billion. We have now revised that expectation to a negative 15.5 billion.
Thus the events of September 11th are forecast to have a negative $24 billion impact on the industry's cash position.
Our financial teams also ran projections for optimistic and pessimistic scenarios. The swing in cash balances over the period ranged from optimistic drop of just under 18 billion to a pessimistic $33 billion decline.
Now, none of us knows precisely what will happen in the upcoming period. These estimates pertain to a situation that has never occurred before. We therefore feel it would be appropriate to presume a set of numbers that could happen, but that would minimize the amount of government help needed, and thus we are basing our request on our optimistic numbers. This implies some risk, but it is our job to do the very best to absorb that risk as port of our collaboration with the government.
Hence, we would recommend that the industry and government use the optimistic projection of just under 18 billion, minimizing the industry's request for financial aid relating to this tragedy. As mentioned earlier, we had recommended an immediate 5 billion cash allocation to address the immediate and devastating impact of September on the industry.
As in the second part of the financial portion of this package, we ask the government to also provide us with access to 12.5 billion in loan guarantees.
This request totals then to a request for 17.5 billion in financial assistance. We hope with these resources in place, the industry will rapidly reach the point where we can return to the private financial markets to borrow as we have in the past.
Mr. Chairman, our need is urgent and immediate. I would also like to emphasize that the industry is not asking the government to simply trust us on these arrangements. We fully expect, under the administration of the DOT, that we fully document each and every claim received for both the cash infusion and the credit facility.
Page 46 PREV PAGE TOP OF DOC We are also suggesting that the formula for determining the availability of these programs to individual companies will be allocated proportionately on the basis of their size.
This calculation done under DOT supervision would allocate funds in the case of combination passenger carriers, based on available seat miles, ASMs, or in the case of cargo airlines, on revenue ton miles, RTMs.
Mr. Chairman, we understand that these are large numbers, but we must also emphasize we face an enormous problem with potentially devastating repercussions for our Nation's full recovery.
Second topic I must discuss pertains to the liability issues arising out of the tragic role cast on aviation in this attack on America. The events of September 11th are unique with terrorists for the first time in history using a commercial aircraft as an instrument of destruction.
We believe, however, that the resolution of claims arising from the act of war should be resolved by Congress enacting appropriate Federal laws rather than by resorting to the widely divergent principles of State common law.
If that is not the case, then while American, United and other airlines named as defendants will necessarily defend themselves in litigation, the massive response time and uncertainty as to the outcome of litigation will almost certainly frustrate airlines' ability to raise needed capital in the short term.
In addition, it may well prevent airlines from purchasing necessary insurance until such time as the litigation is concluded. And what is more, some carriers are reporting drastic increases in premiums, and other carriers fear that insurance may not be available at any price.
Should access to capital markets be curtailed over concerns about liabilities in excess of financial resources, some carriers would not likely have any assets in excess of their insurance to respond if liability for persons and property on the ground were ultimately found.
Page 47 PREV PAGE TOP OF DOC Therefore, we would propose that the second part of our program, that legislation be passed by Congress preserving any existing rights of proper parties to bring claims against the airlines for the experience and deaths of the airline passengers, as is done now.
However, such legislation should also stipulate, based on the fact that this was an act of war, that the airlines would not be liable to damage and persons and property on the ground.
This seems the fairest way to ensure that the proper parties have the right to pursue their legal right while airlines are not further victimized by these terrorists and instead can continue the work of rebuilding our Nation's aviation system.
Mr. Chairman, it is absolutely critical that this issue be addressed in your legislation, as it is a critical element of the overall financial impact of the tragedy on our industry. In the light of recent days, airlines are already confronting unprecedented increases in premiums to their war risk insurance and possible reductions in coverage.
These increases in premiums could approach $1 billion dollars for the entire U.S. airline industry. We simply don't have the resources to pay for such increases, which are a prerequisite for airline operations.
Therefore, we propose that Congress expand the war risk insurance program to include domestic operations, include in such an expanded program both hull loss and liability coverage, and employ the civil reserves aircraft fleet craft program wherever possible to assist in providing airlines with insurance coverage.
The third and final component of our program deals with the need to provide resources for the enhanced aviation security program which our Nation is undertaking. While these measures are the appropriate immediate first step, it is the strongly-held belief in the airline industry that the events of September 11th marked a sea change in the way we as a Nation need to think about security.
Page 48 PREV PAGE TOP OF DOC It is time for a unified Federal security system calling forth the government's extensive resources and expertise, including intelligence-gathering capability and relationships with foreign governments.
Clearly, our industry stands solidly in support of the jointly developed security measures recently adopted by the airlines. And just as clearly, enhancing the safety and security of the Nation's air transportation system will significantly increase both the direct and indirect cost of air transportation through increased staffing, additional equipment, and changes to physical infrastructure.
Our proposal, Mr. Chairman, is that the government should, one, provide financial support for all mandated safety requirements, including reinforcement of cockpit doors and enhance of screening devices, strengthen intelligence-gathering analysis and distribution processes, take over all security screening functions and provide sky marshals on domestic flights.
The government's assumption of a stronger role in aviation security, assuming these responsibilities will be an important step that will go far in addressing the issues at the heart of public concern over the events of September 11th.
In closing, Mr. Chairman, and members of this committee, our proposal is only intended to stabilize the financial condition of this industry.
It is not a bailout, but rather a package designed solely to recover the damages associated with the heinous acts of September 11th.
And it gives the airlines a chance to continue to serve as the economic engine and offer the public service it is our duty to provide.
The current industry situation is urgent. While the financial components of this recommendation are most directly related to airline viability, the issues of liability and security are also important factors in our industry's crisis.
Page 49 PREV PAGE TOP OF DOC Because of variations in financing cycles and other differences between carriers, several airlines are facing decisions in just the next few days that will dramatically influence their future course and, indeed, public perception of the industry.
Under ordinary circumstances in ordinary times, Congress should not and would not make decisions of this magnitude without lengthy debate. These are not ordinary times nor ordinary circumstances. As a result, the airline industry is requesting that you move decisively now.
Thank you and our panel of colleagues will be glad to answer any questions.
Mr. MICA. [Presiding.] Thank you, Mr. Mullin.
Also, thank you for summarizing on behalf of the other airline representatives that are with you.
We are not going to get to questions just yet.
Let me give Mr. Fred Smith an opportunity to testify as chairman and president and CEO of FedEx Corporation.
Mr. Smith, you are recognized.
Mr. SMITH. I will be brief. I appreciate representing the interests of the all-cargo air carriers that are members of the ATA.
Our all-cargo carriers transport about 95 percent of all cargo moved by U.S. carriers. It is a very, very important industry and should be of concern to the Congress for two very important reasons.
First, both domestically and internationally, the air cargo industry carries the vast majority of the country's high value added and high-tech goods. Air transportation now moves over 40 percent of the value of all U.S. imports and exports.
And if you take out of the value of agriculture and petroleum products which move by sea, it is well over 50 percent of all U.S. trade now moved in air transportation.
Page 50 PREV PAGE TOP OF DOC Second reason that it should be of interest to the Congress is that our industry is an indispensable part of the defense of the United States. FedEx alone, which I am pleased to represent our 200 and some odd thousand employees, has committed to the civil reserve air fleet over 100 wide-body freighter aircraft.
In the Desert Shield and Desert Storm operations 10 years ago, civil reserve air fleet carriers moved over half of all air cargo moved into the operation. And FedEx alone moved over 60 percent of that. So we moved almost 30 percent of the cargo in support of the U.S. operations in Desert Shield and Desert Storm.
Our issues going forward are far less significant than the passenger carriers, because obviously there is no issue of people being afraid to fly on all-cargo air transportation companies. But there are three issues which are extremely important. The first is the significant losses incurred by the air cargo industry as a result of the government shutdown due to the September 11th situation.
In the proposal that the air transportation association has made, I would point out to you that the vast majority, I think about 90 percent of all of the funds recommended, go to combinational passenger carriers based on the formula.
But those loses were significant, and they are not inconsequential, and they certainly are not important given the huge important role that the all-cargo industry plays in the national defense.
I would say, parenthetically I was a little disturbed today to see in the left-hand column of the Wall Street Journal an article about the U.S. military transformation, and they noted that a recent war game at the Pentagon took place with the supposition that terrorists attacked my headquarters due to our importance to the national defense.
So the second area that we are concerned about, obviously, are the security issues that come out of this crisis. Our airplanes are perfectly capable of being used as a military missile, the same way the passenger carriers' equipment is capable of being used, although the risk is less because we have better control of the access of that equipment and have increased that substantially.
Page 51 PREV PAGE TOP OF DOC The third issue that affects us, and this is very, very important, we are all in the same insurance pool whether you carry passengers or cargo. And both the availability and the cost of aviation insurance, particularly as it applies to third-party incidents, God forbid, and all-cargo airplanes being used as a military missile as well will create very, very serious issues for our industry. So that needs to be addressed as part of the overall package.
That, Mr. Chairman, I think sums up our position in the all-cargo sector of the industry; and I am happy to answer any questions as they come down the pike.
Mr. YOUNG. [Presiding.] I thank you, Mr. Smith.
May I remind the members, if possible, because if you make your questions very short and very concise and if the panel can make their answers short and concise, it will be very helpful. Give a 5-minute question and 5-minute answer, because I am going to use the 5-minute rule. So if you want to ask more questionsand I will use my first question myself.
The cargo industryyou just talked about it, Mr. Smith, you believe that they are faced with the same problem as the passenger industry?
Mr. SMITH. No, sir. Not at all. I think the cargo industry's issues are the significant losses incurred as a result of the 9/11 incident and the subsequent shutdown. The go-forward issues are significantly less in the all-cargo sector than in the passenger sector.
Mr. YOUNG. Along those lines, will the reduction in airline belly cargo capacity, how will it affect or will it benefit the cargo carriers?
Mr. SMITH. Well, in the very short run, Mr. Chairman, there is probably some short-term pickup. Our expectation is that, very shortly, that cargo transported in passenger aircraft, at least from known shippers, will resume. So I don't think that will be a factor.
Mr. YOUNG. That is very important to me, because I believe that is one of the crucial parts of the commerce. Without your ability to carry cargo in these belliesby the way, that was not problem on the 11thit really hits into the economy of your area; and I don't think there is a capacity for FedEx or UPS or Evergreen.
Page 52 PREV PAGE TOP OF DOC Mr. SMITH. No, not at all. I think the risk there is manageable provided that the cargo tendered to the combination carriers and put on passenger airlines comes from known shippers with good security programs themselves.
Mr. YOUNG. This is for the rest of the panel. The question is on thebeen brought up by other members. Proposed cash, infusing grants, or loans to be distributed among the airlines, how would it be distributed amongst the airplanes? Would they provide the airplanes proportionately according to each airline's available seat, miles in August of 2001? These are the things that we have to get into this package. How is this going to be handled in your points of view?
I know you have been negotiating with the administration and everybody else right now. How do you visualize it? Whoever would like to address that.
Mr. MULLIN. I will take that first. I will speak to that.
First, Mr. Chairman, we have a unanimous recommendation really by the representatives from the Air Transport Association that that mechanism, based on available seat miles, be used as the fairest way.
It proportionately distributes it by airline size. So in Delta's instance, representing about 17 percent or so of the domestic traffic, we would get roughly 17 percent or so of the money; and each airline's percentage would be calculated accordingly, audited by the DOT. We think it is a fair method.
Mr. YOUNG. How does it affect the low-cost versus high-cost airlines and the regionals versus the majors?
Mr. KELLY. Yes, Mr. Chairman. The money would be allocated on the basis of capacity. In the course of our conversations with the administration we have had involvement from the associations representing each of those segments of our industry, and I believe in every instance Mr. Faberman and others have supported an allocation based upon the capacity that each carrier had in the industry immediately prior to the terrible events on September 11th.
Page 53 PREV PAGE TOP OF DOC Mr. YOUNG. I thank the gentleman.
Mr. KELLY. Mr. Chairman, may I add to that?
Also, that, as Mr. Mullin said, this is simply a pool of money that we get and have to justify. So every carrier would have to, at some point in time, justify why they received that allocation. So that makes it fairer across the board.
Mr. YOUNG. Okay.
Mr. SMITH. Mr. Chairman, I may point out here that the formula anticipated that 80, 85 percent be based on the available seat mile production which is filed with the DOT on a regular basis for the passenger operations, and for cargo operations that 15 to 20 percent be based on the revenue ton mile production, whether in the underbellies of the airplanes or on all cargo airplanes. So the vast majority was for the passenger airline system as it existed, and thosethe reason that that formula was selected is because all of that information is filed on the Form 41s with the DOT; and it is a pretty good surrogate, if you will, for the air transportation system that existed on September the 10th, the day before.
Then I think it was further tested if it pretty well approximates what the known losses are of the various components as a result of 9/11.
Finally, it makes no difference whether you are a big carrier or small carrier. It is proportional based on your production.
Mr. YOUNG. Thank you, Mr. Smith.
Remember what I said about short answers. My time is up.
Mr. OBERSTAR. Thank you, Mr. Chairman.
Excellent statement of the case, Mr. Mullin and Mr. Smith, as we expected from both of you and you have always delivered.
Just to recapitulate. Mr. Mullin, you are limiting the first portion of the package, the $5 billion, to the 4-day losses, 11 through 14, of $1.36 billion estimated and expected September 15th through end of month losses of $3.36 billion. Is that correct?
Page 54 PREV PAGE TOP OF DOC Mr. MULLIN. That is correct, sir.
Mr. OBERSTAR. And the additional $12.5 billion that we understand is being crafted by the administration would cover losses extending from end of September on through the coming year.
Mr. MULLIN. Correct.
Mr. OBERSTAR. of revenues that maythat are now the losses that are substantially high but losses that may decline as service picks up?
Mr. MULLIN. That is correct.
Mr. OBERSTAR. Do those estimates include reductions in costs as well?
Mr. MULLIN. They do include some reductions in costs. And in addition to that, as mentioned, our best estimate was a need of $24 billion, which we took the optimistic assumptions to reduce our estimate down to just under $18 billion. In order to hold to that $18 billion number, we are going to have to manage our costs extremely aggressively.
So that is our commitment as an industry, to work in collaboration with the government to essentially absorb the risk of finding where that other roughly $6 billion or so is going to come from over that time period. So we do anticipate, unfortunately, that we are going to have to reduce our costs quite aggressively as we move ahead.
Mr. OBERSTAR. Cargo is not in the same position. Cargo, however, was shut down as all of aviation was with the ground stop order of the Secretary; is that correct?
Mr. SMITH. Yes, sir. The go-forward issues are not as extreme in the all-cargo sector as they are in the passenger sector.
Mr. OBERSTAR. Has the limitation on belly cargo and mail been lifted for passenger aircraft?
Page 55 PREV PAGE TOP OF DOC Mr. ANDERSON. Yes, Mr. Congressman. On mail, the mail has to be certified by the postal facility at a given airport, and it must be under 16 ounces.
Mr. OBERSTAR. Yes.
Mr. ANDERSON. With respect to cargo in the bellies of airlines, we are restricted to known shippers. In the vast majority of cases at the airlines, that would cover about 95 percent. So I believe our cargo detriment will be in the 4 to 5 percent range in terms of belly cargo.
Mr. OBERSTAR. There will be revenue losses to airlines from the downsizing of cargo. Just don't need to quantify it yet.
Are lenders invoking their material adverse change clauses denying or limiting access to cash by airlines?
Mr. MULLIN. Generally speaking, the lenders are expressing grave concern. We are in possession of a Morgan Stanley opinion that was delivered to us this morning, that it indicated the total essentiality of having help from the government in order to supply any kind of private sector financing going forward. It is an essential element.
Mr. OBERSTAR. Are your enhanced equipment trust certificates payments at risk by any carrier right now?
Mr. MULLIN. Yes, they are.
Mr. HORTON. If I may, Mr. Chairman. It may be worthwhile to read a letter that was sent by Morgan Stanley to the Honorable Paul O'Neil, Secretary.
Mr. OBERSTAR. Could you summarize it? I have one more question that I need to get in here. You can submit that for the record.
Mr. HORTON. I will do so. Let me just read the last paragraph.
There will be no functioning capital markets for the U.S. airlines until the uncertainty with respect to both liquidity and liability are eliminated. Even then access is likely to be severely limited until the path to a more normalized airline system becomes clear.
Page 56 PREV PAGE TOP OF DOC Mr. OBERSTAR. That is very serious.
Final question. In dealing with security, I have proposed in years past assumption of security by a Federal government entity to be paid for by a security surcharge affixed to tickets which is done in Germany and in France and in other European continental countries of $2 to $3. That would generate $1.7 billion to fund the security cost. Do you see any problem with that?
Mr. KELLY. Well, we really believe that the security charges should be covered by the government. This is a government function, to protect the security of the citizens of this country from terrorism.
Security has fundamentally changed from screening bags to literally, as you said, an intelligence community screen of passengers. Besides which fact one of the things we are dealing with here is an industry that has a real problem with supply and demand from the passenger standpoint,and we can't add natural costs onto the ticket withoutfrom an elasticity standpointa loss of passengers. So it really doesn't do us any good trying to pass along costs in the form of increased prices to our customers.
Mr. OBERSTAR. I appreciate that concern. I justI want to make the point that I know from past experience that people won't fly if they are afraid.
Mr. YOUNG. I am going to at this time recognize Mr. Boehlert on our side.
Mr. BOEHLERT. I see, Mr. Hoffa, that you have to leave. I have a two-point question to you.
In this package presented to us by ATA, were you and other leaders of labor consulted and considered in this development?
And part two of the question: How would you characterize the communications right now between labor and management? I am operating under the theory that we are all in this together.
Page 57 PREV PAGE TOP OF DOC Mr. HOFFA. We are all in this together. We have not workedhave not beenwe have been advised of what they were doing with regard to this package. We have not had direct input. We look forward to discussing it with the industry. This has happened very quickly, and it was put together I believe over the weekend.
We would like to have more input into it; and, of course, we would like to discuss and get guarantees with regard to coverage and protection for the people that can least afford this dislocation, which are the workers at all of the related areas in the airline industry, the people who are making the $20,000, $30,000, $40,000, $50,000 who are having a very difficult time and would besuffer a great dislocation.
What I would like to do is make sure in this package there is some coverage to make sure that we have extended unemployment benefits, that we have an extension of health coverage for people that are laid off, et cetera. We should try and build in different types of coverages so that this money doesn't go all in one way.
We should also have something in there that puts some limitations with regard to how this money is spent with regard to bonuses and things like that. I think that it is important that there be an equality of sacrifice with regard to this.
I think that all of us expect that. All of us know that we have to tighten our belts. I know our people are going to suffer. We are talking 2,500 flight attendants at Northwest Airlines being laid off in the near future, if not now.
So there has to be some recognition of this sacrifice, and that this be across the board, that everybody who is involved in this, it is a crisis for all of us.
Mr. BOEHLERT. Thank you very much. That is something most of us up here share.
Mr. Mullin, would the ATAand I knowI think you guys, quite frankly, have done a magnificent job. And I, watching you individually, as a spokesman for the industry, talk to the American people side by side with Secretary Mineta gave me comfort. But I would get added comfort if I felt confident that you were going to bring in the labor representatives for further consultation and partnership in this whole effort.
Page 58 PREV PAGE TOP OF DOC Mr. MULLIN. You have our assurance of that. I appreciate Mr. Hoffa's observation on the swiftness with which we acted, but we absolutely will include labor in that dialogue.
Mr. BOEHLERT. Thank you very much.
You mentioned and everybody has mentioned the security, and that is so critically important. I have a question that, in view of the unfolding developments and tighter security, absolutely, necessarily, we are going to have more, all agree, absolutely necessary. The fact of the matter is, if this plan that we approveand I think that we will approve a comprehensive plan to assist the airplanes in getting up and running again. But I question if we can ever look, in the near term, to 100 percent operational capability, simply because the system won't be able to handle it in view of the new tighter security requirements.
I mean, I was there Saturday morning for a flight. They were very thorough, but it delayed things, and I understand that. Everyone was very responsive and cooperative. But what is your best guesstimate at this juncture?
I know it is the early stage of the game. What will be optimum? Are we only going to get back to 85 percent of our capability? 75? Do you have any feel for it at this juncture?
Mr. MULLIN. Well, I think you had a couple of questions there. One is on security and the other is on getting back to where we were in terms of just capacity or service prior to the terrible events.
Mr. BOEHLERT. I guess my point is that even if we gave you everything you wanted and you know you are ready, willing and able to go back to 100 percent, you just couldn't.
Mr. MULLIN. We couldn't.
Mr. BOEHLERT. So that is the basic question.
Page 59 PREV PAGE TOP OF DOC Mr. KELLY. We, in fact, operate differently at Alaska Airlines than a lot of other carriers who have hub and spoke type operations. They will have a much more difficult time, you are absolutely right, in accommodating all of these security provisions and still having that network of hub and spokes operating properly.
But, I truly believe that if we take all of these measures then it can get back to a new normal. And that would be the flight deck door, sky marshals and enhanced security on the ground. All put together, I think that we can get people processed through the airport fast enough to get our operations back to, as I say, near normal.
Mr. YOUNG. Thank you. The time of the gentleman has expired.
Let me recognize Mr. Borski.
Mr. BORSKI. Let me also congratulate you on an excellent statement.
Mr. Mullin, I would like to ask, however, if we were to give you everything you wanted, what would the situation be as far as the employees of the airlines are concerned? Even if we gave you everything you needed, I assume from your answer to a question with Mr. Oberstar we would still be looking at substantial layoffs, is that correct?
Mr. MULLIN. That is correct.
Mr. BORSKI. We are hearing a number of 100,000.
Mr. MULLIN. I think it could amount to that much. What is happening, obviously, we will fly airplanes in response to demand. Right now, most of us have brought our flying up to about 80 percent of what it was prior to the September 11th situation, and I think most of us are sort of stopping there to look around.
Obviously, we are very much interested in flying more than that, because we have tremendous fixed assets, primarily airplanes that we want to fly. But if the demand isn't there, then it just won't make any sense to do it; and, therefore, there would have to be some kind of proportional changes in the workforce that reflects the fact that we are only 80 percent operational of what we were.
Page 60 PREV PAGE TOP OF DOC Mr. BORSKI. You asked in your statement to stabilize the industry. I think again there is broad bipartisan support for that. But we do need to understand that layoffs will happen even if you are given this.
Mr. MULLIN. That is correct.
Mr. BORSKI. And substantial. Are we talking 100,000 even if you get this?
Mr. MULLIN. I think in terms of the ones that have been announced already it is over 50,000.
Several have not announced them yet, including my organization, Delta. I can assure you we are working assiduously on a plan, and the input of this committee and this Congress and the administration is a very important variable in terms of signalling to us what kind of financial help we can have going forward. That is a very important variable.
But with that financial help, I mean, there will still be substantial layoffs. And the number that has been used of 100,000 I think gives a good kind of rule of thumb approximation, really regrettably.
Mr. KELLY. If I may add to that, Congressman. Our intent is not to lay off anyone. We truly do not want to do that, or if we have to get close to that, to be as creative as possible.
But, what we really need to have, in addition to this stabilization, is the ability to get passengers back flying with us. To do that, we have to look at the security initiatives. I know you are going to do that separately. They are needed.
Mr. MULLIN. I would add, if I may, sir, Just to give you one statistic from Delta. Our load factor yesterday was 29 percent.
Mr. BORSKI. All right. Are these layoffsis this something that you would envision would be forever? Are we talking of a thinning of the employees of the airlines?
Page 61 PREV PAGE TOP OF DOC Mr. MULLIN. Absolutely not. I think that when we cited in my testimony the assumptions that we made pertaining to the return of appropriate traffic, we went into theas a best guess, into the second quarter of next year. And as you heard those numbers you were getting back to closer to an operation that might have approximated what we had had prior to the events of September the 11th.
So implicit in that I think is a guess on our part that it will take at least a year to get back to those levels, but clearly when we do get back to those levels we would anticipate, given the fact that we do think that we run a good operation, that the levels would approximate what they are today.
Mr. ANDERSON. And I might add that in most airlines the employees that are laid off have certain recall rights. Our goal would beI mean, the hardest part of this is, after watching what happened last Tuesday, is what you have to deal with with your people; and you would hope that over time, with this sustenance, we can get through this time period and begin ramping back up and have the opportunity to recall all of those people.
Mr. BORSKI. Mr. Kelly, I wanted to address you particularly on the federalized airport security force that I think is universal from the airlines and probably has pretty strong support here as well.
You indicated, I assume this is the position of the airlines, that that is a cost that should be borne by the Federal government and not by.
Mr. KELLY. Yes, sir.
Mr. BORSKI. Why should the nonflying public pay for the flying public's security?
Mr. KELLY. Like any other security or police force that is provided throughout the country, whether it is Federal buildings or parks orany other time that the public has the chance, the opportunity to be affected by outside elements, in this case terrorists.
Page 62 PREV PAGE TOP OF DOC Mr. BORSKI. So you think it should come from general revenues, the Treasury of the government?
Mr. KELLY. The tragedy of September 11th proved that we are not protecting the citizens just in the air but on the ground and everywhere, and that is why this truly should be a Federal program.
Mr. YOUNG. The time of the gentleman has expired. Thank you.
Let me recognize Mr. Petri.
Mr. PETRI. Thank you, Mr. Chairman.
As I indicated in my opening statement, I strongly favor taking action to help stabilize the airline industry, but I think we also need to recognize that it is not the only industry that has been affected or the only group of Americans that has been affected by this terrible situation. We will be setting precedents. You are the first ones before us. We need to be careful that we handle this in a responsible way so that others are treated fairly as well.
We have as a member of our committee a person who has spent years as an investment banker on Wall Street. Representative Tauscher has worked in a number of areas some not quite as devastated as this, but in similar areas. I would like to yield the balance of my time to her for questions.
Mrs. TAUSCHER. I thank my colleague. I did spend 14 years on Wall Street as a very small child, but I am telling you that that is a daunting challenge.
Mr. Mullin and gentlemen, I think that your presentation was very well put together. And I think that the issue of the $5 billion to deal with the ground stop I think, at least in my mind, I think is settled. I think, as I said earlier, returning us as best we can to September 10th is going to be very difficult, but I think that is essentially what we have to attempt to do.
I am concerned about a couple of issues. One is, have you had any conversations, preliminary, with the Street about what you would do, assuming we can solve the liability issues, about going to the Street and actually getting some deal done for liquidity, short-term liquidity?
Page 63 PREV PAGE TOP OF DOC What will your burn rate be in the short term now that you are going to have these layoffs?
And, thirdly, I think that the spill factor, the bleed factor below your industry is probably six to one. For every airline job there is probably six other people that are going to be out of work. I think that is a low number. That is a short-term number.
Clearly, if we return you to some form of September 10th, we have a better opportunity of stopping that bleed factor. Can you answer those questions, and then maybe we will have time for others?
Mr. MULLIN. Well, I think that we have a formal statement that has been placed in the record from Morgan Stanley indicating how essential it is that our government stand behind the aviation industry or none of us will be able to access private capital markets.
I had one of the most difficult six hours of my business career on Monday. We had a $1.2 billion double ETC equipment financing done on that day in the midst of this, for which all kinds of guarantees have been supplied; and very fortunately we hung it together or I would be feeling an even greater act of desperation here as we speak with you here today.
I don't think that double ETC financing which has been the backbone of financing for the industry can be done right now. I think that that Morgan Stanley statement indicates that. So certainly the government actions in the package of steps that you take dealing with all of elements that do include, very, very importantly, the liability issuesI mean, none of us can have financing done if we have a contingent liability of the kind of huge nature that would arise out of a catastrophe such as happened on September 11th, and these issues as a package have got to be drawn together in order to allow us to access private capital markets. It is a package.
Mr. HORTON. If I can add to what Mr. Mullin has said, American Airlines was in the market with $2 billion secured financing on the day of the incident. Obviously, that financing hasn't come to pass. We have been talking with Morgan Stanley about what sort of financing we could do today. There is no secured financing market.
Page 64 PREV PAGE TOP OF DOC If we were to do some sort of unsecured deal, their best guess it would cost somewhere in the neighborhood of 15 to 20 percent today. We have heard from all of the potential investors that this liability issue is first and foremost in their minds.
Liability protection is probably the single most important thing that the government can do to help us get back in the capital markets and help ourselves.
The capital markets correctly fear an avalanche of lawsuits which could bankrupt our companies. Until that cloud is lifted, I don't think we are going to have any access to the capital markets.
Mrs. TAUSCHER. I am not looking for a letter of intent, but I think that we would all be looking for the Street to step up. I think we need an affirmative response from Wall Street. Assuming that we can get this liability issue cleared in the short team, we need the Street to be able to step up.
Additionally, as I said earlier, I believe that we shouldn't be putting American taxpayer dollars at risk unless the risk capital market is willing to step up on some of these loan guarantees. I think that we are never going to be able to be crawling into your books fast enough to understand who the winners and losers are. We should not be putting our thumbs on the scale.
Does this package going forward include, at your recommendation, or would you be for or against a board type of situation, or are you looking for less of a government intervention in a board type of situation?
Mr. MULLIN. We would prefer to go forward with this, obviously, with as little government interventionI mean, this industry has been deregulated since 1978 and I think has extremely admirably served the American public, and I think we want to get back to full private sector status. But, as mentioned, we recognize that when one asks for government money there comes a special responsibility to report to the government and be responsible for how we do handle those funds. So I can assure you we will want to get out of this situation as fast as possible and with as little call on the government as we can possible can.
Page 65 PREV PAGE TOP OF DOC
Mrs. TAUSCHER. Could part of the deal be a Treasury deal, Wall Street deal to essentially do a deal, to do a capital infusion and not only loan guarantees but in a secured debt situation?
Mr. MULLIN. I think we are very willing to consider all of those kinds of options, but I would go back and make one fundamental point and you in part responded to it by your comment about the $5 billion. The need to deal with the situation is absolutely urgent. I don't think I am telling a tale out of school when I say at least three of our members, of our major members of the ATA are on the brink with respect to their financial situations, and we certainly don't want to have to utilize the jurisdictions of the courts to settle these situations, thereby creating a further lack of confidence in an industry with these kinds of problems.
We have to have very, very fast action, and I appreciated Congressman Oberstar's comment earlier and Congressman Mica's comments that we will move swiftly on this. Swift is like Friday. I mean that is the kind of time frame that we need.
Mr. MICA. [Presiding.] The time for the gentleman has expired and the time yielded to the gentlelady has expired. Let me, please, recognize Mr. DeFazio.
Mr. DEFAZIO. I thank the gentleman. Mr. Kelly, you mentioned doing security separately. I can't share your opinion. I don't think we should do it separately, and I think it should be part of this package. I am going to read you a statement here, and then I am going to ask you about something you said. This is my statement 16 March, 2000, at a hearing on the insufficiencies of airport screening and the common practice of using the lowest cost bidder for contracts. ''I have got to tell you when I am flying I doubt I can ever find one person on the plane who would say, quote, 'Gee, I would be really upset if I had to pay one-half of 1 percent more for my ticket to know that the person who screened me was not convicted of various felonies and at high risk of allowing something to happen on this plane.'''
Page 66 PREV PAGE TOP OF DOC I am not saying that is what happened in this incident, but what I am saying is that everything has changed but nothing has changed. I have been hearing for years from this industry if you charge $2.50 for PFC, people won't fly. They will take alternate forms of transportation. You are telling me after this incident that a $3 surcharge is something that would trouble any flier in your system? I don't believe that. I don't believe that. If your ticket for me is $300 or it's $303 and I know I am contributing to the securityyou know, the government is the people. The government is the people, and the people are willing to pay a little bit more for their airplane tickets. They do it in Europe and they have professional screeners and they have better security. We may have to throw in general fund dollars over and above the two or three bucks, but, you know, we don't have a limitless supply of money. We are tapping into Social Security right now for the $40 billion last week. We are going to be tapping into it for what you are asking for here today, and to ask that we get some support for federalization, that is great, but let us have the support with a modest security surcharge. I would ask you before you take that position again to poll all your customers and see if a single one will respond you to in a nonanonymous fashion that they are unwilling to pay an extra 2-1/2 or $3 for your ticket.
Mr. KELLY. Please don't misunderstand me, Mr. Congressman. I believe that the security provision should be part and parcel also. As Mr. Mullin said, there is a timeliness to what is needed from a cash standpoint, especially for some carriers. So that was my only reference to the.
Mr. DEFAZIO. But you did raise the old saw of peopleyou said directly to Mr. Oberstar that you did not support a surcharge. You said that and that is.
Mr. KELLY. No. I.
Mr. DEFAZIO. If I could go on to other questions because my time is so limited.
Page 67 PREV PAGE TOP OF DOC Mr. KELLY. May I respond to that, though?
Mr. DEFAZIO. Very quickly.
Mr. KELLY. The people do not respond to anything other than the total price, and that is strictly supply and demand.
Mr. DEFAZIO. If you could, I reclaim my time, we could put a line on the ticket that says $2.50we have a lot of lines on the ticket alreadywith really big letters, security surcharge and people will be happy to pay it.
Mr. KELLY. But still people make decisions on whether to fly based on how much it costs to fly.
Mr. DEFAZIO. Right. So how many people would have turned down a ticket at $303 that they would have bought at $300?
Mr. KELLY. It really, sir, is.
Mr. DEFAZIO. If I could reclaim my time, sir, we disagree very, very much on this issue, and this is the same thing I have been hearing for 14 years, 15 years since I proposed my first bill on this issue.
Now, if we could move on. If we are asking for these funds, I am very concerned about the workers here. I would like to know is there anything other than unemployment that is being considered by the airlines if this package is made available by Congress if it doesn't include the workers specifically and some benefits to them? Is there anything the airlines are thinking of beyond unemployment benefits, paying for health insurance under COBRA or something along those lines? Is that correct?
Mr. MULLIN. Mr. Anderson.
Mr. ANDERSON. Mr. Congressman, in most situations of most of the majors, the provisions of collective bargaining agreements govern the layoff of employees in these circumstances, and in some cases they have recall rights, they have a right to file for unemployment insurance, and in some cases, I know at Northwest, we are trying to offer unpaid leave for people to voluntarily take leave from the airline without pay so that others who are lower on the seniority list can keep their jobs. I believe that the industry would be supportive of, you know, any other efforts on the part of this committee or the Congress to take any additional steps with respect to our employees. Like I said before, that is the hardest part.
Page 68 PREV PAGE TOP OF DOC Mr. DEFAZIO. I would like to suggest one here. I know the airlines have pending plane orders, some are options, some are hard orders. I would like to suggest if we put U.S. taxpayers dollars into the airlines that the first orders for planes canceled are for foreign manufactured planes and preference is given to the American manufactured planes because the Boeing workers and all the workers who supplied Boeing are going to take a really big hit here and we have got to look at buying American.
Mr. MICA. The time for the gentleman has expired. Do you want someone to respond? Okay.
Let me recognize the former chairman of the Aviation Subcommittee, Mr. Duncan.
Mr. DUNCAN. Thank you, Mr. Chairman, and I won't take my full 5 minutes, but I first want to commend you for the good work you have done during this unprecedented situation. I think everyone knows that if we are able to come up with a good package that we can pass through the House, and I believe we can, that we can't do it repeatedly, and so I will say that the key to recovery here, I think it is pretty clear, is to get people flying again, and Congressman Brown first mentioned this, that he had 10 passengers flying from Charleston. Mr. Mullin mentioned a 29 percent load factor for Delta, and Mr. Hoffa mentioned a passenger. So I can tell you Knoxville, my hometown, is not one of the largest cities but it is one of the most rapidly growing areas in the country and we have a very rapidly growing airport, now over 2 million passengers. When I flew up this morning, there were five passengers on the plane. Now, those planes are almost always full. I have never seen a plane with just five passengers on it, and this is my 13th year in the Congress.
So I think what we are going to have to do, none of us in this room can do this alone, but we are all going to have to join together to help reassure the public that it is safe to fly. We have got to start getting the message out that we are doing more to make it safe to fly probably than any other country in the world, with the possible exception of Israel, and it is probably safer to fly than it ever has been, and yet that message is not getting out there, and I think all of you have got to get campaigns going with all of your employees, telling everybody they possibly can. We all need to get that message out in our districts because we have got to get people in the air again.
Page 69 PREV PAGE TOP OF DOC And I will say this: We have had all these briefings and some have been pessimistic, and I don't have blinders on. I know this is a very bad time and a very difficult situation in many, many different ways, but I am hopeful and I really believe that we have seen the worst of this situation. I know the people who are responsible for the actions that took place in New York City and Washington last week, I believe they have been shocked by the world reaction to what they did. It has been condemned even by people in countries that I am sure they thought would praise them for it. So I think that even though we have heard some very pessimistic or troubling things here in this hearing this morning, I think it is important to try as best we can to reassure the flying public that we are doing things on aviation safety and security that we have never done before.
I am very pleased that we are doing things that I and Chairman Mica and Mr. Oberstar and many others suggested right at the very first, and I think the people of this country are accustomed to flying. They are used to flying. They want to fly. I think they will come back very, very quickly if we really make a concentrated effort to reassure them at this point, and it is going to takeit is not going to be an easy task, but I am optimistic that we can get back to, as Mr. Kelly said, to near normal very quickly and it is extremely important. I just want to say that, and if any of you have any comments about that, I certainly hope you will work with all your employees to get them out there doing this.
Mr. MULLIN. I would just say, Congressman Duncan, how much weI am sure we speak for my colleagues in how deeply appreciative we have been in the sentiments expressed in that regard on the necessity for certainly all of us to market it well, but even your own roles in being very public about it. I think it is just terrific. Thank you.
Mr. DUNCAN. Thank you very much, Mr. Chairman.
Mr. MICA. I thank the gentleman. Let me recognize Mr. Clement.
Page 70 PREV PAGE TOP OF DOC Mr. CLEMENT. Thank you, Mr. Chairman. Good to have all of you here and present your testimony. This is a very difficult time for all of us. Who would have believed this could have happened, but it did. I think all of us were concerned in the past that it could happen but we have always watched it on television that it was in other countries, and now it is in the United States. I think the big question is how fast are we going to bounce back? We want to be helpful to the airline or transportation sector because I know you all have been hit harder at the present time more than any other sector in our economy and we surely don't want it to spill off into other areas, and obviously it is. I know I hear from my folks at home even in general aviation and we all know that the VFR flights are not flying now. We know also that general aviation accounts for 80 percent of all takeoff and landings in the United States, and we have got to give them some relief, but I know people at home are going to ask some questions how much of this financial package should go to the major airlines, to our airlines in this country, versus others because you have other sectors that are being impacted as well and, Mr. Mullin, I would like to ask you, I know historically speaking, looking at the financial numbers, you always lay off people around September and October and then you hire them back for Thanksgiving and Christmastime when things get a lot heavier. Shouldn't we take that into consideration about the size and the magnitude of the package?
Mr. MULLIN. Well, we will be obviously trying to minimize to the maximum extent the layoffs. I have been at Delta 4 years and we haven't had a layoff at all in this time period, so I am about to go through the unfortunate experience right now of having to deal with that effectively, but I think what you have heard implicitly in all of our statements is that we are as eager as you could possibly be to get back to a more normalized situation. We just had to be candid with you and express the view that that is going to take us well into next year before that occurs. The damage is just going to be really huge in the short term, but we want to get back as fast as we possibly can, and all of these workers we have, unionized or nonunion, are highly trained, really great people, and we want them there when we need them so we will get them back as fast as we possibly can.
Page 71 PREV PAGE TOP OF DOC Mr. CLEMENT. Mr. Smith, you are our largest employer in the State of Tennessee. Worldwide you have got over 200,000 employees. What assistance does Federal Express, or I might a say the cargo industry, require separate from the passenger industry to maintain its health?
Mr. SMITH. I don't think there are any separate issues, Mr. Clement, other than the ones that I mentioned, the significant cost of 9-11, making sure the cargo security issues are closely intertwined with the go-forward security plan, and then of great importance is the insurance issue because we are all part of the same pool and absent some sort of government resolution of the third-party liability issues that result from potentially using an airplane as a missile, I think that many of the all-cargo carriers would be very significantly affected and some of them quite frankly put out of business simply because they can't get insurance.
Mr. CLEMENT. What are the merits, in your opinion, of distributing funds granted to us by using the available seat-mile standard and how do we ensure the money goes where it is most needed? For anyone who wants to comment on the panel.
Mr. ANDERSON. Yes, Mr. Clement.
Mr. CLEMENT. Yes.
Mr. ANDERSON. The available seat-mile mechanism has been accepted by virtually every carrier in the industry as the fairest way to apportion the funds because the funds would be apportioned on the basis of capacity immediately prior to the terrible events on September 11 and that capacity is a known fact because we all file data with the DOT under Form 41; so it is a well-known mechanism and I think importantly all the carriers agree with it.
As to your second point, the legislation that Congressmen Young and Oberstar proposed last week and what we would support here is a process for the DOT to be certain that the apportionment of those funds is done in an appropriate way consistent with the methodology laid out by the legislation and consistent with the Form 41 data and that all the airlines would surely be subject to audit with respect to both the losses they state and the funds they acquire.
Page 72 PREV PAGE TOP OF DOC Mr. MICA. Time for the gentleman has expired.
Mr. CLEMENT. I just want to say I know Chairman Mica and myself and other colleagues were in New York City, and we lost a lot of our good friends, with the exception of one, who were so good to us from the Port Authority. Chairman Mica and I will never forget knowing them and how much we are going to miss them.
Mr. MICA. Thank you. Let me recognize Mr. Gilchrest.
Mr. GILCHREST. I thank the chairman. Just a very short comment and then I have a question about the optimistic and pessimistic projections for the cash fund in July 2002. A comment about Mr. DeFazio's interchange with all of you, and I think prior to September 11 the reality of the psychology of the American public is now significantly post-September 11, and even though this might be a small part of this package which I support, a $3 surcharge might be an incentive to fly for that particular airline given that the line item is for security. So just a thought about the changing nature of the psychology of the American public.
Mr. Mullin, you suggested that by 2002 the optimistic projection of your cash fund collectively will be a negative $18 billion.
Mr. MULLIN. Correct.
Mr. GILCHREST. And the pessimistic projection would be about $33 billion.
Mr. MULLIN. Correct.
Mr. GILCHREST. Given the integrated nature of our economy, and a major part of that being the airlines, in your calculations for the negative and optimistic projections, did that include in any way or should we consider in any way as far as the cash fund is concerned the security measures that you recommended and the liability changes that you recommended and what those recommendations would do as far as their ramifications on the airline industry?
Page 73 PREV PAGE TOP OF DOC Mr. MULLIN. Relative to the security measures, we as an industry probably spend on the order of a billion dollars or so per year now on security, and we have not gone through and really added up what these additional security measures will be.
Mr. GILCHREST. That is a good point. I appreciate that. I guess I am partly dependent, and there is no way to project this, but if we are looking at the reality of the psychology of the American public in their sense of security or lack thereof, the security measures, I would assume, could have a significant impact on the public's view as to fly or not to fly?
Mr. MULLIN. Yes, and we support them all. We have developed them with the Federal Government. We think the Federal Government has really done a great job of working with us very intensively to get this new package of security measures developed, but we have not figured out what those cost. We just put them into place and said we will figure all of this out later. So that is not included in those estimates, but certainly in terms of our recommendation we are recommending that the Federal Government pick up the cost of all security for the reasons I think Mr. Kelly has addressed well before.
Relative to your liability point, we are making the presumption that with this money that we can continue to somehow function as we were before in terms of access to capital markets so forth, and the presumption before that is that we do not have the liability threat that we have outlined. If in fact the airlines are under this cloud of potential liability, insurance liability going forward, we will never be able to access the capital markets and hence all of this whole paradigm would fall apart. So hence the reason for the integrated package of recommendations as it includes this liability component is I don't want to say almost as essential but it is right up there as the actual infusion of the money.
Mr. ANDERSON. If I might add, Secretary Mineta has proposed two rapid response teams on the security issue, one for airport security and one for security on the airplanes, and there are members of the industry in the airline industry on both of those committees. I believe that Secretary Mineta is hoping to have reports back in a couple of weeks on specific recommendations.
Page 74 PREV PAGE TOP OF DOC As to the insurance issue, so long as the industry and our insurers are faced with insuring for acts of terrorism committed by terrorists with our airplanes, we will have very real difficulties both financing airplanes and in some cases even having the insurance necessary to operate because the insurance industry, if it believes it will bear the costs, we might not be able to obtain war risk insurance.
Mr. MICA. Time for the gentleman has expired. Let me recognize Ms. Norton. Ms. Norton, too, let me just say that I was quoted as saying by a spokesperson that I favored a close down of National, and just for the record I have done everything I can to get National open and that was an error, and I just wanted to reassure you and the Virginia members. Thank you.
Mr. NORTON. Thank you very much, Mr. Chairman. I appreciate that change for the record. This hearing is about, as our documents say, on the financial condition of the industry, but you will recognize that as many members are asking about security as about the details of the finances and that is because when you have this kind of a hit, they really are the same thing and anybody who thinks they are not ought to look at what the chairman has just referred to. Until security is in place, the Federal Government is willing to let the airlines bleed to death at National. I objected at the meeting to the use of the word ''indefinite'' for the closing of National because that sent a terrible message to the markets, to the industry, to the banks, and Jane Garvey said that they would take steps to correct such a use of such lethal language.
I have a question about not only the cost of security and how those costs should be allocated, that is part and parcel of it, but about rethinking security itself. I guess it was Mr. Kelly, and he responded as you might expect the industry to respond that he didn't want security costs added to the price of tickets and of course we are thinking about security in precisely the terms we were before as well. I would like to press so that words like federalization of security are more than, you know, abstractions that have no meaning. At the moment they have absolutely no meaning.
Page 75 PREV PAGE TOP OF DOC For example, I take it that if costs were borne by the Federal Government, there would be a radical rearrangement of security vis-a-vis the airlines. For example, although you are regulated, much of security remains in your hand. I mean to take the most high profile notion, the pilot decides what will be done ultimately on a plane if there is an emergency. He is the captain of the ship. I don't know what federalization means. I am kind of forward in the abstract based on this notion of, you know, we have got cops here, why not cops up there. That really doesn't get me very far. I wonder how you think federalization would operate in light of the decision making, who makes the decisions about security both in the air and on the ground. I would like to know whether you have given any thought if you don'tif you think the costs should be borne by the Federal Government about some sort of hybrid system. Are you thinking outside the box, or are we into the way we were already thinking before? Somebody says it should be paid for by the government, somebody says we should not pass on the costs, and basically we have got the same kinds of opposites we had before September 11.
It seems to me September 11 would jar us to think about costs and decision making in security in an entirely different way, and I would like to ask any of you who would like to answer whether you have given any thought to new thinking on security, both costs, perhaps some kind of hybrid and how the decision making would operate if it was not entirely in your hands but also had a Federal component to it.
Mr. MULLIN. Congresswoman Norton, we have rethought in the most fundamental out-of-the-box way the entire security approach to aviation last week involving every single member, every chief executive officer of the airlines, and one of the most intensive examinations of that issue imaginable under fire, I might add, and we really do believe that we have put in place some dramatic improvements in security that can give the assurance to the American public that this industry is safe. One of the great tragedies associated with this, among the many tragedies, is our own reputation for safety.
Page 76 PREV PAGE TOP OF DOC Mr. NORTON. You have got to be more specific than that. We believe we have put in placewhat have you.
Mr. MULLIN. For example, in the introduction of sky marshals on the airplanes, which is one of our fundamental recommendations, the increases in the technological approaches with respect to screening people through the computer-assisted profile system, the recommendation that we are making for new hiring and training practices with respect to the people who do the baggage screening.
Mr. NORTON. All of this would be much more controlled by the Federal Government if the Federal Government were paying for it; is that right?
Mr. MULLIN. We would absolutely like it to be. I would like to so I can go throughthere is a long list of these that really do represent a tremendous increase in improvement in it with a heavy cost. I made the observation that one of the great tragedies is our own reputation for safety. This industry has been unbelievably safe. If you look at the figures, for example, that I remember from 1998 and 1999, this industry carried on the order of 650 million passengers in each of these 2 years without a single fatality. It is unbelievable when you look at the number of people who fly on our airplanes so safely and you compare them to any other mode of transportation. This is the most safe mode of transportation known to mankind, and part of the tragedy we are facing here is that all of this is now suffering under the terrific attack that has arisen.
Mr. NORTON. As long as the Federal Government pays for it, you are willing to give the entire matter of decision making with respect to security in the air and on the ground to the Federal Government?
Mr. MULLIN. We are. We would absolutely be comfortable, very comfortable, in fact enthusiastic about particularly on the ground security being done by the Federal Government.
Page 77 PREV PAGE TOP OF DOC Mr. NORTON. But the problem here occurred in the air, sir.
Mr. MULLIN. But we need to work on that. Secretary Mineta has task forces going on this right now. It has a very short time frame coming out for the procedures. Many of these procedures are in place as we speak and really represents a complete redo of security.
Mr. MICA. Time for the gentlelady has expired. Let me recognize Mr. Horn.
Mr. HORN. Thank you, Mr. Chairman. I am very interested in what this panel is pursuing. Let me ask you in the next coming month, 30 days, are any of you going to file bankruptcy?
Mr. MULLIN. I would like to ask Mr. Parker to speak to that from the standpoint of America West.
Mr. PARKER. Thanks. Mr. Mullin mentioned in his testimony that several airlines are facing significant financial decisions in the next few days. What that means is several airlines are anxiously watching these proceedings and, if something can't be done, would very likely have to be forced to file bankruptcy in a number of days. America West is one of those several airlines, and there are others much larger than America West, but I think we provide a representative case study of what is going on out there.
America West is a product of deregulation. We are the largest airline formed since deregulation. We have $2.5 billion in revenues, 14,000 employees, and our low fares provide important price competition to some of the larger older competitors. Prior to September 11 we did not have a financial crisis. We had $80 billion in cash, we had strong operating performance, and our cash balances remained steady and indeed we signed term sheets for $200 million of financing. We were a financeable airline.
Page 78 PREV PAGE TOP OF DOC Since September 11, the situation has changed dramatically. There is now a cash drain as a result of the decline in revenues we have all talked about already. So the cash balance is not staying steady. Indeed we are draining off something on the order of $5 million per day. Our financing of $200 million has obviously fallen apart, and our ability to obtain additional financing is nonexistent right now as this is all being discussed. So our access to capital markets is now on hold and looking for stabilization. So what we need is, one, immediate cash infusion and, two, immediate access to government loans and guarantees to restore capital market access until stabilization.
Mr. HORN. And you think that will solve your problem?
Mr. PARKER. Absolutely. I think it will stabilize it.
Mr. HORN. Let me ask because Mr. Mullin didn't mention this, that three major members of your organization are on the brink, and America West I fly pretty regularly between Phoenix and Long Beach, California. Almost every seat is taken. So you look like you have got a darn good operation.
Mr. PARKER. Thank you, sir. We did, and we will again if we can get this stabilized, but today that flight from Phoenix to Long Beach has load factors very similar to what Mr. Mullin said his were yesterday of 29 percent, and we need to stabilize this industry. We need to restore consumer confidence, and then we can move forward, but right now we need stabilization and we need it now.
Mr. HORN. Do we have more than the three on the brink? Mr. Mullin, you are.
Mr. MULLIN. I think it is safe to say that among the top 10 airlines, there are three who are on the brink. Obviously we are uncomfortable speaking about somebody who isn't here. Mr. Parker spoke to his situation and he is here, but there are two other significant airlines that are close to it.
Page 79 PREV PAGE TOP OF DOC Mr. HORN. What about the ones that had their machinery taken over by these hijackers, and what are the numbers on the insurance? Have we figured all that out for American and United about their planes and how many people were in it and what that will cost and will it be done by the insurance you have got, or do you have to go and put a lot more money with all the suits that we will be filing? So I would think that we ought to put a law on the books that we don't give insurance to hijackers if we can identify them, and it would just be outrageous forI think for most Americans to give their relatives whatever if there are hijackers. What do you think on that?
Mr. HORTON. I can comment from American Airlines' perspective with regard to insurance. We are well covered with respect to the loss of the aircraft. We are well covered with respect to the loss of life of our passengers and crew. The issue that we have been discussing here this morning is liability for loss of life on the ground and property damage in both Washington.
Mr. HORN. Would you speak to the microphone a little more?
Mr. HORTON. in both Washington and New York. So that is the issue that we need immediate relief from in order to access the capital markets.
Mr. MICA. I thank the gentleman. The time has expired. Let me recognize Mr. Menendez.
Mr. MENENDEZ. Thank you, Mr. Chairman. Gentlemen, as I said in my opening statement, I want to help the industry, but we need the American people's confidence in what we do. So I hope you will understand the nature of the questions in that regard. Please yes or no if you can. A hundred thousand layoffs, notwithstanding 20 some odd million layoffs if we were to give you your package?
Mr. MULLIN. That number could materialize, yes, sir.
Mr. MENENDEZ. So that is a yes?
Page 80 PREV PAGE TOP OF DOC Mr. MULLIN. Yes.
Mr. MENENDEZ. Second question, the $340 million a day you say that your industry spends, is that inclusive of the items you would spend because you didn't flyfood, fuel, other items?
Mr. MULLIN. That is a standard run rate expenditure; so we would includethat pertains to a normal flying operation.
Mr. MENENDEZ. So then we would deductthere would be a refineda net item that you could provide to the committee; correct?
Mr. MULLIN. That is correct.
Mr. MENENDEZ. Would you provide that to committee, please?
On Page 6 you talked about a series of expectations for this last quarter and the first two quarters of next year. What were those expectations?
Mr. MULLIN. We had all had independent forecasts wherein we I think routinely as part of our management responsibilities in our companies forecast out, say, for our board of directors as to what our expectations are a year in advance. So each of us submitted those expectations for the first time, I might add, to the ATA, who assembled the information to give the picture as to what those expectations are.
Mr. MENENDEZ. Collectively do you have that as an association here for the committee today?
Mr. MULLIN. The ATA has that, yes. We could supply that.
Mr. MENENDEZ. Could you supply that because for us to understand what 60 percent of previous expectations, I think the flying public and the Congress is going to want to know what those expectations were to make sure that they are reasonable. I don't doubt that they will be, but we want to know that they are reasonable.
Mr. MULLIN. Sure.
Page 81 PREV PAGE TOP OF DOC Mr. MENENDEZ. Just for my understanding of this, you want the calculation for this assistance to be done on the available seat-miles, and I think in one of your answers you said that is in percentage of capacity. Is it percentage of capacity or percentage of actual flying that particular airline may do? Because you can have capacity that is unused.
Mr. ANDERSON. Well, the capacity is available seat-mile which is one seat flown one mile. It is a standard measure in Form 41. So it wouldn't include capacity if it wasn't flying because it is the existing ASMs which are the airplanes you actually flew in revenue service. It is a very defined term in Form 41.
Mr. MENENDEZ. So in essence that means capacity flown?
Mr. ANDERSON. Yes.
Mr. MENENDEZ. That is fine. Lastly, I listened to your answers as it relates to security, and I read your statement as you were delivering it, and on 11 and 12 you say provide sky marshals on a domestic flight, for the Federal Government to take all security screening functions, and to provide financial support for all mandated safety requirements, and clearly that is an enormous shift not only of responsibility and money that you are presently to some degree providing yourselves to the Federal Government on a continuing basis, on a forever basis versus on a shared basis, and while, yes, security is about ensuring the flying public's safety, it also provides benefits to you as an industry. It guarantees the likelihood that your capital, i.e., your planes, will be preserved. It guarantees that your liabilities will be lessened, and there is a whole host of other ripple effects, including when you go to the market to borrow.
So what is your responsibility here? I hear your shifting, but I don't hear your embracing of your responsibility, and I would like an answer from the industry. What is your responsibility as it relates to your participation in security?
Mr. MULLIN. We embrace totally our responsibility for safety. There is nothing that is more important.
Page 82 PREV PAGE TOP OF DOC Mr. MENENDEZ. Including financially as part of it?
Mr. MULLIN. We have been embracing that financially. What we are talking about here today is that none of us would be here but for the September 11. We have heard repeated reference to how everything has changed. I think what we have seen here is that terrorism and national security issues have been introduced into the whole security equation to airlines to a degree that has never been present before. Nobody has ever seen anything like this before. And so we need to think about this, as Congressman Oberstar and others have talked about, going back to the very issue of how we treat this as a Nation in terms of providing our security for all people.
It truly is a governmental function. We as airlines just simply do not have the mechanisms to go forward and provide that.
Mr. MENENDEZ. I understand clearly the responsibility, but.
Mr. MICA. The gentleman's time has expired.
Mr. MENENDEZ. I will finish, Mr. Chairman, in just a moment. But I think that you cannot expect an absolute and complete shift.
Mr. MULLIN. I understand that.
Mr. MENENDEZ. in the industry not having a responsibility, and I hope at some point you will respond to executive positions as it relates to what the industry is willing to do to tighten its belt in that regard.
Mr. MULLIN. I think since a number of you have raised that, I should mention that the executives in this industry are going to pay an enormous price for this. The vast majority of us have performance-based compensation as our principal component of compensation. Most of us have it at 75 percent or so. All of that would be clearly wiped out by this. And for those who have had stock-based compensation for years past, you only have to look at what has happened to the stock market to understand the damage that has been done to that.
Page 83 PREV PAGE TOP OF DOC So there is going to be a tremendous sacrifice, a shared sacrifice, which we believe is appropriate. It will happen and it will happen big time.
Mr. MICA. The time for the gentleman has expired. Let me recognize myself for my allotted time of questions. Let me continue in the line of questioning. It is my understanding that the screening process which the airlines now pay for cost you about a billion dollars a year. Is that correct?
Mr. MULLIN. Yes.
Mr. MICA. I see. Is the airline industry willing to continue to pay that equivalent if the responsibility has shifted to someone else?
Mr. MULLIN. Well, we have built into those forecasts, Congressman Mica, the presumption that we will.
Mr. MICA. You will continue to.
Mr. MULLIN. It is.
Mr. MICA. Because someone is going to have to help pay for that responsibility. You said that $1.3 billion has been identified as a direct hit you took as of.
Mr. MULLIN. Correct.
Mr. MICA. the attacks on September 11. The balance of everything else, is that intended to be paid back in either loans or loan guarantees?
Mr. MULLIN. Our package just really has two components. The $5 billion of immediate cash infusion that is based on.
Mr. MICA. That is not my question. My question is the direct costs that you are asking for reimbursement for, is that $1.3 billion, and the balance of everything else going to be paid back, or is it a greater amount? Again I want to know what would be the loan.
Page 84 PREV PAGE TOP OF DOC Mr. MULLIN. The presumption is the $5 billion wouldn't be paid back.
Mr. MICA. $5 billion would not be paid back. That is what you are requesting. Okay. Have any of you been dropped by insurers?
Mr. KELLY. We have received a notice of cancellation which means that in effect within 7 days we have to renegotiate. That doesn't mean we will be dropped, but they will be renegotiating at different terms and different costs.
Mr. MICA. Okay. One of the major questions we are going to be asked isand we have a long line of peopleif we pass this legislation to assist you, why not help others who have been so affected? Maybe you could just give me a quick.
Mr. MULLIN. I think that has to do with the fundamental nature of airline service as the backbone of our economy. There have been studies that said 10 percent of gross national product is the.
Mr. MICA. Those are my figures. Again we are going to have aviation industry here and small mom and pop businesses that literally have been devastated by this.
Mr. ANDERSON. May I make one point on that?
Mr. MICA. Yes.
Mr. ANDERSON. I think this is the only industry in the United States that has been turned into an instrument of terrorism. It was a U.S. airplane operated by American and United, U.S. airplanes, and that we in fact as an industry have been particularly targeted as a vehicle for terrorism.
Mr. MICA. Thank you. Let me ask you this. I only know from news reports and rumblings. Are you going to other committees asking for other reductions, or is this the whole package? I heard reductions or suspension of some of the fuel taxes and others. Is this it or are you shopping?
Page 85 PREV PAGE TOP OF DOC Mr. MULLIN. No, we are not shopping. This is our package.
Mr. MICA. The other thing too is Southwest Airlines, and I may be wrong but I heard one of the airlines say that they had sat down and had worked out something to keep people employed. Why can't you work with labor and others? It didn't sound like from Mr. Hoffa that you all have sat down with labor yet to discuss the alternatives to putting everybody on the street.
Mr. KELLY. I would just like to say that from our standpoint we met with our labor leaders, our Master Executive Council chair, immediately when this happened and we told them that we were not going to be precipitous in taking an action. We have not laid off people. If we moved forward, we have said to our employees we will be as creative as possible in whatever way that means, job sharing or anything we can do to minimize the impact.
Mr. MICA. I would like anybody from the ATA to respond to the committee and let us know what you can do. This isn't the time to be laying people off. It is the time to be hiring people. Some people may have to evenly share the burden in all of this.
One final question, my time is about up, is cancellation of aircraft orders. I would also like you to supply to the committee what aircrafts have been canceled and why and what financial reason, and I want to know also if we give you this money those orders will be restored because we have reports now of some 30,000 losing their jobs.
My time has expired.
Let me recognize gentlelady from Florida.
Ms. BROWN OF FLORIDA. Thank you, Mr. Chairman, and I think your testimony, Mr. Mullin, was very informative. I do have a couple of questions, and I think the first one is I note that all of the carriers are not here, USAir is not here, and as I told you that is my carrier and there are some fine men and women that work there. If we pass this package, I would be very concerned if I read in a paper a week later that some executive received $8 million. So what kind of assurances do we have for people that participate in this program that we are going to safeguard the taxpayers' dollars?
Page 86 PREV PAGE TOP OF DOC Mr. MULLIN. I think you will get those assured and I will be happy to share with you our compensation programs so that it is well understood.
Ms. BROWN OF FLORIDA. I am not talking about Delta. I am talking about everybody that participated in the program.
Mr. MULLIN. I am sure US Airways would agree also to share with you the basis upon which they are compensated and see what happens if this happens.
Mr. ANDERSON. Those will all be publicly available because our 10-K's all include our salaries all year and I can tell you at Northwest that we are going to take significant reductions in all management compensation areas.
Ms. BROWN OF FLORIDA. I am not going to say this is going to happen, but I would not want to read this and I want to see some safeguards to make sure it does not happen that some executives give themselves an $11 million bonus. We would look pretty bad to the public.
Mr. ANDERSON. Well, we would look even worse because it wouldn't be fair in the circumstances we find ourselves.
Ms. BROWN OF FLORIDA. To be laying off thousands of people.
Mr. ANDERSON. To asking for what we are asking you for and to having the very difficult task of reducing our head count to also at the same time enrich ourselves, that just doesn't work and I don't think any of the executives at any of these airlines are going to do that.
Ms. BROWN OF FLORIDA. I have a couple of questions about security. As far as the sky marshals are concerned, I note in your report that you said we have them all on domestic flights. I don't understand why not all flights.
Mr. ANDERSON. They are already there on the international flights, and what we would propose is that Secretary Mineta has these two committees that are already beginning to do work and they will bring back specific recommendations in a couple of weeks for both airport security and aircraft security.
Page 87 PREV PAGE TOP OF DOC Ms. BROWN OF FLORIDA. One other thing. Mr. Kelly, I noted that you said, and I guess this is serious consideration, about the $3 for security. One of the things that the public understands is a user fee, and I think when you said that you want Federal Government to take over, you know, the financing, you are the Federal Government. It is all of our dollars, and we have got to figure out what is the best way to install the safety measures because I came up last night and there was nobody on my flight, and all Members of Congress, for one thing, we know something about the industry because we all are on planes, all of us, at least two or three times a week. So if we don't feel secure, if the public don't feel secure, then they are not going to fly.
Mr. KELLY. I am in total agreement with you, Congresswoman, and the bottom line as you well know and we all know is that we are all going to pay. Whether we pay it in a fare or a ticket tax or user fee or general taxes, we the citizens end up bearing the cost one way or another and the question really is how should we best accommodate that, and my point is that given a struggling industry adding that cost on, given the elasticity issues is perhaps not the best way to accomplish them. That is the only point I am making.
Mr. FILNER. Ms. Brown, would you yield some time for our colleague Mr. Doggett?
Ms. BROWN OF FLORIDA. Yes, please.
Mr. MICA. No, I am sorry. We can't do that. There have already been requests. If they are not a member of the committee, you can only yield to a member of the committee. Let me yield to Mr. LaTourette.
Mr. LATOURETTE. I thank the chairman very much. At the end of last year there was a lot of consternation by some in the Congress about money provided to the Medicare system and particularly to the insurance companies that handle senior HMO products thinking they would increase that money to increase coverage, go back into areas that they had abandoned, and GAO came out with a report indicating that a number of those companies then put the money in their reserves, which is sad. If Mrs. Tauscher is correct that for every one airline job there are six jobs in the economy spun off, and I think that is a conservative number, one of the concerns that I have is if this package goes through and you are made whole, I am aware that at least some of the airlines represented in this table have sent out letters to their suppliers since the tragedy of last Tuesday, asking the supplier of parts to reduce their open invoices; that is, stuff you ordered before September 11, by 12 to a 25 percent.
Page 88 PREV PAGE TOP OF DOC My concern is that if this package is approved by the Congress, and I happen to be one that fully believes that you are entitled to it and you need it and your industry is one that is important, my concern is that open invoices, the guys and gals that are making the parts and everything else that you need to fly, would you still be asking for that 12 to 25 percent decrease on open invoices? And Mr. Anderson, maybe I will start with you.
Mr. ANDERSON. Since I sent the letter, yes. Yes. We will still be asking for the reductions from our suppliers.
Mr. LATOURETTE. Then how are we going to be ableso we will make you happy and healthy or at least bring you back to level. What about other folks who operate the machines in our districts?
Mr. ANDERSON. Our industry, as you said, probably for every one airline job, there is more than six other jobs, and as sort of the linchpin of the whole aviation system, how we go so goes the rest of our suppliers and the other people that depend upon the industry. So if you fundamentally want to be able to assist Pratt & Whitney, Boeing, General Electric, our principal suppliers, Rockwell, Allied Signal, the best way to do that is to keep us stable because the impact to our suppliers will be even more significant without this package and there will be even more ripple effect in the economy.
Mr. LATOURETTE. I fully understand that. That is the argument the committee staff makes to me, but I will tell you this. If you are made stable, and you all have represented to us that you weren't doing great before September 11 but you were doing okay, why then should the second generation machine shop that makes a little ignition switch in case there is a flame out take a 25 percent hit when you are going to be made whole?
Mr. ANDERSON. Well, I believe that Leo described to you the fact that the revenue fall off and the direct impact of these acts of terrorism to the industry between now and June by conservative estimates is 18 million, by pessimistic estimates is 33 million.
Page 89 PREV PAGE TOP OF DOC Mr. LATOURETTE. Billion.
Mr. ANDERSON. Billion. Excuse me. We wouldn't be here if it was millions.
Mr. LATOURETTE. Right.
Mr. ANDERSON. So we have a wide range of potential losses that we have to make up over and above. So I think the members talking about executive compensation and everybody participating, when we go through these kinds of events, our suppliers likewise contribute.
Mr. LATOURETTE. I got it. Is there anybody that has a different answer than Mr. Anderson?
Mr. MULLIN. The only I would add is that many of us in light of the difficulty that we were having before this, had been engaging through what is called supply chain management and very aggressive discussions with our suppliers in the face of a recession, and unfortunately, and to echo Richard, you hate to see a small machinist go out of work. We all are going to have to be very aggressive in controlling those costs. At Delta Airlines $7 billion of our roughly $15 billion of expenses each year are supplies, so to get ahold of our expense base.
Mr. LATOURETTE. Could in the 30 seconds I have left someone comment on what the intention is under this package in terms of honoring passenger tickets that have been purchased for routes that are discontinued or for a trip that no longer exists because an airline ceased to exist?
Mr. ANDERSON. We routinely accommodate those under our tariffs. Actually we regularly go through schedule changes through the industry, and you pull service, cancel service to cities, and we have a regular process for reaccommodating people across the board.
Page 90 PREV PAGE TOP OF DOC Mr. LATOURETTE. Thank you.
Mr. MICA. I thank the gentleman and let me recognize Mr. Filner.
Mr. FILNER. I thank the chairman. I guess if this weren't an incredible national crisis, I would be tempted to comment on the irony of corporate America lined up here asking the hated Federal Government for an $18 billion handout, the same corporate America which resists a dollar increase in the minimum wage or labels programs to help poor people as giving handouts to the undeserving or resists collective bargaining agreements. I would be tempted, but I will resist that temptation today.
We have talked about layoffs. How many of you up there have laid off people already or intend to this week?
Mr. MULLIN. I have not yet.
Mr. KELLY. We have not laid anyone off.
Mr. HORTON. We intend to.
Mr. PARKER. We have not laid off anyone.
Mr. FILNER. This bailout bill should be used to forestall or rescind those layoffs.
Mr. MULLIN. I think, generally speaking, there can be no assurance, particularly given the uncertainty that we have with respect to the amount of traffic that we are going to be flying. If we have load factors that prevail such as have been cited here, with the demand as low as it is, it just makes no sense to continue to fly those airplanes.
Mr. FILNER. It seems to me we have a job up here as a Congress to not only make you whole, but to protect those who, through no fault of their own, are thrown out of work. When Mr. DeFazio asked a question what protections would you recommend for these laid-off workers, such as health benefits that would continue or other benefits, Mr. Anderson said, ''Well, these are protected in collective bargaining agreements.''
Page 91 PREV PAGE TOP OF DOC The guy on your right and the guy on your left sitting up there, I would argue, do not put much faith in collective bargaining agreements and don't have those for most of your employees. So how are they going to protect them, since a lot of you don't believe in collective bargaining agreements? How are we going to protect the employees since your answer, Mr. Anderson, as I heard, didn't cover anything Mr. DeFazio asked? How are you going to protect those folks?
Mr. MULLIN. I can just say from Delta, which is perhaps the least unionized of all of the airlines.
Mr. FILNER. You have one more here.
Mr. MULLIN. will absolutely protect our employees to the same or even more of a degree than those.
Mr. FILNER. Are you going to give them health insurance forover the time, for example?
Mr. MULLIN. We will do the best we can.
Mr. FILNER. Are they going to have ways of either counseling or training for new kinds of jobs? Are you going to do that?
Mr. MULLIN. We will do the best we can with it. We are working on those programs right now.
Mr. FILNER. It seems to me, given that answer, it is up to this Congress to guarantee that that occurs. Since your answer is, ''to the best of your ability,'' I think we have to guarantee it.
In fact, as I listen to some of the answers, whether we are talking about security or talking about passengers' rights or talking about employee rights, I think we need a permanent oversight commission as part of this legislation, Mr. Chairman and Mr. Ranking Member, that is going to make sure that these rights are protected and that the security does take place. I mean, this group that keeps resisting government intervention is here asking for 18 billion. It seems to me we have a right to insist on certain return obligations for the bailout that is being requested here.
Page 92 PREV PAGE TOP OF DOC Mr. MULLIN. Sir, may I comment on one thing? You give me the opportunity to refer again to the bailout. We absolutely do not feel we are in a bailout here. We are in an industry stabilization effort that results from a terrorist attack using our airplanes.
Mr. FILNER. Again, those people who are out of work for the same reaso I have heard Mr. Abercrombie, explain, with great eloquence, that his whole State is threatened with bankruptcy because Hawaii depends on tourism. Do I get that right? Aren't all of the travel agents in my district and every district around here that are out of business entitled to the stabilization based onhowever you phrased it?
All of the folks who we have heard from here, many people who have lost their jobs, lost their businesses, lost their livelihoods, lost their futures because of what occurred, not from their own doing, why aren't they entitled to the same stabilization that you are requesting? I don't buy the argument that was made that because of your unique status, you are the only ones entitled.
You are a particular industry that is vital. We all agree to that, and nothing I say should undermine that. You are going to get a package here. It seems that this Congress should be looking at these other factors also. You have resisted, by the way, as an industry, a passenger's bill of rights. Would you mind having that incorporated in this bailout?
Mr. MICA. The time of the gentleman has expired, if someone wants to respond.
Mr. SMITH. Well, I just want to say, you attributed to me some sentimentsto the best of my knowledge, Congressman, I never have spoken to you. And I certainly believe in the right of collective bargaining.
Mr. FILNER. Does FedEx have a bargaining unit?
Mr. SMITH. FedEx has no intention of laying people off.
Page 93 PREV PAGE TOP OF DOC Mr. FILNER. Do you have collective bargaining?
Mr. SMITH. We do.
Mr. MICA. That will have to suffice. The time of the gentleman has expired and we have many members waiting patiently.
Let me recognize Mrs. Kelly. Thank you.
Mrs. KELLY OF NEW YORK. Thank you, Mr. Chairman.
Gentlemen, you are here asking for money. The money that we have to allocate to you comes out of the pockets of the citizens of the United States of America. It is our fiduciary responsibility to make sure that that money is spent wisely. That is what we are elected to do. That is why, I believe, you hear these concerns.
I have a certain concern that Mr. Filner alluded to, the very first question I wrote down here that I wanted to ask you is the fact thatespecially I would like to address this to Mr. Mullin and Mr. Hortonin some time past, you have chosen to reduce the percentage that travel agents are able to achieve when they sell one of your tickets. In the event that you get this bailout, so to speak, would you be willing either to consider rescinding that or reducing that amount so that we can let this have a trickle-down effect at least to some of our other people who need some help here?
And I am asking the two of you.
Mr. MULLIN. Congresswoman Kelly, at this point and in light of the terrific challenges we have, I don't think we can make any promises with respect certainly to rescinding an expense component that has already been taken. I think our challenge is going to be even greater moving forward to move our expenses down.
Our industry doesn't have any revenue. I mean, this revenue pattern that we have got right now, if there is no money coming in, then we are going to be having to look everywhere we possibly can in order to manage our expenses most effectively.
Page 94 PREV PAGE TOP OF DOC Mrs. KELLY OF NEW YORK. Mr. Mullin, that is exactly what the travel agents have to face. I understand that the travel agents, I have been told, face about a loss ofof approximately $4 billion in the next 4 weeks.
Mr. MULLIN. We are inextricably linked to the travel agency sector. We have had a partnership with them, even given the changes that have been made and the pricing going forward; and we have to work very closely together to restore the revenue stream of the airlines and the revenue stream on which they depend. So we will be working very, very closely.
I responded to your specific question pertaining to a rescinding of an expense item.
Mrs. KELLY OF NEW YORK. Mr. Horton?
Mr. HORTON. I would essentially agree with what Mr. Mullin had to say, and I would second something that he said earlier.
We are not seeking what some call a ''bailout.'' we are seeking a recovery to the sorry state of our industry before this event occurred. So all of us are going to be looking for every opportunity we can to make our companies more cost effective. So I don't think we can make any guarantees about any of our costs.
Mrs. KELLY OF NEW YORK. In other words, Mr. Horton, you are saying that you want to see us give you money, which then, as I think other people are concerned about, will stay within your own industry and not trickle down? Do I misunderstand you?
Mr. HORTON. Let me be clear. Our industry was headed for $3 billion in losses this year before this event occurred. It would be irresponsible for us as managers of these companies to do anything but look for opportunities to make our companies more cost efficient and generate more revenue, and that is what we will continue to do.
Mrs. KELLY OF NEW YORK. Mr. Parker?
Page 95 PREV PAGE TOP OF DOC Mr. PARKER. I think there is a huge trickle-down. People are not avoiding Hawaii because they don't want to go to Hawaii. They are not going to Hawaii because they are afraid to fly.
We need to stabilize this air travel industry first; then restore consumer confidence in air travel. Once we do that, people will be going to Hawaii. Travel agents will begin making more money again. And we will be able to buy more airplanes. We will be able to hire more people back.
But you have to start getting people back in the air, and you have to start that by what we are asking for here.
Mrs. KELLY OF NEW YORK. Thank you, Mr. Parker.
I have a very short time here, and I just want to ask one more question. If your planes are flying and they are large planes and they are flying with not so many people, is there some reason why you can't fly smaller planes and fill those planes to capacity?
Mr. MULLIN. Yes. We will be doing that. I can speak of Delta particularly. We have the largest commitment of any of the airlines to regional jets. And we will be particularly aggressive in deploying regional jets on routes where the demand has fallen, just as fast as we can get them.
Mrs. KELLY OF NEW YORK. And that would reduce your costs, I assume?
Mr. MULLIN. Yes.
I want to make one last observation here. The contextthis element of the conversation might suggest that we are in a program of reducing jobs or, in some sense, acting against travel agents who, in many respects, are our partners.
Our whole goal through this whole conversation we have been having here is to stabilize this industry such that we can increase jobs. Our goal is to get those jobs back. None of us wants to engage in the kind of activity.
Page 96 PREV PAGE TOP OF DOC Mr. MICA. The gentlelady's time has expired.
Ms. EDDIE BERNICE JOHNSON OF TEXAS. Thank you very much, Mr. Chairman.
Let me first say that although this is not considered a bailout by the airlines, the people of the Nation feel that it is; and I guess it is in the eyes of the beholder.
I am concerned about recovery procedures, your outplacement plan and your plan to reattract passengers. Any majorare you going to speak for all the industry?
Mr. MULLIN. We had a little trouble hearing you. I apologize. I heard the plan to attract passengers and did you say outplacement?
Ms. EDDIE BERNICE JOHNSON OF TEXAS. In your recovery procedure, do you have a plan for outplacement of employees, and what is your plan to reattract passengers?
Mr. ANDERSON. I will speak on behalf of Northwest. With respect to our employees, the provisions of our collective bargaining agreement govern layoffs, and the provisions of those agreements will apply in these cases. And most of the other carriers have similar provisions.
The second piece isI think the first and foremost thing the industry is doing is running a good airline. The industry actually today is running very well. We have got to provide safe, secure, on-time, good customer service to our passengers; and we need your assistance and the assistance of our government in instillingreinstilling confidence in the traveling public that it is safe to fly.
So I think those end up beingremember, instilling the confidence of the traveling public and the safety of our system is going to be the most important step that we can take as an industry.
Page 97 PREV PAGE TOP OF DOC Mr. KELLY. There will be fare discounts; I am absolutely assured of that. Whenever passengers aren't flying, we will be giving them a reason to go flying again, and that has already begun. So building confidence on one hand and stimulation on the other hand, Congresswoman.
Ms. EDDIE BERNICE JOHNSON OF TEXAS. Now, you indicated in testimony that improvement of security and modification of some of the planes, you expect the Federal Government to rise to the leadership in those areas. Will any of these Federal dollars be used for those purposes?
Mr. MULLIN. We would anticipate, over time, establishing separate accounting for that. So to the extent that the Federal Government does bear the responsibility, the cost of the responsibility for that, it will be very clear about that.
As Congressman Mica indicated, given that we are currently spending a billion dollars or so right now on security, it will need to be worked out who is responsible for what component of the security that goes forward. And as mentioned in previous questions, Secretary Mineta does have a task force that has been established with members of our group here on that task force. It is due to report on such issues within a short period of time.
Ms. EDDIE BERNICE JOHNSON OF TEXAS. So I think I hear you, in your answer, saying that that is an expectation that is additional money for the Federal Government to pick up, not included in this initial request?
Mr. MULLIN. We have not put into this initial request any estimates for the added expenses that will be presumed as mentioned. In answer to a previous question, we just put them in place and said we would figure out the cost of it later.
Ms. EDDIE BERNICE JOHNSON OF TEXAS. Well, I think that the concern that most of the members of this committee have is that the majority of the people who will be inconvenienced and already grossly outnumber the persons that will survive in the airline industry; and this is a lot of money being taken away already from programs that would probably be allocated for education, Social Security reform, Medicare reform, prescription drug assistance. And so when we have to look away from that to do this, we have to have some assurance that you are thinking about the people that support your industry as well.
Page 98 PREV PAGE TOP OF DOC Thank you very much.
Thank you, Mr. Chairman.
Mr. MICA. The gentlelady yields back the balance of her time.
Mr. Simpson, you are recognized.
Mr. SIMPSON. Thank you, Mr. Chairman.
Mr. Mullin, let me just say I hope that you don't go to regional jets from Dulles to Salt Lake City, because I don't want to sit on one of those. I understand the idea of getting smaller planes that are fuller.
Secondly, Mr. Filner mentioned the workers and his concern for those, and I think we all have that same concern. I think Mr. Hoffa mentioned during his testimony the idea of some funding for transition funding for those employees that are being laid off. It is not uncommon or unroutine for Congressas an example, when contractors of DOE sites lay off employeesthat we include transition funding, retraining funding; and I think that is totally appropriate in this situation also. And I hope that Congress looks at that as part of a total package, because there are going to be some layoffs that are probably going to be permanent. As you said, you reorganize your industry due to the situation that it is currently in.
It was mentionedMr. LaTourette asked the question about reaccommodation of those ticketed passengers that have tickets on the flights have been cancelled, that are no longer flying or whatever. And I think Mr. Horton mentioned, or Mr. Parker mentioned that people aren't going to Hawaii because they are afraid to fly.
What is that reaccommodation? Do they get their money back or are you ticketing them on another flight? Because if they are afraid to fly, reticketing them doesn't help.
Mr. KELLY. Yes. In that case, they would be entitled to a refund. And a number of us have waived some of the fees that typically apply to refunds. So they could either be reaccommodated or they can have their refund.
Page 99 PREV PAGE TOP OF DOC Mr. SIMPSON. In the $5 billion that is going to go out in direct payments in the ''stabilization funding,'' as you have called itand I agree with you that it what it is; it is going to be based on ASM'sthere are high-cost carriers and low-cost carriers. Some regional carriers have much higher costs, and we can tell that by the fact that a ticket from Boise to Idaho Falls costs more than a ticket from Dulles to Salt Lake City.
Is there any accommodation made in that for high-cost versus low-cost carriers?
Mr. MULLIN. No, there isn't. And we felt that the allocation based on, essentially, capacity in the sky was the fairest way to do it. We don't want to have any kind of swing on this based on the cost structure or even the competitive structure that prevailed prior to September 11. So none of those factors are taken into account.
We talked about many different mechanisms to do it. And we think that ASM is the fairest way to do it with the modification that Fred Smith has made for cargo carriers which, as he said, accounts for about 10 percent of it; that this is the fairest way.
Mr. SIMPSON. Do the regional carriers agree with that?
Mr. KELLY. We are a low-cost carrier. Doug is a low-cost carrier. And we agree with this cost allocation method. We all agree that this is the fairest way to allocate the money. Again, the money has to be justified by actual expenses in an audit after the fact.
Mr. SIMPSON. As I mentioned during my opening statement, I am one of those individuals that has some reservations about this. And I guess my reservations stem from the fact there are hundreds, if not thousands, of companies across America that have suffered losses, not because of their own fault, but because of this act of terrorismmany of them in the World Trade Center.
Page 100 PREV PAGE TOP OF DOC If we put this stabilization funding out, how do we justify not helping all of those hundreds of thousands of companies that have been severely impacted by this also, when they come before usthe insurance company that insured the Trade Towers or any company that was in there that may totally be lost now?
Mr. MULLIN. I think, sir, that we are responding in making just the affirmative case for airlines rather than arguing against anybody else. I wouldn't want to make that argument against anybody else.
But the affirmative case for the airlines I think derives from the fundamental role that we play in the economy and the support that we give to all of those other folks that you were mentioning. I mean, this country, the economy of this country, I think almost everybody would agree simply could not operate effectively without an effective aviation system; and that is the essence of our argument. If we didn't have that fundamental underpinning to the argument, we shouldn't be here.
And so the support of us is really, we would argue that the multiplier effects that have been mentioned in terms of those added jobs and added contributions to the economy that are created by airlines are the fundamental reason we are here. This economy needs a fundamentally effective aviation sector. Without it, all of the problems that we are talking about would be far, far worse in every sector of the economy.
Mr. MICA. The time of the gentleman has expired.
Mr. SIMPSON. Could I ask.
Mr. MICA. I can't do that. Folks are waiting patiently.
Mr. LAMPSON. I yield to the gentleman if he wants to ask a quick question.
Mr. SIMPSON. Thank you. I appreciate that.
Page 101 PREV PAGE TOP OF DOC One of the fundamental things we have to answer to here in Congress is an airline industry that eventually is going to lose $3 billion this year. And we understand the damage that was caused and what that has cost the airlines industry now.
I want to make sure what we are doing is giving money out to address the problems that were caused by this accident and not by management decisions that caused a $3 billion loss this year.
Mr. MULLIN. We could not share your view more. Everything that we have talked about here today stems from the September 11 tragedy. But we are absolutely prepared to be audited on that fact. So we share your view.
Mr. SIMPSON. Thank you.
Mr. LAMPSON. You are welcome, Mr. Simpson.
I am a little concerned about what is happening to some communities where there are notices of cessation of operation by commuter activities. How extensive do you think that might be? So far, it has not been extremely so. But how quickly will we see a return of flights where there have been not the best markets in the world, but at least service from areas that are desperately in need of it?
Mr. ANDERSON. At Northwest, we tend to serve a lot less-populated areas, so it is an issue that is particularly important to us. The 20 percent reduction, as you look at how schedules seem to be flowing out, seems to be more in frequency than in terminating service to destinations. And one of the proposals we have talked about as an industry is the ability for us to discuss together scheduling, so that in the event there are a couple of carriers in the market, you know, that we could talk to each other about the possibility of one carrier staying in a market so that a city that was previously servedI think in your situation, Continental has announced pulling out of some cities like Tyler and the like in Texas.
Mr. LAMPSON. Thank goodness, not Beaumont yet.
Page 102 PREV PAGE TOP OF DOC Mr. ANDERSON. We all take seriously our responsibilities for service in the smaller markets. And I know at Northwest we have particularly looked at our scheduled cuts in the upper Midwest to make sure we don't terminate service to any cities; but we have, in fact, reduced frequency.
So a lot of the cuts you have seen in this 20 percent, it has been frequencies, not destinations as much. But I do think the committee should consider separate from thisand I would have said this prior to September 11our essential air service marketing program; and I know Congressman Oberstar has had that as an issue from time to time.
Mr. LAMPSON. Anything any different from anyone else on it?
There are going to be other kinds of costs that local government and Federal Government are going to be facing. I learned of some of the things in our visits the other day that it may be as simple as giving up parking spaces, parking lots, that are within a certain distance that can no longer be. We are having to find ways obviously thatwe are going to have to make priorities of where we are going to put dollars to make this overall industry work.
What other kinds of things will the industry suffer from, not just the airlines themselves, but airport-related or other industry-related? What might local and Federal Government be looking at in a total cost to help this industry function properly?
Mr. ANDERSON. I mean, the immediate costand I don't have an estimate on this, but I am sure that ACI and AEEE can give you an ideais that airports are essentially sole-source funded by concession revenues and airline rents and landing fees; and local airports are financed through general airport revenue bonds. When you have this kind of cessation of activity at an airport and reduction in parking revenues and reduction in concession revenues, the financing mechanisms behind our airports and the financial viability of our airports, particularly some of the smaller airports, will be stressed.
Page 103 PREV PAGE TOP OF DOC In addition, I think you are going to see at the same timeat many airports, you have seen additional significant costs under Part 108 of the Federal Aviation Regulations, which governs airport security. And so you also see additional costs, for instance, at use at Intercontinental Airport, the costs of additional police services fall on the Houston Police Department.
Mr. LAMPSON. Will someone tell me again a little bit about the insurance and the difficulties that you are facing? Is there any such thing as loss of business insurancedoes anyone have itand what will not be or cannot be covered by insurance as it exists right now?
Mr. HORTON. There is a rapidly changing environment in the insurance part of our business. But what we are hearing from our insurance companies is that we will see dramatic increases in insurance rates. We will see limitations on the amount of insurance that we are able to achieve. And we have also heard indications that we may or may not be able to get war risk insurance that covers damage and loss of life on the ground, which is the very issue that we have been discussing here today.
Mr. LAMPSON. Thank you, gentlemen.
Mr. MICA. Let me recognize the gentleman from Georgia, Mr. Isakson.
Mr. ISAKSON. Thank you, Mr. Chairman.
Mr. Mullin, you had said you were before no other committee of Congress for any other benefits other than this particular package; is that correct?
Mr. MULLIN. This is our package, yes.
Mr. ISAKSON. So there is no request for any abatement or deferral of taxes; is that correct?
Mr. MULLIN. No.
Page 104 PREV PAGE TOP OF DOC Mr. ISAKSON. With that in mind, do you know, Mr. Mullinand maybe Mr. Horton might be the best gentleman to address this. Do you know how much in Federal taxes, payroll taxes, ad valorem taxes, equipment taxes and other taxes the industry paid the United States of America last year?
Mr. MULLIN. $30 billion.
Mr. ISAKSON. I want to make a point for those who have asked very good questions with regard to employees, subcontractors, ancillary people and the like, and our responsibility to the taxpayers. As I understand, the airline industry last year collected mostly from us citizens $30 billion and turned it over to the government in various forms of taxes.
Mr. MULLIN. That is correct.
Mr. ISAKSON. If the airline industry goes out of business, there will be a net reduction in the revenues of the Federal Government of the United States of America; is that correct?
Mr. MULLIN. That is correct.
Mr. ISAKSON. It is also correct that your estimate of the $18 billion shortfall is subtracting all the money you paid subcontractors, employees and people that make your business run from the amount of revenue you anticipate getting; is that correct?
Mr. MULLIN. That is correct.
Mr. ISAKSON. So the way I get it, it would cost the country $48 billion if we don't do this; $18 billion is lost and the $30 billion of revenues that are over.
And my last pointI am sorry; I am talking rather than asking. But my last point is this: The cost to us not to judiciously stabilize the industry would probably have a multiple factor of 100 times if all the other industries who we fear for were out of business.
Page 105 PREV PAGE TOP OF DOC My last point, I want to commend American and United. I assume, by accepting the availability seat capacity formula, that many airlines have taken a very unselfish position in unifying behind this package; and I want to commend them for doing that, because I think that shows the best in your industry, and I think that is important.
Secondly, I have to inject into the record for those that have talked about the work force, AirTran voluntarily reduced their pay by 9 percent yesterdaythe pilots. And I am assuming in your cost assumptions that derived in the $18 billion shortfall, there are many sacrifices that were presumed in that cost basis before you determined that number. Is that correct as well?
Mr. MULLIN. That is correct.
Mr. MICA. Thank you.
Mr. SANDLIN. Thank you, Mr. Chairman. I would like to say thank you to all of the folks who are testifying today, and we extend our sympathies to you and appreciate your appearance. And I want to say that Congress wants to work with you to be sure you have the relief that you do need presently and that you have long-term viability. We have limited time and just many, many questions.
Clearly, you need some capital infusion. And I was looking at the Morgan Stanley letter, and without going through it, it says there are virtually no markets open to the carriers. The credit rating agencies have downgraded the debt securities. Investors are nervous. If these funds are advanced to you, do you feel protected under the proposed legislation from any extraordinary remedies such as sequestrations or other demands from your creditors by them, deeming themselves to be insecure?
Mr. HORTON. I think if this package is put in place, we will find a way to access the capital markets in a sensible way .
Page 106 PREV PAGE TOP OF DOC Mr. SANDLIN. Let me ask you another question, moving to a different subject. We want to work with you and work in partnership.
Mr. Mullin testified a moment ago and caught my attention on layoffs. There already have been thousands; and it seems like, from what I have read and what you have testified, 20 percent industry-wide seems to be fairly common.
And I would like to compliment the Delta flight attendants. I understand they have volunteered to work for comp time or delayed compensation. And the president of Mesa has reduced his pay by half, and the pilots at AirTran have been mentioned, 22 percent reduction.
I am concernedin looking at compensation, I noticed that Continental Airlines announced 12,000 layoffs, but they said they have no plans to ask executives to take a pay cut. And at that particular airline, the top executive makes $42 million over 5 years. No one atand Delta said that no one at Delta has been asked to take a pay cut yet. It may not be, but nothing can be ruled out. So I suppose that is a possibility.
American Airlines has refused to comment on executive compensation. United didn't respond. US Airways, their top executive made 11.57 million last year.
The top five executives, 28.5 million last year, and I compared that to flight attendants. For example, a first-year flight attendant makes 14,850 a year; 6 years, 22,000; 14 years, 28,000; the Americanthe Airline Pilots Association said the average salary at major airlines is 25 to 30with a top senior captain going international, 250 a year.
The point being, we want to work with you and everybody has to cooperate. Can you help us in encouraging the executives to also make some changes, because we can rehire thousands and thousands and thousands of special services people and flight attendants and mechanics and support personnel with just a little bit of help from the executives? Can you do that?
Mr. MULLIN. Yes.
Page 107 PREV PAGE TOP OF DOC Mr. SANDLIN. Do you think that is in the works? Have the executives discussed that?
Mr. MULLIN. I think that when one looks at executive compensation and some of those numbers that you citednot to get overly technical, but the big numbers are driven by some kind of black shoals estimate of the value of stock options, which are a guess as to what they would be worth in the future. In point of fact with what is happening in the stock marketI could just speak for Deltathe stock options are worth nothing .
Mr. SANDLIN. I understand that, but on the pay, you could work with us and ask them to sacrifice so we could get some our families back to work?
Mr. MULLIN. A significant portion of our cash compensation is also performance based, and when our organizations don't perform, that doesn't come in.
Mr. SANDLIN. When I mentioned in my opening statement that some in the industry have blamed Congress for these layoffs, all of you, I saw, shook your heads, no, that was not so. Could you commit to working with us as soon as possible, getting this instituted? And would each of you agree that even though we are taking the time to have these hearings today and holding these hearings and committing to work with President Bush to develop some sort of long-term plan rather than rushing to a judgment without a hearing, taking this time has in no way caused any layoffs, has it?
Mr. MULLIN. No. We are grateful for having this hearing. We appreciate it .
Mr. SANDLIN. I appreciate that.
And let me say one other thing. I notice Mr. DeFazio was asking about the fees for security. I think American Airlines has testified before that they support that, or something along those lines.
Are the other airlinesdo you feel like that is a reasonable thing to do, and say that passengers will do that? Because I will tell youwe are talking about $2 or $3. I think people would pay $10, $20, $50 a leg if they thought it went to security.
Page 108 PREV PAGE TOP OF DOC What is the position of the other airlines on that sort of theory?
Mr. MULLIN. Well, I just would like to comment.
One of the reasons that you hear this is that all of us are willing to consider any reasonable mechanism for paying for the security; and as I mentioned earlier in my statement, safety is our overriding objective. Nothing even comes close to safety. So whatever mechanism is decided is fine.
I think in terms of perhaps, say, what some of the larger carriers versus some of the low-cost carriers might say is that when you put an added fee on a ticket where price is a major objectiveand it certainly is the case with respect to how the discount carriers competeputting a $3 fee on a smaller ticket base represents a much more substantial.
Mr. SANDLIN. I understand.
Mr. MICA. The gentleman's time has expired.
Let me recognize Mr. Hayes.
Mr. HAYES. Thank you, Mr. Chairman. I personally resent some of Congressman Filner's remarks and the implications that if a company CEO does not have collective bargaining, this somehow represents a lack of concern for employees. Nothing could be farther from the truth. With all due respect, I disassociate myself from the remarks of my friend and colleague, Mr. Filner, in this regard.
As CEO of a company, union and nonunion, nobody cares more about employees more than me, and I assume you all have the same regard. So I want to make that very, very clear.
Interestingly, I don't know everybody in the audience, but a number of folks who work on the ramp at Reagan Nationalsee that, your aviationjust came in the door.
Question: Will you all give us a list of suggestions after you have legally met suggestions that say what you can do working together on scheduling and other areas, given reasonable protection from antitrust laws, so that we can address this problem on that level?
Page 109 PREV PAGE TOP OF DOC Everybody says yes.
Number 2, I spoke with Mr. Hoffa as he left. As a former CEO of a Teamster's company and under the master trade agreement, I asked him if he would be willing to consider flexibility of work rules, which translates into cost savings, also more job opportunities for others. He did not respond initially.
I asked the question again, and he said he would be willing to look at that.
Are you all prepared to directlyand there are other unions involved. This is not an antiunion statement. Are you willing to go to your union and say, Let us be realistic. What can you do?
Mr. ANDERSON. I can speak to that.
We have, in fact, met with all the unions at Northwest Airlines from the pilots, flight attendants, mechanics. And because of the exigency of the circumstances here, we weren't able to have fulsome discussions with them, but I believe they were very forthcoming and very somber when we had to sit down with them.
The President of Northwest sat down with them yesterday and talked them through where we are, and it was a very difficult meeting for all of us. And I think the tone and tenor of that meeting was such that we can have those kinds of discussions with our people.
Mr. KELLY. The answer is yes for Alaska. We wouldn't go ahead unless we did have those kinds of discussions.
Mr. HAYES. At this point in time, I seek complete cooperation on your part to get the ox out of the ditch here. And until some point in the future I see otherwise, I appreciate your being here and I appreciate your concern and participation.
Mr. LATOURETTE. Mr. Hayes, would you yield to me a little bit of your time?
Page 110 PREV PAGE TOP OF DOC Mr. HAYES. I yield.
Mr. LATOURETTE. I just want to follow up on Mr. Sandlin's question and sometimes you hear things that aren't true around here.
I had been led to believe that when the package was on the floor on Friday, there were discussions between leadership of the House and the airlines that if a signal could have been sent last Friday to the markets that perhaps some of the layoff announcements that have come out this week would have been delayed pending an examination of that.
Did someone not tell me the truth on that?
Mr. MULLIN. No. I thinkfirst of all, we had terrific support last week in response to the absolute crisis that we felt at that time. And there was a package that was put together that reflected essentially what I would call a ''3-day look'' at what was going on.
And now we have the vast amount of time, a 1-week look at what is going on; frankly, it is a better look than what we had back then.
We were particularly grateful to the leadership of this committee in terms of pushing forward to provide that help, soit was needed then and this is needed now. And as far as we are concerned, the efforts are consistent.
Mr. LATOURETTE. Thank you very much. Thank you, Mr. Hayes.
Mr. MICA. Mr. Pascrell.
Mr. PASCRELL. Mr. Chairman, I would assume that each of the panelists have read Gerry Pasciucco's and Nelson Walsh's letter from Morgan Stanley. This is a powerful letter, one page. I was talking about security and stabilization of the airlines, the access to capital. And that is why you are here.
What is your specific opinion of the letter? Is it inclusive, Mr. Mullin?
Mr. MULLIN. I think it is. I mentioned earlier, I think it is a conclusive letter. I can certainly say it is entirely consistent with the experience that I have had just this week in terms of completing a financing thatwhere we had 100 percent assuredness before the events and even then it had some last-minute wrinkles on it.
Page 111 PREV PAGE TOP OF DOC I think the likelihood of doing an EETC or equipment-financing-type deal moving forward without action by the Federal Government is virtually nonexistent. And the EETC market is what we are using to handle our equipment purchases moving forward.
Mr. PASCRELL. Simply put, if we don't have an economic package soon that is a smart package, there is no way you are going to have access to the capital that you need in order to survive. Am I exaggerating that?
Mr. MULLIN. You are not exaggerating that.
Mr. PASCRELL. Let us go to point two. We are talking about an $18 billion package. What percentage of the total operating budget this year is that.
Mr. MULLIN. Well.
Mr. PASCRELL. for all of the commercial lines?
Mr. MULLIN. Well, if you takelet us say that Delta has got about a $15 billion expense program. We represent about 17 percent of the industry. Multiply that by six, you are talking about $100 billion of expenses.
Mr. PASCRELL. So, final answer?
Mr. MULLIN. He said I was right.
Mr. PASCRELL. What I asked the question for is to get the proportion here algebraically of what we are talking about. And we are united in trying to help; we have various ways of getting there, but we are you united.
We don't want to head towards nationalization, and let us make that clear. That is not what anyone is asking, nor is anyone suggesting that on this side. We have gone through, during critical times in our history, nationalization of certain industries in order to get by, in order to provide security. You are not suggesting that we head in that direction.
You are suggesting somewhat of a nationalization of the security at the airports; is that correct? Is that what you are saying?
Page 112 PREV PAGE TOP OF DOC Mr. MULLIN. Yes, we are.
Mr. PASCRELL. Let me go to the next point.
Now, Ibecause of location, I am concerned about all of you, but specifically Continental Airlines. Continental Airlines has a very specific problem of liquidity, cash flow. Some airlines have that problem; some do not. And they are for various reasons.
If we don't provide this packageand this is a good example. If we don't provide this actionContinental is about 8, 9 percent total of the industryContinental goes belly up October 1.
Mr. Chairman, this is serious business we are talking about here. If Continental goes belly up, who is there to assume those responsibilities, those services to those destinations that you pointed out? Now you haveI believe, correct me if I wrong, 5 to 10 days' grace period in order to come up with a payment. Continental has a payment right now that is due of $70 million.
Mr. MULLIN. It is due on Monday.
Mr. PASCRELL. From what I understand, there is somewhatin the negotiations, a 5- to 10-day period of negotiations. That is why I said October 1.
I am talking very specifically, very tangibly here about a specificone of the great airlines, as you all represent as well. I mean, the nature of this problem, Mr. Chairman, is that we need to act as soon as possible on a package that is acceptable. And we have worked out formulae to the acceptance of everybody concerned, from what I understand.
Our next step is for us to act. But I think you have heard enough from this committee to know that we are concerned about security as a very critical aspect of this give-and-take.
Mr. MULLIN. Yes, sir.
Page 113 PREV PAGE TOP OF DOC Mr. PASCRELL. And secondly, I would suggest to the airlines that you not simplynot that you are doing it, but you not just dismiss the employee side of this, the rank and file in terms of benefits, in terms of severance, in terms of health benefits that these families need, which are criticaljust as critical to the economy, I might add, in the long run.
Mr. MICA. The time of the gentleman has expired.
Mr. PASCRELL. May I have the response?
Mr. MICA. I will allow a brief response.
Mr. MULLIN. I will just speak from Delta's perspective.
There is nothing more important than employees. The employees are Delta, and if some of these employees are laid off for hopefully a short period of time, we want them back, and we want them back to be enthusiastic representatives of our company. They are our company, and we want to treat them very well. We will treat them the best we can.
Mr. MICA. I thank the gentleman. And we did attempt to act immediately last Friday night and Saturday morning.
Let me recognize Mr. Simmons.
Mr. SIMMONS. Thank you, Mr. Chairman. I have some questions, but I would like to yield a few seconds to my colleague, Mr. Hayes.
Mr. HAYES. I failed to mention, there has never been a safer time in American history to fly on a commercial airline, and the danger is in the trip to the airport, still.
Mr. SIMMONS. Thank you, Mr. Chairman. I agree with that assessment. I have been flying 3 of the last 5 days, and I have never felt safer actually. People have gone through parts of my baggage that they have never gone through before, but I won't get into that.
Page 114 PREV PAGE TOP OF DOC I mentioned earlier that a member of my family is part of the airline family. But I want to put up a couple of difficult questions that derive from the Wall Street Journal article this morning, entitled ''no Time to Bail.'' I don't know whether you gentlemen have seen it or not, but briefly, it says, ''the rush to bail out the airlines, at least as currently envisioned, is not one of those right things. Simply put, bailing out the airline industry is like trying to bail out the business cycle. It can't be done.'' .
They go on to say there are some things that the Federal Government should address, such as nitpicking airline mergers, that the Federal Government should be more relaxed about airline mergers. Maybe that is a natural way that the industry can be self-supporting, that in the area of security, the Federal Government should assume responsibility for airline security because they are better at police power and public safety as a government duty. National defense is a government duty obviously. And finally, providing some sort of immunization to the air carriers from tort warriors or tortthe legal profession, perhaps on a one-time basis or for a certain period of time.
We have talked a lot about cash grants and loans and dollar instruments. I would like you to comment a little bit on two of the three items that are raised by this article. Can you bail out an industry and are there other governmental things we should be addressing, other than money, to try to strengthen your position over the next 6 months?
Mr. MULLIN. This is not a bailout. This has no resemblance whatsoever to any past circumstance that has occurred.
Mr. SIMMONS. That is their terms.
Mr. MULLIN. And I did read the article this morning.
I mean, in many respects, none of us would want to call for the nationalization of our industry. This derives from this tragic event of September 11 wherein airplanes in this industry were used as lethal weapons in the consummation of this terrible situation. That is what brings us here today.
Page 115 PREV PAGE TOP OF DOC There is no comparable situation in American history. And therefore in that Wall Street Journal article which I read myself this morning, I found that they must have been talking about something that was on some other planet. It doesn't pertain to this situation. This is not a business cycle problem; it is derived from that tragedy.
And relative to the other issues such as the use of mergers, we have made a firm recommendation to ourselves not to introduce any other public policy dimension into the equation for this particular instance.
What we are here for today is to talk about the consequences that are associated with the September 11 tragedy and its consequences on our industry; hence, we have purposely said we don't want to talk about changes in merger acquisition policy or labor laws or passenger service plans or any of the other issues that confront our industry in which there may be differing opinions.
This is, in a unique way, in a laser-like fashion, it is related to the tragic events of September 11 and the consequences to our industry, and the capacityour capacity to serve the economy and move forward. That is what we are about.
Mr. SIMMONS. If I could just follow up very briefly, I understand what you are saying about the laser-like approach. But if there are other administrative and oversight recommendations that could be implemented that have beneficial effects that don't have the same costs to the taxpayer, why would we not consider those?
Mr. MULLIN. You should consider them, but I think not as a matter of this proceeding, per se. I mean, we are here for a specific purpose relating to the consequences. This financial package is related to that. We would be very, very happy and it is appropriate, to have discussions of those.
I mean, I find myself agreeing, by the way, with the merger statement that was in the Wall Street Journal; I do agree with it. But that is not what we are about here today. We are here to talk about the consequences from the September 11 events.
Page 116 PREV PAGE TOP OF DOC Mr. MICA. The gentleman yields back the balance of his time.
Mr. BOSWELL. Thank you, Mr. Chairman.
In the opening remarks, we were short, but I refer to all of you as ''generals,'' and you are; and I am proud of you, very much so. I watched your nodding, and you mentioned the employees like the DCA folks moved in, or Mr. Hoffa, they are your troops and you understand it. I just wanted to make that point, that I am proud of you.
A couple of comments, statements and a question: We have to protect the pilots and crew. We have to protect everybody. But the pilot, that man or woman that is up there in that cockpit, they are the ones who are going to place that airplane on the ground. You know that. I know that. But we have to protect them better; and we are going to do that, I have no doubt.
And I don't see this as a bailout. Nobodythis is no bailout. The event that happened on September 11, we for good cause stopped you, and it has been and is very costly; and that is what you are here to deal with. We want to keep you going.
And I am hearing over and over and over, security, security, security. I very much associate myself with the previous Chair, Mr. Chairman, Mr. Duncan, about the things we have got to get done. I think we can incorporate this in this thing today. I am willing to stay here all night long. I bet you are, too. We can work awhile and come back with a draft and come backspin a little bit, come back; and work awhile, come back with a second draft and fix it.
But I think security is as urgent as the financial part. It is urgent. And you said that extremely well, Mr. Mullin. It is absolutely urgent.
I made a comment, and it was interestingand you may want to refer to it, Mr. Chairman; I may even give it to you tomorrow or Friday. I was quite taken with the police officers that called this morning from my capital city of Des Moines and said, We would give our time, our off time; and we are pretty well trained.
Page 117 PREV PAGE TOP OF DOC But to give you encouragement, maybe just take those of us that have 5 years' experience or went through certain academy courses, or however you want to do that, but we are trained to protect people who might need some additional training for a day or something.
But they are willing to step in and be sky marshals. I bet that would be across the country if we checked it out. No compensation. He said, if airlines don't have full seats, they might want to give us a ticket for a ride somewhere.
So I hope we will look again as somethingagain, the urgency, to give comfort to the public. And that would help a lot.
The question that I would like for you to refer to, that Mr. DeFazio asked about, your purchases, things that are pending. You didn't get a chance to answer, and I would like for you to answer that.
So do that in a moment here. I think we have got a couple of moments yet.
Again, Mr. Chairman, more of a statement: General aviation has taken a hit, too. They are just absolutely sothe fixed-based operators and so on. And I don't know if anybody heard me. I fly a little Piper Comanche regularly. I file IFR; I file VFR. I don't file. It depends how far I am going or where I am going.
There is nothing that would have stopped me, or anybody who flies small aircraft that went to their airplane over these last few days, got in it and flew somewhere and rammed it into something; and we are not going to be able to stop that.
So why are we putting this burdenit is accomplishing nothing. I can see it. I want to participate in that argument, if there is an argument, because why are we putting this financial stress on this entity? They are not selling any fuel; there isn't any training going onso on and so on. There is lots to be said.
But we can pass something tomorrow, back to the point, if we just knuckle down and get on with it.
Page 118 PREV PAGE TOP OF DOC Can you respond to Mr. DeFazio's question about purchasing?
Mr. MULLIN. Could you frame the question?
Mr. BOSWELL. Well, he said you have probably got orders and would be cancelling some. Would you consider canceling the foreign market orders versus those purchases that are being made with American industries and so on, by American?
Mr. ANDERSON. In all due respect, Congressman, it wouldn't be appropriate for us to do that. At Northwest Airlines, we are one of the largest operators of Boeing airplanes in the world, and we are one of the largest operators of Airbus airplanes in the world. And we have made firm commitments. And by the way, those Airbus airplanes all have Pratt & Whitney and General Electric engines in them. The day I cancel an order for an Airbus A320I just canceled two engine orders for General Electric and a wheel and brake order for BF Goodrich and an avionics order for Honeywell.
So the complexities that are involved in who makes all the components for airplanes are much more complex than just saying Boeing or Airbus.
And, second, we gave our word when we signed a contract. And I will say it here. Both make very good airplanes.
Mr. BOSWELL. Reclaiming my time. Great answer.
Mr. MICA. The gentleman's time has expired.
I am going to recognize Mr. Rogers.
Mr. ROGERS. Thank you, Mr. Chairman. And I thank you gentlemen for being here for a long period of time when I know there are a great many things that you could be doing back at your companies.
A couple of concerns: There were some arrests in Detroit last night. And they found IDs and information that would lead us to believe that they had access to some of the services at the airport. I happened to be in a town hall last night where that came up again and again and again. And we heard about all of the security measures that we have done for passengers. As someone who has flown on Northwest Airlines several times since last weekand I feel very safewhat is being done to increase the accountability and security for the services provided?
Page 119 PREV PAGE TOP OF DOC Mr. ANDERSON. As part of the security regulations that we work with the FAA on around the clock, last week, we included several new security directors with respect to access to the airport operating area. Airports were directed to cut down the number of entrances to the AOA. We have regular pat-down and search AOA operating area.
We are stuck with a lot of acronyms.
We have pat-down searches and random access. Our searches of employees on a random basisall the employees have access to the ramp. We are requiring identification when employees come into the AOA. Instead of just a normal stripe, you have a guard present who is verifying IDs. And I would say those immediate steps have been taken.
But in the longer term, the task force that Secretary Mineta has put togetherand it is really not long termI think one of the really big issues we have to deal with is third-party vendors on the airport: fueling vendors, catering vendors, and the access they have to the airport. And I think that should be a significant issue that we address in the context of Secretary Mineta's task force.
Mr. ROGERS. Next questionand, first of all, I have had the privilege of owning a small company and the great agony of owning a small company. And I heard my colleagues on the other side of the aisle say, taking care of your employees. And I can't tell you, we would not have functioned were it not for our employees. That is the last thing that we want to ignore in the process.
I know you are in the same place. You can't run a good airline without good people.
Mr. ANDERSON. It is your most important asset.
Mr. ROGERS. The other concern I have, I have noticed the different cash flows. And there is a wide variety, I think, from a high of 90 days to a low of about 20 days, if my information is accurate.
Page 120 PREV PAGE TOP OF DOC Mr. KELLY. It is high of 110 days. We were just not included, in Alaska Airlines, but we actually have longer than anyone.
Mr. ROGERS. So you don't need nearly as much money?
Mr. KELLY. I wouldn't say that. We would have to justify each of our levels.
Mr. ROGERS. My concern isand I have been on those airplanes as well, and there is hardly anyone on themhow are we going to gauge the fact that we are going to give these grants, and that we could make that last until we get the confidence back among the American public to get back on these airplanes? That is my concern.
We can promise you loan guarantees. We can promise you, we are going to take the cost of security and do all of those things. We will give you the shot in the arm.
How do we fill the gap here? That is my greatest concern here.
Especially with the companies with short-term cash flows.
Mr. MULLIN. The key element of the $5 billion, make no bones about it, that $5 billion is needed like now. Particularly for a set of our colleague airlines that we mentioned earlier that are really close toterribly financial dangerous.
And then it is our belief, in terms of the projections that we have made, that this $17.5 billion program with the two parts, 5 billion now and the $12.5 billion dollar loan guarantee program, will allow us to make it there.
Now, we are using optimistic assumptions for ourselves to impose the demand that we really work hard to carry out our share of the bargain here. But, hopefully, by the second quarter of next year, under these projections, you know, we would be there.
And so that is what this program will do, it will get us there, we hope.
Mr. ROGERS. Great. Just more of a comment in the lastagain, in this town hall meeting there were several folks who were there who earn their living as travel agents, booking agents, they had a very interesting prospective. I certainly understand the concern of my colleagues, but they said quite clearly, you know, we are going to be fine if you can just get the airlines flying lots of planes again.
Page 121 PREV PAGE TOP OF DOC I think that ought to be our focus here. We can help those folks by helping you, and we ought to get on about the business at hand.
Mr. MULLIN. It is a classic case of a derived business that we are talking about. Hence, it underpins exactly the reason that we are here. So much of the economy depends on the airlines.
Mr. ROGERS. As an automotive state, that just-in-time manufacturing counts on the airline industry to keep those factories open. The ripple effect of this is tremendous, and we ought to get about the business at hand.
Thank you, Mr. Chairman.
Mr. BOEHLERT. (Presiding.) thank you. The Chair recognizes Mr Baldacci.
Mr. BALDACCI. Thank you very much, Mr. Chairman. I certainly would like to echo the comments that were made earlier. As our Nation rebounds from last week's disaster, we must do everything possible to ensure a strong economy. And no industry has been so uniquely and strongly affected by the terrorist attacks as the airline industry and its related sectors.
I think it is also helpful as we go through this process to just be able to go through and ask some of the particular questions that have been raised to make sure, as we move forward with this package, that we have done our due diligence.
One of the things that has concerned me is the ripple impact and the relationship between regional airlines. I left this morning on Delta. Service was wonderful. Got there on time. Plane was pretty full when it left Bangor, Maine.
Mr. MULLIN. That is good news.
Mr. BALDACCI. There were only two seats that were available at that time. So that was good. There was confidence back in. But then I started thinking, well, what about the ripple impact about going to the hubs and then not having the airline service at that point, and what does that do to the regional economy and the relationship back and forth?
Page 122 PREV PAGE TOP OF DOC And what are your plans in terms of those integrations?
Mr. MULLIN. Well, you are pointing out a fundamental. The regional economies are inextricably linked to the hubs. Delta, for example, in just even our connection carriers, our regional jets receive over $2 billion of its $15 billion or so revenue from those small communities served by those connection carriers.
So to the extent that we continue to have difficulty, that ripple effect into the small communities will go beyond just the cessation here. It will absolutely affect the service equation throughout all of America, but I think especially into the smaller communities.
Mr. BALDACCI. One of the other things that is a concern, it was raised earlier, was the confidence in the consumer. And, you know, I spoke to a roomful of people last night and there was a lot of uneasiness about flying again. And we have all flown in order to get back and forth.
What other programs? I heard fare discounts. But have you got a program in mind to be able to go back to people and suggest, okay, it is now time to fly?
Mr. MULLIN. We absolutely will be doing those programs. But I think into quote Richard Anderson just earlier, he said it eloquently. There is absolutely nothing that could be better to restore our marketplace than the absolute confidence that people would place in our industry, most especially with respect to safety and security, which we have welcomed the opportunity to say over and over again, how primary that is in terms of our objective.
But, secondly, in terms of our financial stability and our ability to perform, people have to have confidence in this industry. So just through the kind of hearing we are having today, the kind of support we hope that we will get from you and the continuing rollout and implementation of the safety program that has been already defined and will be further defined through Secretary Mineta's committee report in 2 weeks. Richard Anderson is a member of that committee.
Page 123 PREV PAGE TOP OF DOC I think all of that will create a sense of confidence. But I think that what we will be doing is pushing the message over and over again. It is much more than marketing programs, it is this industry is safe. Prior to this accident, nothing was safer in transportation. And now we have taken more steps to even make it more safe in light of the terrorist actions that have been taken.
Mr. BALDACCI. I don't know where it is all going to end, but I know that we were attacked. I know that it is very unsettling. I know it is very important for all of us to roll up our sleeves and get America back to work.
And part of that is getting the airline industry, which has a tremendous impactI mean, they were telling me just at Reagan National, the impact there was 10,000 jobs. When that shut down, the impact that that has on those families, and families that they do business with, in terms of service and other types of related jobs are affected by those jobs.
So we are all interrelated here. The stronger that we are as a country, and the sooner that we can get the airline industry and the other industries back, then it is going to be better for America.
I would like to just say in terms of airline security, I do think that we do need to have a federalization of that program, I think we do need to have uniformity. I was a little bit concerned that different airlines have different procedures and are given different latitudes. I do think that we need to have uniformity. And I would be in favor of advancing that and having the Federal Government have that responsibility also and being assumed at the Federal level.
I think the people would feel much more comfortable also if those efforts, along with sky marshals and other check-ins and security measures that are taken, would be helpful. And I look forward to working with the industry as we try toto build back our economy and get our country back on its feet again.
Page 124 PREV PAGE TOP OF DOC Thank you very much, Mr. Chairman. Yield back.
Mr. BOEHLERT. Thank you very much for your observations. You know, in an informal survey at the beginning of this hearing, this is the largest committee on the Congress. We had near full attendance, just about every member had traveled over the weekend, I know I did and others have too. They have related their experience. And I think that most of us have a great deal more confidence in the security checks and everything that is going on.
So we are trying to be part of the solution, not a perpetrator of the problem. The Chair recognizes Mr. Kerns.
Mr. KERNS. Thank you, Mr. Chairman. And as this is my first opportunity to address you folks today, let me first express my deepest sympathy to you, Mr. Horton, and American Airlines and all of those impacted by this terrible tragedy.
I was delayed earlier in my flight schedule as many Americans have been recently and understandably.
Let me ask you this: And the question I have been asked back home in Indiana is how quickly and financially this tragedy impacted the airlines industry. What do you see going forward if we have another catastrophic emergency or something impact the industry that we don't have a similar financial meltdown, if you will, over the short period of time?
Because I don't know if this country can once again put this kind of money forward if we continue to have this type of thing happen or something similar recognizing that we are certainly going to address the safety aspect.
Mr. MULLIN. Well, I guess I would have to begin with the observation that we truly hope that we never have a circumstance like this again. We have never had it in our history so far until the tragedy of September 11th. And so we are not givingwe just will hope and pray but do everything to sort of praise the Lord and pass-the-ammunition type thing.
Page 125 PREV PAGE TOP OF DOC We are going to work our tail off to make sure that we do everything that we possibly can to ensure that everything is safe and secure, and certainly we are standing in admiration of the steps being taken by the Federal Government in an intelligence sense to ensure that these perpetrators or their colleagues are never permitted to perpetrate an act like this again.
And so we are proceeding with that assumption in attempting to earn back the confidence of America. And I think with all of the safety and security steps that have been taken, I think the American public has every reason to believe that flying will be safe and secure.
Mr. KERNS. I have heard a number of statements indicating that security measures have been increased, and it is safer to fly today than it was just a few days ago.
Are you prepared to say today that it is safe for the American public to fly?
Mr. MULLIN. Absolutely.
Mr. ANDERSON. Absolutely.
Mr. KELLY. Absolutely. Positively.
Mr. KERNS. Let me suggest that anything we do financially to support the airline industry, and we do not want to have a collapse of the industry as we recognize the importance of this to the US economy that security measures, increased security measures, be tied to any financial package we do to assist the airline industry.
I have traveled just recently back home to my district, and of course back here today to be with you. And I have noticed an increase in security on the part of the airline industry, those at the airport and elsewhere, but I can also say that I see room for improvement, some things that I have witnessed and experienced over a period of time at other airports which are now being implemented here, for example, at Dulles Airport.
Page 126 PREV PAGE TOP OF DOC So I think a standardization and working together are, like we are here today, I think can benefit the American people and all of us have as a whole. With that, if you have any comments, please feel free to make them.
With that, Mr. Chairman, I yield back the balance of my time.
Mr. BOEHLERT. Any comments?
Mr. MULLIN. I think the comments are we agree with them. Through the committee that the Secretary has established, we feel like we came right out of the blocks with an absolutely terrific improvement in security developed jointly by the government and industry.
That is in the process of being implemented now. Now, on subjects such as the improvements to the cabin door and so forth, that will be considered as part of this. The questions of who is paying for it, we have implemented those without any question of who is paying for it yet. But we are just moving ahead with it.
So I think I just associated myself with your remarks and know that we have to continue to improve it.
Mr. KERNS. Thank you.
Mr. BOEHLERT. Thank you very much.
Mr. Carson. Thank you.
Mr. CARSON. Thank you so much, and the marathon is almost over by the time you get to down to where I am sitting. Just a couple of questions for you.
First of all, much has been made about the possibility of draconian layoffs and cutting back airline orders and things like that. I think one of the sources of confusion is that the bailoutto use a term that you don't like but that the public would useis supposed to put you in the status quo ante, back to where you were before the airlines hit the World Trade Center.
Page 127 PREV PAGE TOP OF DOC And the models you project that talk about the cost through the fourth quarter of next year discuss those kind of things. But I think that is why a lot of people are confused about that is because your models say your losses will between 18 millionor 18 and $33 billion over the next 12 months.
The question is: Would that put you back to how you were on September 10th, and if so, whyto follow up on Mr. La Tourette's question, if the airlines are put back into the status quo ante, do all of your derived businesses from that to travel agents to the peanut suppliers in Ohio bear much of the problem?
Mr. ANDERSON. As a number of Congressmen and Senators pointed out to me yesterday in various visits, that we will probably never return to the status quo in this country after what happened last Tuesday. We have an estimate of what the impact will be to the industry.
But that estimate is an estimate. That is based upon a projection of where revenues are going to go in our industry. And as Leo Mullin stated in a very articulate way, we have picked a very conservative case in terms of what we are asking you to help us do.
And there is still a big hurdle that we have to undertake internally. Because of the lack of demand, we really aren't returning to the status quo of last Monday, and candidly, I don't think we ever can, given the dramatic change I think that it has wrought on our country.
Mr. CARSON. I guess my question, though, is, and I think what people are confused about and raising concerns about is it seems in the model you are offering us, costs are static over the next 12 months, or I should say are dynamic over the next 12 months, because in your mind, you are going to be cutting costs, all kinds of layoffs and things like that.
But in the model they seem static. That is, you are projecting what costs are on September 10th, projecting those out over the next year and then laying those up against declining revenues and coming up with this $18 billion figure, when in fact costs are going to be declining quite dramatically as well, if these catastrophic layoffs occur, if there are declining orders for aircraft and all of the other costs as well.
Page 128 PREV PAGE TOP OF DOC So my question is, can you tell us what you project costs to be? You have a projected burn rate on September 10th.
What are the costs expected to be and how do those line up with the revenues and does your model make all of that come out between 18 and $33 billion?
Mr. MULLIN. Well, I just say that thethe base case that we have used is the one that generated the projection of the $24 billion need.
Then with a much lesser probability, an optimistic revenue projection that would have produced the $18 billion need. Now what we are basicallyimplicit in the challenge that we are presuming here is the challenge of taking on that revenue cost equation, howsoever it turns out during that time period.
And so there will have to be a considerable reduction, a reduction in costs, even if we were able to operate within the 18 billion given that the 24 billion is the base.
Mr. CARSON. Would it be possible for you to give me and membersthe members of the committee, kind of the model that you are using?
Mr. MULLIN. Sure, we will get the detailed calculations to provide our staff assistants to staff of the committee or whatever to help do it.
Mr. KELLY. I would like to point out, if I might, Congressman, that we are really talking about 19 days, $5 billion. That does not cover the time frame forward. Going forward, what we are asking for is the ability to have loan guarantees, loans that will be repaid. We are going to be suffering mightily after this point in time. We will be taking every degree of self-help we can to stem the losses.
But all we are asking is that we can have those loan guarantees so that we can have the liquidity to continue operating and get passengers back flying as soon as they can, because that will be in everyone's best interest.
Page 129 PREV PAGE TOP OF DOC Mr. CARSON. Let me ask a question to the representative of America West. I understand that American Airlines and United are very concerned about the potential liability on the ground from what happened last week.
And much has been made about how the capital markets are drying up until it is proven what these liabilities are, and if they exceed the possible assets of the respective corporations.
Is that a concern for you as well in that sense? I mean, are the capital markets drying up for you because of potential liabilities at American or United might be facing?
Mr. PARKER. It is a concern? Absolutely. For similar reasons. The fact of the matter is capital markets have dried up for America West and line airlines not so much becausewell, actually it is hard for me to say which happened first. But the fact is they have dried up largely because of the liquidity situation and the future revenue projections that are out there.
So that first and foremost is what caused our financing to fall apart. But, having said that, we share with American and United concern about the liability issues because once we do getI don't think you can really have stabilization until that issue is taken care of as well.
Mr. CARSON. Let me ask then one final question to anyone on the panel. I know much of the resistance from the airline industry from more money and the security procedures or sky marshals or various proposals like that, the war risk insurance is the elasticity of demand. When you raise the prices that are passed along to the passengers, tell me if that is a correct analysis of what the resistance from the industry is and what the estimated elasticity of demand is in the airline industry.
Mr. ANDERSON. When customers buy our tickets, they buy their tickets on the total purchase price. There are a lot of add-ons. So if you advertise at $99 and then you have PFCs, Customs charges, whatever else goes in, our demand curve is based upon the total ticket price, including all of the add-ons that go on the ticket, because when a passenger prices a ticket, they make their buying decision based upon the total purchase price.
Page 130 PREV PAGE TOP OF DOC Mr. CARSON. But your ability to pass it along depends upon the elasticity there. What is that in the airline industry? When are people going to go off to take a bus or.
Mr. ANDERSON. Well, it varies by market andit varies by market and economic conditions. And, in fact, we manage that by day, by flight, by market, in about 12 different fare types. So it is a much more complex equation than to think that you can vary it.
But I can tell you if you talk to any pricer in the airline industry, they will all tell you that when you add that on to the ticket, it impacts elasticity, absolutely.
The BOEHLERT. The gentleman's time has expired. The chair recognizes Mr. Rehberg.
Mr. REHBERG. As attested to, the new security provisions on Dulles, they even took my moustache scissors. So we know it is working out there.
When you represent an entire State, the State of Montana, the greatest population of any district, I get asked the question a lot. You know, why do you pick the committees that you are on?
I always answer the question: I want to represent those that are most vulnerable within my State or my district. Never did I think that the airline industry would be one of the more vulnerable constituencies that I have got.
I guess my question is even more narrow than your own company, that is essential air service. Can you explain to me, does this bill and the financial package that you have put together adequately represent those that arenot necessarily your company, but partners of yours, and specifically, Mr. Parker, I know that you were most recently up in Montana signing a contract with Big Sky Airlines, Mr. Mullin, Mr. Anderson?
And when you cancel particular flights as we know has occurred already in the State of Montana, the one that I take in particular. It affects essential air service. Can you explain to me, or can you mollify my concern that essential air service isn't going to be the biggest loser?
Page 131 PREV PAGE TOP OF DOC Mr. ANDERSON. Well, as to your question as to the formula, all of the carriers have agreed, including the regional career association, and theEd Faberman's group and the charter group that the fairest allocation of the funds that we are asking you here today for, is through ASMs.
So it has an equal impact from American Airlines to Big Sky Airlines in terms of the availability of benefits.
Mr. REHBERG. Except that the ability to pass on additional costs, we will use fuel as an example. As the price of aviation fuel is going up, under the essential air service contract, Big Sky Airlines was not able to pass along that cost in the cost of their ticket.
And so there isseems to mean indirect additional cost to those that provide essential air that wouldn't be covered under this proposal.
Mr. ANDERSON. Well, they take as a carrier, just as Northwest takes as a carrier with its other commuter subsidiaries under the formula. And the passing on of fuel prices is the same whether you are American Airlines or Big Sky Airlines.
So the bottom line is, I think the formula that we have provided for allocation of the grant and the loan guarantees is a formula that treats everyone equally, based on size.
Now, your questions with respect to essential air service I think are legitimate questions. And I think the whole issue of our essential air service program in the United States is an issue that should be revisited.
Mr. REHBERG. So Mr. Mullin or Mr. Parker, are they adequately considered within your proposal from your perspective, or should we have some additional separate or earmarked support for regional carriers or those that provide essential air?
Mr. MULLIN. In my opinion, they probably deserve more consideration. I think that there is no question that as we go through our own, look at our routes, where we fly, that those thinly-populated routes which don't generate much traffic tend to be questionable.
Page 132 PREV PAGE TOP OF DOC I think that the offset to it continues to be the continued infusion into the marketplace of the regional jet.
This is a technological innovation that really wasn't there 5 years ago. And we aremost of us are taking very large orders of those, which from my standpoint, while we might have to go back and talk to some of the large manufacturers like Boeing or Airbus, I would not concede that we would be stopping our flow of regional jets. And they are uniquely tailored to serving the kind of market that you are discussing.
And we at Delta into Montana have had a program going with Skywest, particularly to continue to develop and cause that to flourish. So I think it is notthe direct answer to your question is, we are not down to the level of detail where I could give a firm answer that that has been adequately considered.
I think from your standpoint in Montana, it is something that you should be concerned about, we would be happy to work with you on it. And you have at least some hope I think with the regional jet around, that somehow we can work out something here.
Mr. REHBERG. Mr. Parker?
Mr. PARKER. I agree.
Mr. REHBERG. I don't know if Alaska Air.
Mr. KELLY. Alaska Airlines, Alaska Airgroup own Horizon Air. So when I sit here, I am speaking for both entities. And I would agree with Mr. Mullin that, you know, in terms of the formula that works fine for all of us. We all agree and all of the regionals that we represent agree with that.
The other side of the equation that Mr. Mullin was talking about is one where the regional careers are going to be hit even harder than we are proportionally. Now, we fly in markets because we wanted to fly there. I mean, these are cities we want to serve and we want to maintain the service. And the question is going to be, revenue-expense.
Page 133 PREV PAGE TOP OF DOC And that is something we are going to have to look at.
Mr. REHBERG. Thank you, Mr. Chairman.
Mr. BOEHLERT. Thank you.
Mr. KENNEDY. Yes. And thank you for your 4-1/2 hours with us. I would like you to pass on our appreciation to your employees. Nobody flies more than your pilots and your flight attendants. Their confidence in coming back to fly has really inspired us all. So we have to thank them. I am happy to report to Mr. Anderson that my flight was over two-thirds full coming back from Minneapolis.
As a businessman who has a high degree of faith in the marketplace, I am not usually anxious to look at whether or not we should be supporting private industry. But, we as a government did ask you to shut down and stay shut down for four days. And this deserves our attention.
And I too would echo how important the airline industry is to all businesses, big and small, and not just in the travel and hospitality industries. Like I said, when I was home, I clearly heard that.
I would like to ask a couple of questions, though, about the guarantee itself. First of all, what kind of term do you expect that guarantee to be having?
Mr. MULLIN. We haven't really worked that out. We have been talking aboutas is fundamental terms, sort of a 10-year term with a market-based rate of interest as being the fundamental component.
Mr. KENNEDY. So you would see this as having a 10-year term, and once that debt would expire, than the guarantee would roll away and not be renewed?
Mr. MULLIN. I don't think that we have gone much beyond that. In terms ofI think this is one that we would have to work out with the Federal Government. I know the Department of Transportation has got some serious concerns with respect to design as to how this would work. And we heard some questions from Ms. Tauscher on the subject of what form this would take.
Page 134 PREV PAGE TOP OF DOC I mean, we are into a complicated design topic which we need to get resolved. But I think that for our immediate purposes here, if we know that we were going forward with the $12.5 billion loan program, I don't think it would take a long time to deal with these design issues. But we still have yet to do those.
Mr. KENNEDY. So if in a best-case scenario your loss was 17.5 billion, or incremental loss, we are really reimbursing you for 5 billion of that, but helping you spread or finance the other 12-1/2 over a 10-year period of time?
Mr. MULLIN. Yes. With the obligation to pay that back.
Mr. KENNEDY. As a former chief financial officer, my job was always to worry about the worst-case scenario. I know you are asking for numbers that reflect the best-case scenario, but given that that base-case scenario or worst-case scenario is still possible, would this be better off if it were a 50 percent of the loan or 75 percent of the loan guarantee, so that it could cover the best-case or worst-case scenarios?
Mr. MULLIN. Well, there are a series of ways to handle a best case and worst case. Some of you may know that I spent 5 years with Conrail, so I actually have had experience with a situation that hadthat stemmed from the disaster of the northeast railroads in the 1970s. And we went through a similar kind of financing deliberation as we are have having here.
And I remember the Secretary of Transportation at the time asking us to take the approach that we have done here, which is to stretch ourselves with respect to it, which is what would come back, and asked you when we use our optimistic assumptions. Another way of saying that is we are stretching ourselves.
Now, I think everybody in thisI haven't heard a single congressperson in this session say that air service is not essential and vital to our economy. So we are going to do our darndest to get through this and live within the financial parameters that we have outlined today. But in Conrail's case, actually, we had to come back once. And if we had to, we will come back. But we sure would want to avoid that if we possibly could.
Page 135 PREV PAGE TOP OF DOC Mr. KENNEDY. Thank you for your testimony today. We will look forward to making sure that we keep that essential airline flying. Thank you.
The BOEHLERT. The Chair recognizes Mr. Oberstar for closing comments. We are getting near the end, gentlemen.
Mr. OBERSTAR. Thank you very much, Mr. Chairman. I first wanted to say that the ranking member of the Subcommittee on Aviation, Mr. Lipinski, was unable to be here due to family obligations and is very, very regretful that he can't be here today.
Second, although Fred Smith has left, I just wanted to say his presence at the table is the longest period of observed silence from Fred Smith in my memory.
Mr. MULLIN. We had to work on that, sir.
Mr. BOEHLERT. He was excused.
Mr. OBERSTAR. In response to the question raised by Mr. Boswell about general aviation, the ground stop order on general aviation will keep law abiding pilots on the ground. It doesn't do much for anything else.
Security can't wait for separate action. It must be a part of this package and we have to have our staff working on putting those two together.
Costs have been raised, and I don't think that Mr. Kelly's response was comprehensive. Early on I asked whether declining expenses were included in your projections of the $17 billionor $12-1/2 billion of losses subsequent to September 30.
I just want to clarify that, in fact, you have calculated the declining expenses due to declining service in these estimates.
Mr. KELLY. That was Mr. Mullin.
Mr. OBERSTAR. Is that correct, Mr. Mullin?
Mr. MULLIN. In the estimates that we have given you here of the 17.5 billion, we have presumed a steady State type of operation as it pertained to the situation prior to September 11th. That is what generated the 24 billion. And so in effect, the further cost reductions are associated with going to the $18 billion type number.
Page 136 PREV PAGE TOP OF DOC We are going to have to engage in a substantial cost reduction program to operate within the so-called.
Mr. BOEHLERT. The Chair thought that that was brought to bear when you responded to Mr. Carson.
Mr. OBERSTAR. You are absolutely right.
There were other responses that I thought were not.
The issue of executive compensation has been raised, and has also made a Wall Street Journal story. Now, I wouldI know from my recollection that early this year, the spring, when Mr. Anderson and Mr. Steenlin were promoted to CEO and president respectively, they gave up or deferred pay increases in base salary until a management team would observewould review and make recommendations next year.
There was already a payroll reduction plan in place. But, because there is a perception, and I appreciate the answer that have you given Mr. Mullin and others about yourI think that we may face some limitation on compensation in order to put this package together, and that there might be some language that would limit pay of executives or limit executive compensation to the 12-month period preceding September 11th, and limit severance pay or other benefits that would exceed some factor of that basic compensation.
Mr. MULLIN. I would say certainly we arewe would talk to you about whatever kinds of terms and conditions you would want. But that given that most of us operate on incentive compensation, I mean obviously it is going to be a wipeout. So, by that comparison.
Mr. OBERSTAR. You have already made that clear.
Mr. MULLIN. We are going to be bearing with a considerable amount of pain. And I would expect adjustments to take place.
Mr. OBERSTAR. I would also observe, however, in the Chrysler package, there was a proposal for an employee pay freeze. That was 300,000 employees. And it was rejected both in editorial comments and in legislative consideration by the Congress in 1979. I served here then and I recall it very well.
Page 137 PREV PAGE TOP OF DOC One final thought. Chrysler had 300,000 employees at risk in 1979. Had the Congress not come to the rescue of Chrysler, it was estimated that the layoffs would have increased the unemployment rate one full percent point in 1979, 300,000 employees.
We have 1,200,000 airline employees, probably another 800,000 to a million airport employees. If the industry goes into financial liquidation, I would envision it going up 2, to 2-1/2 points with the resulting drawdown of unemployment insurance payments, reduction in Social Security and Medicare payments to those trust funds, and the outlays that would be required for disability compensation and employee severance costs. That wouldand of course the reduced ability of employees to make purchases in the economy would put the natural economy into a tailspin.
Mr. MULLIN. I think you areI don't know how much study you put into that, but I would agree with the general thrust of your remarks. I would only add what Mr. Isakson had said in terms of those tax payments. I think that is the only element that you missed in your statement there. The consequences are incredible.
Mr. OBERSTAR. Well, the industry is already putting some $20 billion in taxes into the system.
Mr. MULLIN. $30 billion.
Mr. OBERSTAR. I observed that earlier today.
Thank you very much. Thank you, Mr. Chairman. We appreciate your testimonies today. We will continue to work with you on this and with the executive branch and hope that we can have a package on the floor by weekend.
Mr. MICA. (Presiding.) Let me yield to Mr. Boehlert.
Mr. BOEHLERT. I want to thank you, all of the witnesses, for your testimony today. Some people may consider it unusual for someone to thank someone for asking them for billions and billions of dollars.
Page 138 PREV PAGE TOP OF DOC But you are doing very important work. And Ithe professionalism that was evident in your testimony, we are not making a lot of emotional arguments. We are very pragmatic. We are dealing with this in a forthright manner. I want to say to you, we thank you for serving as a resource for this committee.
Mr. MICA. I want to thank each of our panelists. Our heartfelt expressions of sympathy go out, particularly to the men and women of United, and American Airlines and others, family and relatives who had horrible losses, personal losses last week.
We have tried to expedite consideration of this package because it does have a tremendous impact. If we have learned nothing else, we have learned of the rippling effect that the airline industry has throughout our economy and other business, industry, tourism, and travel.
So we look forward to working with you. We will try to keep this on a fast track and look forward to, again, working with the Administration, both sides of the aisle, and the Senate in a unified effort.
There being no further business, we will let this panel be excused and call up the second panel. Mr. Oberstar also moves that the record be open for a period of 30 additional days for additional statements by members sufficient to the record of additional information or data.
Calling the second paneland I am going to ask folks to please leave without conversation. We have if we could go ahead and clear the committee room, we do have three additional panels. We have 75 members, the largest committee I believe in the House of Representatives or Congress. And everyone wants an opportunity to be heard.
The second panel consists of Mr. Kerry Skeen, Chairman and CEO of Atlantic Coast Airlines representing the Regional Airlines Association.
Page 139 PREV PAGE TOP OF DOC The other panelist on the second panel is Hollis L. Harris, Chairman and CEO of World Airways representing National Air Carriers Association. I want to welcome both of the panelists.
TESTIMONY OF KERRY SKEEN, CHAIRMAN AND CEO, ATLANTIC COAST AIRLINES HOLDINGS, INC., REPRESENTING THE REGIONAL AIRLINES ASSOCIATION; HOLLIS L. HARRIS, PRESIDENT AND CEO, WORLD AIRWAYS, ON BEHALF OF THE NATIONAL AIR CARRIERS ASSOCIATION
Mr. MICA. Thank you for your patience and understanding. We do want to hear from, again, as many people from the aviation industry as possible. I will now recognize for opening statements Mr. Kerry Skeen, Chairman and CEO of Atlantic Coast Airlines.
If we can take the conversations outside the committee room, please. We want to hear from Mr. Skeen. Mr. Skeen, welcome and you are recognized.
Mr. SKEEN. Thank you very much. Mr. Chairman, Mr. Oberstar and distinguished members of the committee. Thank you for inviting me to appear before you today. I testify before you today as Chairman, Chief Executive Officer of Atlantic Coast Airlines. You may not know Atlantic Coast, because we partner with Delta Airlines as Delta Connection, serving the La Guardia and Boston areas of the country. And we also serve as United Express in another operation of our holding company as United Express at Washington Dulles.
Total, we have 118 aircraft, provide service to 66 cities and we employ over 4,000 people. Most of them reside right down the road in Northern Virginia where our headquarters are at Dulles.
So our employees, our bases are Washington Dulles, Boston La Guardia. So we have certainly been touched by the actions of the past week.
Page 140 PREV PAGE TOP OF DOC Before getting into my formal testimony, I would like to echo what has been said many times here today, and that is, the employees of Atlantic Coast Airlines, we do extend our most sincere thoughts to the victims, families, rescue workers and also the employees of United Airlines and American in terms of those lives who have been changed forever by the acts carried out last week. Our employees live and work in this area, and none of us will ever forget this tragedy.
I'm going tothere has been so much dialogue today, and have been here for several hours. I am going to cut my presentation short and make comments on things that I have heard today. I think you would probably appreciate that. You have my printed testimony, and please refer to that.
Mr. MICA. Without objection, your entire statement will be made part of the record. Please proceed.
Mr. SKEEN. So we move into my basically, my ad lib part of my presentation, if you will, bear with me here. I am the founder of the company, and you talk aboutI have heard things today about the employees side participation, I have a big stake in how our company performs.
Since the tragedy, we are a publicly-traded company on the NASDAQ. Our stock is downI don't know what it is doing today. It opened lower. It is down about 50 percent from where it was before the tragedy.
Atlantic Coast Airlines has been really a high flyer, and you can take that as a pun also. Our company has grown the last 5 years at a compounded annual growth rate of over 35 percent. I am very proud of the track record that we have in returning that wealth to our employees through numerous profit sharing and incentive plans to all of our employees that participate, they all participate, as well our shareholders.
So when we talk about has there been pain incurred by the management and the employees, financial pain? Yes. That answer is a very loud yes.
Page 141 PREV PAGE TOP OF DOC Also in terms of my particular case, since executive compensation has been brought up, our board met yesterday, and the top five executives of the company did agree to a pay cut as well as we suspended all bonus compensation, even bonus compensation to the senior group that we had already approved this year.
So there is real sacrifice being made, and we don't do press releases over that. It is something that we share with our employees, and we share with our partners at both United and Delta.
The story I think that is real relevant to this group is the regional jet phenomena. And you have heard me speak before you on other occasions. And we are a part of what has been one of the most remarkable transformations in this U.S. transportation industry, and that is, regional jet technology coming in and replacing turboprops.
And I was happy to hear, I am really sorry that we have taken so long today, because so many of you flew in on my airline, from the comments from the gentleman from Charleston, Knoxville, to Bangor, all of those were, even though they probably don't know it was Atlantic Coast, because the airlines either had a United paint scheme or a Delta paint scheme, but that was Atlantic Coast Airlines.
So I regret that it has taken so long, because you should get out there and fly some more because it is very difficult to see the drop in passengers, and it is real and you have heard that today, and I won't say any more about that.
But on the regional jets we operatedlast year we had 60 turboprops in our fleet. We are on track by the end of 2003 to be totally phased out of those turboprops and replaced with regional jets.
We have 81 regional jets on firm order today to complement the 77 we already have. And my biggest fear, because of this crisis that faces this industry is, it is going to be difficult to finance and insure those regional jets, which means loss of service to smaller mid-sized communities, what we specialize in.
Page 142 PREV PAGE TOP OF DOC I was glad to hear Leo Mullin comment, since I am a partner of Delta Airlines and his bullishness on the value of the regional jets to the Delta system and his desire that that will play a major role in helping Delta return hopefully to profitability. So I am very pleased with that.
But our ability to finance those aircraft as well as to insure, we have already had three of our aircraft financings fall through, since that last week where we had commitments from credit committees before we had gone to contract that called and reneged or backed out, whatever you want to call it, of that commitment. So it is real.
On the insurance issue, that is real to us as well. We are very concerned. We have beenwe were notified yesterday of notices for cancel and rewrite of our liability insurance.
Huge increases in rates coming our way. And the magnitude of a small carrier, got to read my notes to referI have got to refer to my script a little bit. You are looking at a carrier the size of Atlantic Coast Airlines that our insurance on liability, not hull, is approximately $2 million this year.
The rates being thrown around, and we haven't seen anything firm, would increase that to $8 million next year. Staggering. And we are not even sure it will be available in the capacity that we need. And so there is a real fear, real crisis. That is one area that I encourage you to really step up and assist. I heard very positive things earlier today.
The other issue is loan guarantees which has been talked about, so I won't go down that path. But obviously, that is needed to ensure that the regional jets can continue to be financed.
And the security issue was the third point that I would like to reinforce. But again, that got a lot of dialogue today, so I think enough has been said. But the security we have to get people flying again. And that is reallyif we can get over this immediate financial crisis, we are not going to get over it if people don't have confidence in the system.
Page 143 PREV PAGE TOP OF DOC So it is very important that we all do our part in trying to make the American public feel safe about flying and hopefully start beginning to get positive, maybe more level representation from the media in terms of what is going on in the airports.
Because it is not all gloom and doom in terms of long lines everywhere you go. I went out and flew Friday and Saturday, our system, to see our employees as well as see it firsthand. And, yes, there were some inconveniences, but I was really pleasantly surprised at the lack of problems that I incurred in terms of delays getting through the airports.
It has to improve. And we have got to be able to demonstrate and convey that to the traveling public, because not only is it security, we serve a lot of markets that are just an hour, an hour and a half flight away. If they think that they have to get to the airport 2 and 3 hours ahead of time, they will get in their car, which is documented, the more dangerous mode of transportation, and drive to where they are going instead of flying us, and then the resulting losses that we have talked about, the multiplier effect when our industry does not do well.
So with that, I had a very cohesive presentation. But I felt emotional to just kind of rattle off things that I heard today and what kind of tweaked my interests. So again, thank you very much for allowing me to be here, and I will conclude my remarks.
Mr. MICA. Thank you, Mr. Skeen.
We will hear now from Hollis Harris, Chairman and CEO of World Airways, representing the National Air Carriers Association. Welcome and you are recognized, sir.
Mr. HARRIS. Good afternoon and thank you, Mr. Chairman, Chairman Mica. I was going to recognize Ranking Member Oberstar, who I have known for many years in the industry, even though he is not here, and to all of you other distinguished members of the committee.
I am Hollis Harris as has been said. And I am CEO of World Airways with our headquarters now in Peachtree City, Georgia, a suburb of Atlanta. And joining me here in the audience is Tom Corchran, of one of our NACA carriers, Gemini, and Mr. Ron Priddy, who is president of the National Air Carrier Association.
Page 144 PREV PAGE TOP OF DOC So thank you all, as all of the others have said, very sincerely, for holding this hearing and for what I know is great concern on your part and support for what is a grave hour in our aviation history.
I have been in the aviation industry for more than 47 years now; 36 years at Delta with 3 years as president; over 1 year at Continental as chairman, president and CEO; and I was the CEO and president of Continental Holdings; 5 years as chairman and CEO of Air Canada; and over 2 years now as Chairman and CEO of World Airways.
And in my entire career, this certainly is the most serious crisis that the industry has faced, and I think arguably, I think you can say, it is the most serious and the worst in the history of civil aviation.
In the interest of time and as Kerry has said, I am not going to cover everything andbecause it will be in the record, Mr. Chairman, I assume. And we have turned in my comments. So I will pass over the background I had on World Airways, it is in there.
And I will go on. I have been asked by my fellow National Air Carrier Association board members to represent their concerns here today in this hearing in addition to my own.
World is a long-time member of the Nation's Civil Reserve Air Fleet Program. And as are most of the other carriers of NACA. It is fair to say that these carriers are the backbone of the military's peacetime and contingency airlift system. We are providing whole airplane charters to worldwide destinations.
And we are all proud of what we have done in the past in airlift response during the Persian Gulf War, and we stand ready to support DOD when we identify and locate the current enemy.
What are our concerns? We have many concerns stemming from the terrorist attack last week, just like our associates. We are focused primarily on security, insurance, lack of revenue, lack of capital and our people.
Page 145 PREV PAGE TOP OF DOC The security, we are concerned that travelers have already lost and will not get back their confidence in the industry's ability to provide safe and secure air transportation, certainly not in a timely manner.
And in the initial aftermath of the terrorist attacks, we collectively participated with the Federal Aviation Administration to plan and implement changes, just like the big carriers did, changes to our Nation's security system for all of the airline industry.
And so induring that time and because of the support and the attention that was given here, and the people that we work with, I commend Secretary of Transportation Norm Mineta and the FAA administrator, Ms. Jane Garvey, for the prompt responses that they have made to restart aviation operations.
I think we are indeed fortunate to have their leadership and experience during this time of crisis as well as all of yours. Much, however, as we have said and heard here today remains to be done.
But we support the Federal Government assuming some of the responsibilities for securing U.S. airports. But we are in favor of a surcharge, as has been discussed here today. I think that would be some of the right wayone way that would be correct for everybody who uses the system to help pay for the cost of insurance, the safety of the entire operations.
But carriers still need financial assistance to recover from the expenses of implementing these emergency security measures that we had during last week and are ongoing.
As far as insurance is concerned, we worry that the industry will have very real difficulty with the availability and affordability of insurance. And specifically, as has been discussed, war risk, but some of the other coverages also. The insurers who provide liability, war, and allied perils, aviation insurance coverage have given the 7 days notice as of next Monday night, Greenwich time, September 24th.
Page 146 PREV PAGE TOP OF DOC And the insurers have indicated that they intend to offer reinstatement of the coverage prior to the expiration date pending a modification of the coverage.
But in order to restate the coverage, an airline must agree to a special surcharge of $1.25 per passenger, and changes in the scope of coverage. And we anticipate that the changes in coverage will be a lower limit, primarily for third party bodily injury or third party property damage.
And separately, we expect to receive similar surcharges and changes in scope of coverage as it relates to the whole all risk insurance.
We expectsome of us are passenger charter carriers and some of us are cargo at the same time, and we have some members who are just full cargo. But we expect a similar adjustment in the cargo side. And we all should receive an update on the status by sometime tonight, we have been told.
But as Kerry mentioned, the numbers relative to his operation, we think that they are going to be four to five times, and in one instance 10 times more expensive than what we have been paying prior to September 11th.
We believe that we are fortunate that Congress has already provided laws for emergency assistance in these type of circumstances. And of course, as you know, the laws require the President to make a determination that insurance is not available or only available at extraordinary prices. And in a letter from our organization, the NACA, in a letter dated September 16th, we asked Secretary Mineta to initiate that action, and we provided your offices and any minority staff with a copy of that letter.
Unfortunately, as you well know, there are shortcomings in the law that we need your assistance in fixing. There is no coverage for domestic flights, and there is too little money in the insurance fund to cover a modern aircraft hull loss, just one. Also, we believe there needs to be expanded authority as to the actions that the administration may take.
Page 147 PREV PAGE TOP OF DOC Specifically, we believe that the government should be able to cover these significant increases in premium with direct payments to the carriers, which then would pay the premium to the underwriters. In that manner, in our opinion that is one way to do it, we are not providing government insurance in these extreme circumstances.
On the other hand, where underwriters will not provide coverage, working with the program could provide coverage and must provide coverage, and we are currently working with the Aviation Subcommittee staff on the subject, we, the NACA.
Obviously, there are other approaches you could take. Justlike a law, passage of a law that wouldor expansion of a law that would relieve some of our suppliers and so forth, such as airplane lessors and so forth of the liability that they would be faced with.
On the revenue side, we are concerned, as the big carriers reference, that the recent loss of business revenue during the grounding of the industry will have reverberations that imperil the safety of many carriers. We must ensure the survival of the industry in order to support the military as well as the civilian needs for air transport.
In a contingency, more than 95 percent of all military passenger movements and approximately 40 percent of all cargo airlifts are handled by civil air carriers in the Civil Reserve Air Fleet. We must preserve that partnership and capability.
However, the current financial condition of the airlines that are now in the civil reserve air fleet operating mode are in jeopardy of going out of business, some of these.
We were in jeopardy at World before September 11 of running out of cash. And we set out to help ourselves by going to our lessors, and this subject has been discussed here today, to get all parties involved in the pain. We went to the lessors to reduce rates.
Boeing hason two airplanes we have for Boeing, they have agreed to negotiate with us. And we are talking about a significant decrease in rate for up to a year.
Page 148 PREV PAGE TOP OF DOC And they have agreed to negotiate with us without putting us into default, which is of great significance to us. And nowthat was before September 11. Now with the loss of revenue in our group from September 11 to September 14, then the situation and the probability and possibility for some of running out of cash before the end of the year, which we cannot allow to happen, is even greater.
And so we are concerned that as that situation has gotten greater, that the investors and other means of getting capital into ourinto the whole industry, but certainly into our company, some of the small companies, is a major problem.
And for that reason we agree with the large carriers that in addition to some immediate relief like the $5 billion that has been mentioned, we need some sort of loan program at something like 0 to 3 percent rates, which would be the Federal Reserve window rate and no payments on premium for 36 months, some program like that.
And the amount of the loan certainly would vary by carrier, but you could provide a line of credit for up to 25 percent of the gross revenues that were projected before the terrorist attack for the next 12 months of operations. And if you look at that, obviously focus on what some of the previous panel said, that that is something we are going to have to obviously pay back.
And finally, though, and of most importance, we remain worried about all of our employees and their families if relief is not immediately forthcoming.
Because if some people run out of cash, all of you know what the results would be. And I realize that labor has already spoken here today; Mr. Hoffa testified this morning. But I do want to point out to you that all of the NACA member carriers do have collective bargaining agreements among allmost of our employee groups. World Airway pilots and flight attendants are Teamsters. And some of other members are represented by the International Brotherhood of Teamsters, and three NACA carriers are also represented by the Airline Pilots Association, and then their cabin attendant union as well.
Page 149 PREV PAGE TOP OF DOC I point this out only to emphasize the far-reaching impact that this crisis is having on the people of this country. And as Leo said, this is not only a business problem, it is a very personal problem for many of our employees. Unfortunately, the big carriers and some of the small ones have already announced layoffs. And if we do not get help soon, the situation will demand that other carriers do the same.
At this point in time, World, we are not contemplating across-the-board layoffs, except on a seasonal basis. Starting October 1 through December 1, we will furlough 130 flight attendants. We have 1,030 people in our company. Over 400 of them are flights attendants. And during the winter, it is somewhat of a seasonal requirement that we furlough some.
But we are looking, as we get this operation back up to full speed, to bring them all back by April the 1st.
So to summarize, we need to take immediate action to expand the government's authority to respond to these unique and critical circumstances.
To summarize, we need to take immediate action to expand the government's authority to respond to these unique and critical circumstances. We support the administration's approach on these issues, and under that expanded authority we support the direct payments to air carriers for insurance, security, and the other critical business needs, as well as the establishment of a long program to assure the viability of the aviation industry and its support of America's response to these acts of terrorism and war.
One last request. When you are considering what you are going to do, please do not forget us little people, especially the thousands of people who work for the little operators, and keep in mind that the small operators in NACA, play a big part in the support of our military. And I thank you for your time.
Mr. MICA. I thank both of you, and I just have one question, and it really deals with your last statement, Mr. Harris, the little people or smaller air industry players. You both feel comfortable that the legislation that is drafted has the potential for assisting both of your interests. There are two parts to that legislation. One is direct compensation. The second part is the longer-term loans. You feel like you are adequately covered, Mr. Skeen?
Page 150 PREV PAGE TOP OF DOC Mr. SKEEN. I am glad you asked that. The pain experienced by the majors that they so well documented today, you know, there is pain at regionals as well. We had the same impact as they had just. It is all relativity. So I think it has been a fair approach. For us our concern is obviously our own company and the financial threats that we have now because of this crisis and the losses that we have incurred this past week, just kind of short term, for not flying, as well as the impact on future revenue streams because of a lack of confidence in the transportation system. But our biggest concern really is, because we are a feeder network for our major partners, is the majors have to survive. If the majors don't survive, then obviously we are not going to be around, and there are going to be a lot bigger problems for us to deal with in this Nation.
So yes, we are comfortable with the language as what we have seen, and what I have heard today just to reinforce is weand I think we heard this today, that the regional carriers should participate in thewhatever assistance is provided, and the mechanism would be based on an ASM, a proportionate level. Even though we are at the very low level of that food chain, we think that is a fair process as long as we are participating on that proportional basis.
Mr. MICA. Mr. Harris.
Mr. HARRIS. I think we can go on the proposal for the $5 billion and ASM basis because we are flying for the military ND-11s and DC-1030s. So we have 400-seat airplanes making 12-hour plus flights for them in the Pacific. Some of the small carriers like us are going to have problems on the cargo part that Fred Smith mentioned, and I think he would agree if he could have gotten away with it, that probably he would have gone to available ton miles rather than revenue ton miles, which I think is what he was talking about, but he can handle that better. But like Jim and I, who is an all-cargo carrier, they may not be as well taken care of in that formula as would, say, FedEx.
Page 151 PREV PAGE TOP OF DOC I personally would have gone to a different formula, but I think we werecan live with that one. I would have gone to the 10-K filings to take revenue instead of available seat miles. Available seat miles certainly helps the major carrier, but we will support what they are doing, but please remember that we are even below the pecking order of Mr. Skeen here. So we willand probably your package, as we see it, will work out to there being probably a fair amount when it gets down to the bottom of the list on the basic infusion of cash to make up for the lost revenue, and then hopefully there will be something that, whatever formula you come up with for loan guarantees, would be helpful to us also.
Mr. MICA. Thank you. Let me yield now to Mr. Sandlin.
Mr. SANDLIN. Thank you, Mr. Chairman.
Let me say first that I appreciate the critical part that the smaller airlines and feeder airlines play, and we certainly recognize that. I fly to Texas twice a week and go through Dallas and Shreveport, Louisiana, and I would like to say that I experienced the same thing you did: no delays, no problems; maybe a heightened awareness of security, which is important. And I would like to say thank you to those employees at the American Eagle in Shreveport, Louisiana, doing such a good job, and all the folks at that airport and at the DFW Airport, Special Services in particular, and others that made our trips helpful.
We have not talked much about liability today, and I know that is not an issue that was brought up earlier, but I know you have experienced both in big airlines and smaller airlines. Is there any advice you could give to us on how we could work together as an industry and as a Congress to provide relief to the families and the victims without further victimizing the victims? Do you have ideas in that regard?
Mr. HARRIS. Are you talking about the victims on the ground?
Mr. SANDLIN. Yes, sir.
Mr. HARRIS. I think the insuranceas American said, the basic insurance that we carriers have had would take care of the passengers and the victims we had and so forth on the airplane, but I don't know the answer to the third-party body and third-party property. It is so vast, I don't know exactly where you have to draw the line there.
Page 152 PREV PAGE TOP OF DOC Mr. SANDLIN. Do you think some of the money that we set aside, and certainly we want to help the airlines, should some of that be set aside for a claim fund for the victims? Would that be something to consider or not?
Mr. HARRIS. Technically I am sure you could put it in the bill, and it could be set aside. I really don't know if it is workable.
Mr. SANDLIN. I am asking for your advice.
Mr. SKEEN. My comment on that, if you don't mind, would be that we played a small part in scrubbing some of the numbers that you heard today from Leo's presentation, and those type of funds are not in the kind of scaled-down request, as I understand it. You would have to check with someone from ATA, but that is my understanding that those numbers were not built into Mr. Mullin and ATA's model.
Mr. SANDLIN. I think that is correct, but I was asking generally without getting into the dollars, if you had any ideas, and you might want to think on that and talk with us later. I didn't want to pin you down on numbers, but just something you might come up with creatively or otherwise to address it. And I am interested as we go forward, do you feel like these hearings have been beneficial to you as an industry, the hearings we have had today, the discussion and the debate?
Mr. HARRIS. It is interesting that you have given the opportunity to the small carriers that are represented by the National Carrier Association. Yes, I think they are beneficial.
Mr. SKEEN. Yes. I think they have been, too, especially since I am a partner of Delta and I got to hear some encouraging things about they are not wavering in their commitment to the small communities and the role the regional jets play. I squirmed in my seat back there in the gallery.
Mr. SANDLIN. Did you all get to talk with the major carriers last week as this happened as far as your input or whether or not you had suggestions.
Page 153 PREV PAGE TOP OF DOC Mr. HARRIS. We and some of our representatives had various meetings with them, so we got to make some input like the meeting that was held tomorrow with most of these guys up here, we hadthese two gentlemen were at the White House. So we had the opportunity to participate, but we haven't been in the calculations.
Mr. SANDLIN. Now, since we have had an opportunity today, and I want to make sure we are using our time well, since we have had an opportunity today and we may have other days to discuss these issues in great detail and get input from the industry, both large carriers and small carriers, and we will hear from labor and others additionally, it is quite likely to assume you will have more relief and better legislation than you would have if we had rushed to judgment; is that correct?
Mr. SKEEN. I wholeheartedly agree. I think this is very beneficial, and it has been a two-way street, and I think I witnessed that with the other panel that preceded us. And hopefully it has been enlightening to this audience as well, and hopefully we both benefit from that, and the flying public and the American economy will benefit from that.
Mr. SANDLIN. We are nearly out of time. I see the light, but we appreciate your input. It is helpful to us in learning how to help you in making the airline more stable and protect the workers to have jobs and to protect the public in flying. I think you would agree with me that it is in keeping with President Bush's desire to move forward in a focused way to examine all the issues that are before us and to come up with a good long-term solution to these plans. So wouldn't you agree with that?
Mr. SKEEN. Yes.
Mr. HARRIS. I agree that it has been probably more beneficial to us than anybody. The little carriers not having done something until rapidly last week, although some say it might have helped the stock market.
Mr. SANDLIN. We are out of time, and I thank you all for coming in.
Page 154 PREV PAGE TOP OF DOC Mr. MICA. I thank the gentleman and recognize at this time Mr. Boehlert.
Mr. BOEHLERT. Thank you.
I am a little sorry that your activity comes in the fifth hour of this proceeding because we are talking about the continued viability of the U.S. air transportation system, and the regional air carriers, the members of the Air Carriers Association, are a very vital component of that national system. It is not just serving New York, Los Angeles, Chicago and a few major centers. It is all America.
Let me ask youand I am pleased to hear, Mr. Skeen, particularly your comments that you feel your needs have been addressed not just in the package that is proposed by ATA, but in the comments made by Mr. Mullin and others in giving consideration to you. Let me ask you, the insurance question is something that concerns every single person, and I am wondering this. Is the threat or promise or whatever it is of the dramatic increase in your previousfrom 2 to 8 million, I believe you said.
Mr. SKEEN. That is correct. That is just liability.
Mr. BOEHLERT. Just liability. Was that sort of a back-of-the-envelope calculation or really thought through? My point is this: One of the things we acknowledge we all have to do is pay attention to security in a very precise and very specific and very thorough way. It has always been my experience that when you increase security, for example, in the home, if you increase the security of your home against fire, if you install a sprinkler system, for example, your rates go down. Is the insurance industry indicating to you that they are factoring in the determined effort on the part of the Congress and the carriers to dramatically increase security; therefore, it would seem it would reduce the risk? Are they factoring that into their projected rate increases?
Mr. SKEEN. It is hard to speak for their methodology, but obviously they just incurred very substantial losses. So I think what we have been notified of is that it would be in the form of potentially an immediate surcharge of roughly $1.25 per passenger. So it was really not a back of the envelope. It is a pretty easy thing to do because it is based on the passengers. So you factorproject that through next year, and it does represent the increase of $6 million on the base of $2 million
Page 155 PREV PAGE TOP OF DOC Mr. BOEHLERT. Most of the 5 hours we have had today understandably have been devoted for the financial information and the need for immediate action to sort of extract ourselves as much as possible from the crisis nature of that financial situation. We are going to have hearings, Mr. Mica's subcommittee will have a hearing, I believe, Friday of this week on security. I am committed to the proposition that we have to give serious thought to federalizing security at our Nation's airports, and I am wondering ifI mean, the present system, particularly the impacts on regional carriers, the present system is sort of a makeshift sort of a system. We don't have a high degree of professionalism involved in security. It is hit or miss. Some airports are outstanding; others are not. And in most cases it is not extensive professional training. We are talking about lower-wage-scale personnel, and lower-wage-scale personnel can be just as dedicated and just as committed as anybody else, but they don't have the training or the experience.
This whole idea of federalizing airport security, is that something you would care to address for me?
Mr. SKEEN. We support that 100 percent. In fact, it is in my printed testimony that we serveyou know, our bread and butter is serving smaller communities, and the resources in those airports obviously are limited as what you will see in maybe the larger hubs, but it just reallyit makes so much sense because it is really the law enforcement our Federal Government that holds the intelligence information really. That gets passed off then to the FAA and then passed off to the airlines who are potentially doing the screenings or contracting for the screenings. So it is a really cumbersome method if you are looking at just the effectiveness of doing what it is intended to do.
But I think of all the things you have heard today of raising the caliber of the individuals, training, those things, I think they are all needed, and I think you need one central control point, and I believe that role should be done by the Federal Government in terms of protecting our customers.
Page 156 PREV PAGE TOP OF DOC Mr. BOEHLERT. Mr. Harris.
Mr. HARRIS. I think one of our basic concepts or tenets of government for the whole world is to provide security for their people, and going back to my scheduled passenger days where we first introduced this kind of system where the carriers paid for it when I was at Delta, I think now and I thought then it would be better for the airport or some other agency other than the airlines, and I think the Federal Government like it is in European countries is the place for it to be. But the next step is I do support getting the populaceusing the system to help pay for that.
Mr. BOEHLERT. I just happen to think that the first obligation of the government is to provide as much as humanly possible for the peace and security of the people, and that security has been tested as never before, at least domestically, and it has been found wanting. We have got to find a different way.
So I thank both of you for your patience sitting through these hours of hearings, but I think we are all engaged in something that is very important for the Nation, not just selfishly for your company or selfishly for this committee. It is something that is extremely important for all America. Thank you very much.
Mr. MICA. The gentleman's time has expired.
Mr. PASCRELL. Mr. Chairman, I am interested, Mr. Harris, with what you started to get into suggesting, that there is a proposal on the table right now in terms of formula and how the money is distributed. You suggested another possible method, and I was just interested in your putting on the record with what you see as the difference between what you are suggesting and what we already have before us.
Mr. HARRIS. The one other method that I mentioned was that you can get a public document for all the carriers, which is the 10-K, which would give everybody's filed revenue for whatever period you chose, like 2000, which was preit is more of a clean period, pre the economic problems we have had this year and pre-September 11. So it is an easy number for everybody to understand. So I thought it is as good as what they were talking about as far as ASMs, which certainly is aimed more toward the high and big airplane operators.
Page 157 PREV PAGE TOP OF DOC But inas far as World's, since we have some big airplanes, too, although we are very small in number, we only have 14 airplanes in our fleet now, but they are all long-range and large aircraft; so we could come out right on the ASM. In fact we probably would come out just about the same, but in talking about representing all of the NACA carriers, especially the cargo carriers, I am not sure, because I haven't run the numbers on the all-cargo carriers like Gemini, that they are going to come out with a formula, especially if you break it down, like they were talking about 80 percent and 20 percent on the revenue ton miles.
So I don't say it is not as good. To me it would have been simpler to go the other way.
Mr. PASCRELL. You heard the first panel this morning, this afternoon, talk about the distribution money. You referred to it. So you are not so sure that what is on the table here before us is the most equitable way to distribute the money. Did I get you clearly?
Mr. HARRIS. I am willing to support it because I can't prove to you.
Mr. PASCRELL. That is fair.
Mr. HARRIS. The numbers, I have to say it is about the same.
Mr. PASCRELL. Now, the subject of insurance, which both of you touched on, new terms, there is a 7-day cancellation. The carrier comes back and therefore is going to work out new terms, new costs with the airline, and hopefully.
Mr. HARRIS. Hopefully.
Mr. PASCRELL. provide a different proposal. Do you think that the insurance under the new proposal should still cover or should cover collateral damage with victims and properties? Do you think that we should exclude that in order to bring the cost of insurance down? I am talking about collateral damage, victims on land.
Page 158 PREV PAGE TOP OF DOC Mr. HARRIS. As far as concept, I would say there should be some coverage, and I can give you a personal experience. When we at Delta had a Lockheed 1011 that crashed at Dallas-Fort Worth, we hit a bunch of cars on the final approach, and they were taken care of under the insurance coverage that applied at that time. I think the underwriters had just, probably rightly so, like some of us in the airline operating business, panicked at the magnitude of what this whole September 11 thing cost. So at first they wanted to just cancel everybody right off, which we couldn't operate without that. We would then have had to have some coverage from the U.S. Government for U.S. carriers.
Mr. PASCRELL. That is a good anecdotal story, and you would agree with me, therefore, that we should not simply, in an attempt to hold down costs, totally eliminate the concept of collateral damage?
Mr. HARRIS. I don't thinkI think.
Mr. PASCRELL. I have heard that from some of the airlines.
Mr. HARRIS. But I think some of the underwriters, they are talking aboutunder the liability and third-party coverage we are talking about, Kerry and I, they are talking about keeping some third-party people, bodies, and also property damage in there, but at a lower cap, but they are going to make us pay for it.
Mr. PASCRELL. Yes.
Mr. HARRIS. And because of that, my numbers that Kerry mentioned there, he went up from 2 to 8 million, our numbers just for a little carrier like usand he has many more airplanes and so forth and many more passengers to deal with, but those two, just the liability and the war risk, whole insurance for us is about 250,000 a year, and you are talking on the whole war risk going up by five times, like one penny per hundred to 55 cents per hundred, and on the liability part it is going upat a dollar and a quarter for just a small operator like us will go from about 150,000 a year to about 800,000.
Page 159 PREV PAGE TOP OF DOC Mr. YOUNG. [Presiding.] The gentleman's time has expired.
Mr. PASCRELL. Thank you.
Mr. YOUNG. The gentleman from Maryland.
Mr. GILCHREST. I thank the Chairman.
Mr. Harris and Mr. Skeen, Mr. Mullin in the previous panel said that it is absolutely critical that that issue that we are talking about now, insurance and liability, be addressed in your legislation as it is a critical element of the overall financial impact of this tragedy on our industry. And he had extensive words dealing with the liability aspect of this, and he asked us to consider the following three proposals, which I would like to ask you to comment on. The first one is to expand the war risk insurance program to include domestic operations; the second one, to include in such an expanded program both whole loss and liability coverage; and the third is to employ the Civil Reserve Aircraft Fleet Program wherever possible to assist in providing airlines with insurance coverage. Now, of any of those three that you know something about or want to add to that, we would appreciate your input.
Mr. HARRIS. I know all three, including the Civil Reserve Air Fleet, we agree on the.
Mr. HARRIS. As Ron has reminded me, there is no Civil Reserve Fleet insurance, but we do use the FAA coverage. We have to list all of our tail numbers that are flying with the FAA, and there is under the present law coverage for that kind of flying.
But in summary to your question, I would agree with those three components.
Mr. GILCHREST. Mr. Skeen?
Mr. SKEEN. The same, would agree.
Mr. GILCHREST. Any additions to this?
Mr. SKEEN. Not really. Their expertise, quite frankly, is greater than mine in that particular subject. So I don't think it is appropriate for me to try to add to that.
Page 160 PREV PAGE TOP OF DOC Mr. GILCHREST. So it is your sense that the coverage that was to some degree recommended this morning by the first panel to the Congress to include in this legislation would be obviously beneficial for the major airlines and then useful for the size fleet that you have?
Mr. SKEEN. Without a doubt. Again, the issue is the availability of interest, the capacity, and that is a concern, there will be enough capacity. Actually we were scheduled to go next week over on what is typically an annual road show where you go overseas and in the U.S. and you try to get your insurance capacity available to be able to get your policies renewed for the previous year. And it is a long process you go through, and you try to obviously have more capacity than what you need because then you have got some competition in getting your rates lower. And that is going to be an extremely difficult process next year, and without some positive move from the government, it may be impossible to have the capacity needed to really insure the entire industry.So that is one of our biggest concerns in addition to just the cost of the increases going up.
Mr. GILCHREST. So you see, besides this initial if we want to call it infusion of cash, a change in some type of legislative language to change the Federal Government's role in the liability coverage of airlines is just as urgent?
Mr. SKEEN. Yes, I would agree with that. And, again, I am not as versed in that as is Leo and that panel, so I would really defer to the ATA position on that.
Mr. GILCHREST. Thank you, gentlemen.
Thank you, Mr. Chairman.
Mr. YOUNG. I thank the gentleman.
Mr. BOSWELL. Thank you, Mr. Chairman, and it sounds to meI know you put in a lot of hours, but you are in agreement with what was said by the previous panel. I think you are in full agreement on the urgency and in full agreement on the security measure running in track with this, and I appreciate that. So I won't ask a question.
Page 161 PREV PAGE TOP OF DOC I want to just make a statement, Mr. Chairman. The previous panel, I asked if they would answer the question that Mr. DeFazio had asked and then had run out of time, and I think it was Mr. Anderson who gave the answer that in their Buy America purchases and so on that they made the comment that they did. And I thanked him for it, but I find out on a piece of paper passed to me that left out some things, and I will have to firm this, but 15 percent of Airbus is made in the U.S., whereas nearly 80 percent of Boeing is made in the U.S. So I think that is part of the record that ought to be included for whatever it is worth. I started out just to get an answer that wasn't answered by one of my colleagues. I appreciate your being here.
Mr. HARRIS. Thank you.
Mr. BOSWELL. I might add that yesterday, unscheduled on my schedule, that I got on ComAir and got handled very professionally and got here. I felt like I was checked. My legislative director never went through such a check that he went through. Every piece of clothing that he had in his baggage was looked at thoroughly. So I made a statement in Des Moines, Iowa, that I thought we ought to be in the business to fly. Folks in your business are professional and doing a good job, and it is safe to fly. So I am encouraging folks, which I will continue to do, and I think everyone on this panel will do the same thing, that let us get back to business, take precautions, and we are doing that, but let us get back to business. And I appreciate you very much. Thanks for being here.
Mr. YOUNG. Mr. Hayes.
Mr. HAYES. Thank you, Mr. Chairman.
I got the impression you think we need some tort reform as it relates to the insurance industry and what it costs for the airlines in the regional. Any further comment on that?
Mr. HARRIS. What specific part of that are you talking about?
Mr. HAYES. Well, you talked about limiting liability. Liability comes from the people who pursue the extremely large settlements that are part of our culture at the moment. Let me ask you the same question another way. Do you think the insurance companies are trying to get us to federalize a portion of the liability insurance for those carriers who cover airlines and regionals?
Page 162 PREV PAGE TOP OF DOC Mr. HARRIS. I am not sure they are trying to get you to stabilize it, but they certainly are trying to make the carriers pay for the extremely large settlements that they see coming one way or another.
Mr. HAYES. I am experienced in personal liability for aircraft, but more particularly liability insurance; so I know exactly where you are coming from.
Are you connected with NATA, the trade organization whose umbrella covers Part 135 operators?
Mr. HARRIS. We are World Airways, and we are on the nonpaying board of the National Air Carrier Association, who represents all of the carriers that we can name, which are people like Gemini here and ATA and Omni and Challenge Air, and it is a trade organization.
Mr. HAYES. We talked a lot about 121 operators.
Mr. HARRIS. We are not a part of 135. This is the 121.
Mr. HAYES. Do you have a comment that you can add? We don't seem to be specifically talking about them. The Chairman in Alaska knows the importance of 135 operators, the air charter, air taxi folks. Is their plight considered in the agreements that we have talked about today?
Mr. HARRIS. I really don't know. My guess is that I don't think they areobviously asMr. Boswell, I think it was, mentioned he would be in a pile-up and everything, he could fly VFR, or he had to fly IFR and not VFR, and he had to get that up, that certainly is hurting an individual operator or the corporate charter operators, corporate jet flying and those kinds of airplanes. But I don't think they are as significant a part of the problem that you were addressing, because in my opinion, one man's opinion based on my 47 years of experience, there are a lot of other ancillary activities out here that are going toprobably are asking you for help, but I think that the big problem, as was stated by the other panel, is the attack on the airline industry itself, and if you fix the airline industry, it is the engine that drives all those other things like hotels and.
Page 163 PREV PAGE TOP OF DOC Mr. HAYES. I understand. We don't have a disagreement. I am just saying the 135 operators, the air taxi operator who serves as a supplemental regional carrier, is also a part of this, and I just asked if you know if they are included in these discussions within the airline industry.
Mr. HARRIS. I don't know that, if they have been included.
Mr. SKEEN. But I can add indirectly yes, because I had to do some homework, but the Regional Airline Association has two members that are 135 operators, Scenic Air and Cape Air, which flies to Nantucket and the Vineyard. They are 135 and obviously are double A. The Regional Airline Association has been very involved in the input.
Mr. HAYES. And of course they flew under Tango November designation after the major airlines.
There is a rush to federalize security, and I don't have a problem with the concept. The concept with me seems to be standardize and make sure that people who have expertise, law enforcement, FBI, and National Security Agency, set the standards. What I don't want to see us dothe Federal Government is not known for moving with lightning-like speed on different problems. We seem to be overcoming that with this discussion today, but I would like to suggest making sure we can get the standards out there that people agree for adding the additional security and make sure that people are in place, are operating up to those higher standards as quickly as possible while we seek a longer-term solution on who is going to own those agencies. So I simply add that to hopefully move a great idea forward even quicker.
One quick question. Regional jets, I know they are made in Canada, and I know they are made in Brazil. Are there other suppliers?
Mr. SKEEN. We are the operator of the third one. It was a little late to the market, so it doesn't have the market penetration that the Embraer or Bombardier, the Canadair RJ, does, but for Delta we fly exclusively the Fairchild Dornier 328, and it is an American-headquartered company. The manufacturing is in Germany.
Page 164 PREV PAGE TOP OF DOC Mr. HAYES. It is in Dulles. I remember talking to.
Mr. SKEEN. Exactly. They just moved their North American headquarters from San Antonio to Dulles, yes.
Mr. HAYES. Thank you.
Mr. YOUNG. Thank the gentleman.
Mr. LAMPSON. Thank you, Mr. Chairman.
On that same point, Mr. Skeen, 81 planes ordered, you said earlier, I think?
Mr. SKEEN. Yes. We have 81 additional regional jets on order, and we fly 77 I think is the count today.
Mr. LAMPSON. Who will be the manufacturer of those 81 aircraft?
Mr. SKEEN. It is a mix between the Fairchild Dornier. It will be 32actually we have 4 more coming from Delta; so it will be 36 of those 81 would be the Fairchild Dornier, the remainder being the Bombardia, the Canada Air regional jet, the 50-seaters.
Mr. LAMPSON. Basically none of them are made in the United States, though; right?
Mr. SKEEN. Unfortunately there is not a regional jet manufacturer in the United States, but I would go back to the same comments made by the previous panel, is the BombardiaI don't know what percentage, but they are E.G. Engines, and the Fairchild is Pratt and Whitney, and it is the same Honeywell and the same vendor. So there is a lot of U.S. product, but I couldn't tell you what percentages, on there.
Mr. LAMPSON. As a Nation, I think we ought to be seriously concerned with that, really, really concerned, not with the situation that you are in, but the situation that our country is in with not being able to manufacture those things. I can imagine our getting to the point someday where we are looking like we did with our shipping industry as with aircraft.
Page 165 PREV PAGE TOP OF DOC Mr. SKEEN. And we would welcome the competition to have more suppliers; so we would echo that sentiment.
Mr. LAMPSON. Understood.
I spent a lot of time in a lot of airports in the last week, different size ones, intentionally trying to learn about those in my particular area with regard to security because I am most interested in trying to federalize it, because pretty much because of what came out, the need for that standardization, but also the feeling that it should be a federally operated activity just from about every place that I spoke and listened. But one of the things that came out, specific comments that came from people in these different size airports, the biggest need is that passengers have the same experience from airport to airport as they go through the security activities.
You made a statement that regional air carriers are uniquely impacted by additional security measures. Would you talk about that a little bit? Tell me some of your suggestions. Tell me the differences. What is unique about the regional.
Mr. SKEEN. The airports in a lot of communities, we serve smaller communities, and so the facilities sometimes are a challenge to have just the right processing space. There may be limited carriers because all the carriers share in the responsibility at the larger hubs. It falls maybe to the burden of one carrier, two carriers at the smaller cities. So I think the comments made that you mentioned and made earlier is that the standardization to ensure that it is the same experience throughout.
Mr. LAMPSON. How can you have the same experience given the differences.
Mr. SKEEN. Well, I think it is the standards, really the standards in terms of the equipment and personnel and whatever standards that come out of the committee that Mr. Mineta has appointed, I think thosethey have to, because really the transportation system, even though there can be a tragedy here, the individual that caused that tragedy could have boarded in a very small market or a very large market.
Page 166 PREV PAGE TOP OF DOC Mr. LAMPSON. Could there be potential difficulties for us to put the same kind of equipment in a little used airport someplace that would give us the same information as in a larger airport?
Mr. SKEEN. When we get into the technical aspect, I am treading on thin ice in terms of my knowledge in that area, but I would say there is no reason why it cannot in smaller airports, except it becomes, again, economic issues in terms of you have got a very expensive piece of machinery at a larger airport in terms of per passenger on a revenue that comes through there, it doesn't make up a large percentage of cost. You put that unit in a small station that only boards a few customers maybe, and the cost per customer could be really expensive, and those are the real difficult decisions we are faced with.
Mr. LAMPSON. I think it is going to have an impact, as we discuss the differences in how we go about federalizing, what are the real needs to accomplish the goal.
Mr. HARRIS. I think the new latest state of art, the X-ray units like in Atlanta, you can put one single unit of that kind of equipment, latest state of the art, in a small airport, but I think as you are going down the road, if we get into explosive devices, checking baggage, then the cost of those would be an even further problem for the small little airport.
Mr. YOUNG. The gentleman's time has expired.
Mr. LAMPSON. Thank you, Mr. Chairman.
Mr. YOUNG. Mr. Honda, are you ready to ask questions?
Mr. HONDA. I pass.
Mr. YOUNG. You pass?
I want to thank the panel. You brought up some good points. I would like to suggest one thing. As we review the security problem, I come from a very small area, and the idea that we have to have a uniform unit equal to even Anchorage does not make me very happy. In the first place I don't think anybody would be interested in hijacking a plane out of Fort Yukon because I don't know where they would be going, but I think we have to be sensitive to the differences in this country in how it will happen.
Page 167 PREV PAGE TOP OF DOC Secondly, on the security aspect of it, I hope we don't just try to use Band-Aids, and I don't say Band-Aids because the tragedy, the act of war that occurred last Tuesday, with all the suggestions put in place, probably couldn't have been prevented unless there is a different MO for the pilots. We have to concentrate on the intelligence end of it, identifying potential problem-makers, and if we don't do that, all the screening systems, all the training and everything else won't take care of the problem. And as we get into this discussion, I hope that we do write something in it that is broad enough that we give the latitude to whoever takes it over to make sure that we do the other things that are important, because the smaller airports justI don't think that is where it would occur.
With that I thank the panel, very much so, and good luck to you.
If I may, I would like to bring panel three and four up all at the same time. There are five chairs there, so we could have panel three, Ms. Susan Donofrio, director and senior analyst of the Deutsche Bank-Alex Brown, New York, New York; Mr. Raymond Neidl, airline analyst, ABN Amro, New York; and Mr. Scott Gibson, senior vice president, SH&E, New York, New York; along with Mr. Robert Roach, general vice president, International Association of Machinists & Aerospace Workers in Upper Marlboro, Maryland; and Mr. Sonny Hall, president of Transport Workers Union, New York, New York.
And for those two gentlemen especially I apologize for the length of the day and by letting Mr. Hoffa come in before you, but that was a request that he made, and I granted it to him.
Would everybody please take their seats. I would appreciate it.
Ms. Susan Donofrio.
TESTIMONY OF SUSAN DONOFRIO, SENIOR U.S. AIRLINE ANALYST, DEUTSCHE BANC ALEX. BROWN, NEW YORK, NEW YORK; RAYMOND NEIDL, AIRLINE ANALYST, ABN AMRO, NEW YORK, NEW YORK; SCOTT C. GIBSON, SENIOR VICE PRESIDENT, AND MANAGING OFFICER, SH&E, INC., NEW YORK, NEW YORK; ROBERT ROACH, JR., GENERAL VICE PRESIDENT, INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS, UPPER MARLBORO, MARYLAND; AND SONNY HALL, PRESIDENT, TRANSPORTATION TRADES DEPARTMENT, NEW YORK, NEW YORK
Page 168 PREV PAGE TOP OF DOC
Ms. DONOFRIO. Mr. Chairman and members of the committee, I am the senior equity analyst with Deutsche Banc Alex. Brown, and I have about 10 years' experience under my belt. I do appreciate the chance to address the Committee on Transportation and Infrastructure on the state of the U.S. airline industry. What I would like to address today is the current financial state of the airline industry and the need for immediate relief to allow for the coverage of day-to-day operations.
Going into 2001, we thought that this would be another banner year for the airlines due to robust demand; however, revenue quickly turned sour as demand faltered due to a softening economy. This was evident in business demand for the industry, which dropped 41 percent year over year from January to July. Acting responsibly as opposed to the 1980s, there was already a move by most airlines to rein in capacity growth in response. There was also a move by the industry to scale back whatever costs they could.
Even in the face of this, it was still going to be a year of substantial losses going into last Tuesday's tragedy. Much of this is due to the fixed cost structure, which we have estimated to be about 80 percent, and soft demand. Our net loss estimate prior to September 11 was a decline in net income for the majors of roughly $4 billion for 2001. This was getting close to the $4.8 billion loss that the industry sustained in 1992.
The airlines' financing was expected to help cover their costs from the economic downturn. Time was what was needed to allow for the U.S.'s economic recovery and a return to traveling. This was planned for, and actually it was reflected in my positive stance on the industry. What was not planned for was the exponential drop in the revenues due to the terrorist attack.
After last week's tragic events, air travel came to a virtual standstill for 4 days. According to our industry model, the airlines lost roughly $260 million per day in revenue alone, widening this loss. Given it is an assumption that traffic through year end is likely to rebound from a decline of 50 percent to a decline of 30 percent, we believe that this points to a net loss for the year of $10 billion. While capacity is likely to be reduced for next year as well, we have estimated a generous 10 percent decline for the year. Labor costs for the industry are rising offsetting some of the cost savings. We are therefore assuming that the industry is going to lose roughly $3 billion next year.
Page 169 PREV PAGE TOP OF DOC The response to this was a sharp drop in most airline stocks of roughly 50 percent after the market opened. Given the immediate responses of many airlines to immediately reduce their work force in response to sudden fall-off in demand and their necessity to draw down their available lines of credit, liquidity clearly appears to be a major concern for the airlines. With respect to the majors' cash position, at the end of the June quarter, the cash position roughly totaled $7 billion. There is $7 billion in lines of credit currently available. Of this, $890 million was only drawn at the end of June quarter. Recent discussions with the airlines have indicated that most of these lines have now been fully drawn due to the severity of their financial situation.
Currently the top nine U.S. airlines are generating negative free cash flow. This indicates that the industry is in need of financing to meet their current debt and lease obligations. Long-term debt, including the capitalization of off-balance sheet obligations, for the industry stands at approximately $91 billion. Our estimate of the current free cash flow to net debt position is within a range of .5 to 43 percent. What all that tells you is that loans to the industry may not be such a good idea alone since the industry is already burdened with a heavy debt load. Many of these companies will therefore become even more highly leveraged, with the risk of failure quite high in such an certain demand environment. What may, in fact, happen is that very weak carriers may be forced to cut fares to cover the loans from the government, weakening the stronger airlines. We therefore believe that the solution is a short-term cash infusion to compensate the airlines for the losses during the shutdown and also enough to adjust them to a new operating environment. And I will stop here.
Mr. YOUNG. Well done.
I am going to just change this a little bit. I am going to go down to the other end and come back and forth, the labor side and then financial side.
Page 170 PREV PAGE TOP OF DOC Mr. ROACH. Thank you, Mr. Chairman. I am going to be brief as well and skim through my remarks.
My name is Robert Roach, Jr. I am the general vice president of transportation for the machinists union. We represent approximately 290,00 people in transportation as well as in aerospace, Boeing and G.E. And Pratt Whitney.
The disastrous events of September 11 will be with us as long as we live. The transportation industry as we know it today certainly must be changed. It must be changed, and it will be changed. For the airlines, the American public and for its workers, these changes call for more than just a quick Band-Aid reflex approach. The casualty list is staggering. We cannot allow the Nation's industry or its workers and the flying public to remain victims of this catastrophic event.
The complete shutdown of the aviation industry was unprecedented. Although these actions were necessary, we must take action to ensure that this never happens again.
I have had the opportunity to listen to many of the speakers today, and there is a component missing in our view. Certainly the airlines need immediate cash infusion, but just giving somebody some money is not going to fix the problem. The problem has been coming for a very long time. A decade ago 120 illegal immigrants were taken off at the Newark Airport. They said they were third-party workers cleaning aircraft, unsupervised on aircraft, cleaning those aircraft. That was a decade ago, and nothing has changed. Subcontracting of catering work, passenger service, passenger screening work, and now with the machines where people can get boarding passes, go through the magnetometer and then board an airplane by sticking a boarding pass in a machine, and the first person they see is a flight attendant is a very dangerous way to save money.
We have people screening passengers today who are making minimum wage, who are responsible for the lives of thousands of people in the flying public and billions of dollars' worth of assets. Again, we believe this is a very dangerous situation that the labor organizations will tell you we have been fighting for some time.
Page 171 PREV PAGE TOP OF DOC Our members, the airline employees, are afraid today because of passenger rage. Our members, airline employees, are afraid to confront the passengers about different situations. As all of you know, somebody walked up with a full-fare ticket, one way, no baggage, and was unchecked, and what we believe is that is because many of the airline employees today have been scared, for example at Newark Airport where an employee, his back was broke, that person was arrested, went to court and was acquitted.
We do not feel we have support. We do not feel there is any backing in security at the airports. If we are to restore the confidences in the system, we must restore the confidences in the employees. If we are to stabilize the system, we must stabilize and make the employees feel secure. That is a component that is missing.
We have heard from the CEOs of the major carriers who have indicated that their collective bargain agreements are going to protect these people being laid off. I would submit that I have negotiated many of those collective bargain agreements on Continental and Northwest and TWA, and there are no such provisions. There is some severance pay, and at least one carrier said they are not even going to pay the severance pay because this is an act of war, and that the people will be without medical insurance, people will be unable to pay for mortgages, people will be unemployed, and we think that the work that is currently subcontracted out, if that work was brought in-house in a long-term plan, that the employees who have access to the aircraft, who work for the airlines and are subject to all the screening that an airline employee is subject to, that that will go a long way in securing the system.
We believe that the Federal Government must be involved in airport safety. We believe that Federal marshals should be on board aircraft, and we are prepared to work with the carriers and the Federal Government to do what is necessary to secure and to make this a viable system. It is a matter of nationality security, in our view, and this is not a situation in our professional roles as labor leaders. We sometimes, or most of the time, have an adversary role with the carriers. We believe that we must work together on this issue with the Federal Government and with the carriers.
Page 172 PREV PAGE TOP OF DOC We met with Secretary Mineta today. We called for a joint task force to fix the problem on a long-term basis, but the employees who service the passengers, who fix the airplanes, who load the airplanes, who protect their safety aboard the aircraft, they must be put into the process if this process is going to work. This didn't happen September 11. This has been a long time coming, and if we are going to fix this on a long-term basis, we all must come to the table and work together to fix the problem.
Thousands are missing. America is in shock. We lost at least two of our members of IAM. I lost a dear and personal friend. It is with that in mind we must say that business as usual is not an option. Thank you very much.
Mr. YOUNG. That you, Mr. Roach.
Now we have Mr. Raymond Neidl.
Mr. NEIDL. You had it right.
Historically I have been generally opposed to any government bailouts with taxpayer money of any business or industry that has gotten themselves into trouble and would then come to the government begging for help. My belief was, and remains, that if there was mismanagement, or if the employee demands economical contracts, then the company and the employee should suffer, should pay the bill. They weren't being competitive.
So I am very much of a free market advocate. However, this is not a normal time that we are in right now with the developments that happened last week, and like anyone else, I can make an exception, and I think this is a case where we should have an exception. And I think the airline industry has made a good case today that they have been affected in a very unusual way indirectly, and there has been no other airlineas bad as this has been, there has been no other industry that has been affected as bad as the airline industry. And the airline industry is the backbone of not only the national economy, but the world economy as well, and if we don't have a strong transportation system, the world economy will not grow and will fall apart.
Page 173 PREV PAGE TOP OF DOC I have been around the industry for a while. I used to work for American. I was a credit analyst at S&P. I was a high-yield bond analyst for a long time with airline bonds, with ETCs, and now I am an equity analyst. So I have seen the industry go through a couple of cycles, and the industry wasI won't call it mismanaged, but it wasn't managed very well after deregulation. Most of the people in place had to stillstill had the regulatory mind, capacity market share, not bottom line.
Well, that all changed in 1992. We did have a terrible downfall in the industry profitability, large losses. New management came in, and they worked very hard for a couple of years in reforming the industry. They modernized the fleets. They restructured their route system to be economical and profitable. They built the hub system. I know a lot of us don't like the hub system, but it is probably the most efficient way in moving the most amount of people in a timely manner, and basically they did everything that I can think the industry had to do to make it a competitive industry that thought for the bottom line, and as a result, they were rewarded with, you know, fairly good profitability in the 1990s, in the lush 1990s.
Now, even though they had record profits, if you still look at their profit margins, it was still pretty thin by almost any other business you are looking at, but for airlines they were doing a good job. They were moving a lot of people. I know people were complaining that the airports and the planes were crowded. They were doing their job. They were producing bodies to fill the planes at low fares. That is why the air systems are so crowded, because the air fares came way down. So they were doing everything that we could expect them to do, whether in government, the public, or their customers, and this led us analysts to think that maybe as far as investment goes, airlines would be a little bit better.
We knew it was a cyclical industry. We knew that the next economic slowdown wouldn't reduce profitability, but we thought that the airlines were in better shape to take on the next recession.
Page 174 PREV PAGE TOP OF DOC Now, despite all this progress and hard work that the industry did, they just became another victim last Tuesday of the senseless tragedy, and they are suffering the negative effects along with the rest of us, but as I said before, I think they are suffering it disproportionately. They did what they were supposed to do with the FAA. They followed safety procedures. They followed their requests, running their aircraft, not producing any revenue. Remember, airlines are very high-fixed-cost businesses and if their revenue is shut off, 90 percent of the cost is still there. They are saving maybe something on fuel expense, but the costs are there. So basically I think the case they made today was, you know, pretty accurate.
Now, the traveling public now, as you have heard today, has lost faith in the airport security system. It is going to be difficult to win back traffic until the travelers are convinced that major changes have been made in the airport security. In my opinion, the best way to do this is to federalize the airport security system, and the reason for that is government's prime duty, at least in my opinion, is to provide defense and safety for its citizens and its businesses so they can go about working on capitalism and producing profits and producing salaries for its workers, and so we can pay for health care and everything else. But the prime duty of government, in my opinion, is to make a safe environment so we can improve our living standards, and I don't think the airlines are just equipped to take care of security, especially in this new environment, and we really do need somebody who is professional at doing this and that would be standards that only the Federal Government could provide.
So in summary I would like to say that the airline business is capital-, labor-intensive. It must maintain a large amount of assets in place to meet peak traveling periods even though it incurs additional costs during the lower traveling periods, and they have done a good job doing this. However, what happened last Tuesday is something that they cannot plan for, and as a result, the industry does need our help at this time.
Mr. YOUNG. Thank you.
Page 175 PREV PAGE TOP OF DOC Mr. Hall.
Mr. HALL. Thank you. I think I will follow the lead of my brother Robert Roach and depart from my comments and just talk, if you will, for a few minutes with each other. And for identification purposes, I am Sonny Hall. I am the international president of the Transportation Workers Union and also the president of the Transportation Trades Department of the AFL-CIO. My union represents about 150,000 transportation workers, 60,000 of which work for airlines.
To me the issue is down to three major components, and they are all tied to each other. Obviously the immediate need is an infusion of cash for the airlines so they can survive. We don't have the luxury and time doing it in a more debated way. We need to do it quick and fast and then monitor it as much as we can. So that is the first ingredient.
The second one is to ensure that the employees are within the framework of survival; to make sure that those who are going to be in the system are safe in the things my brother Roach talked about, but also those who are going to be displaced, and there will be thousands. As much as we in the union will fight to maintain as many members as we can and employees as we can, many will be displaced. We have to make sure that we treat them in the same way as we come to the emergency need of the companies themselves. As was talked about earlier, health care for these workers, retraining. In spite of the reality that we know we are going to get back to almost normal, I don't know if we will ever be back to normal, and many of the displaced workers will not return to the industry, and they need to be retrained for other jobs. We can shift them, as brother Roach has said, within the system. We should do that, but they need to be the second major ingredient, the employees of the system who have dedicated their lives to the air transportation of this Nation.
The third is security. If we do not convince the riding public that the system is secure, then we will never come back to the top of the mountain that we have always been in the aviation industry.
Page 176 PREV PAGE TOP OF DOC But I want to make it clear they are tied together. One cannot be sacrificed at the expense of the other. All three ingredients must occur.
Another one, of course, that is outside of that framework is that we are in this together. As Americans, we are in this together. It is not about Democrats. It is not about Republicans. This is about America, the Nation that we all grew up in and want to maintain.
Now, for us to survive in the airline industry, workers as well as management have to be on the same page. Without that we will not be successful. One of the things that disturbed me the most, and I would hope that this committee, as we talked to Secretary Mineta today about, is to give a message to all of the companies, in particular the one, USAir, that has decided it is not going to honor its contract, as minimal as that contract is, for displaced workers; who said, we think this is a war footing, and they won't honor the contracts. If we want to break faith between workers and the CEOs of the company, that is a sure way to do it.
So I would ask you to add your voice as a committee that that is not the way we should do business. And lastly, just to comment, the fact that we are in this together and all of labor is prepared to do whatever it takes to make sure we restore our Nation to where it belongs.
Mr. YOUNG. Thank you, Mr. Hall.
Mr. Scott Gibson, you are the clean-up batter.
Mr. GIBSON. Mr. Chairman and members of the committee, thank you for providing me the opportunity to testify.
Mr. Chairman, members of the committee, thank you for providing me with the opportunity to speak to you today about the U.S. airline industry and the actions that can help get it through these difficult times. The firm that I work for works for airlines, financial houses, manufacturers, and includes airline management, public policy experts and economists, so we have a very broad platform from which to look at the industry.
Page 177 PREV PAGE TOP OF DOC I think there is no reason for me to elaborate on the numerous financial projections that have already been made. But you probably notice today that the focus of the carriers is on cash. Based on what we see today in terms of travel, the industry as a wholeand this is an average of all carrierswill run out of cash in less than 30 days. There are some people who are going to run out of cash as early as this coming week and some who have significant sums that can last for a longer period of time.
But the unusual events of this past week have changed the airline operating environment. Normally airlines get cash from both operations, carrying passengers and from the financial markets. The combination of liability and financial risk as a result of the attacks that occurred last week have essentially closed the capital markets to the airline industry. In fact, we happen to be aware that many lenders are looking at invoking material adverse change clauses that would actually withdraw or cancel funding commitments to airlines. Thus, I would have argued a week ago that this industry could survive the original financial outlook. I am not sure I can make that claim today.
What we see is an industry that is taking desperate actions to save itself by rapidly reducing. Layoffs of large numbers of employees have commenced. And just this week, Continental announced it would not make debt service payments on its enhanced equipment trust certificates that were due last Friday. These are actions to conserve cash.
When I look at the industry as a whole, and then look at why government needs to be involved, I think it is important to put things in perspective. We have talked about how many the industry employs. The passenger industry is about 700,000. That same passenger industry spends over a hundred billion dollars a year on goods and services in the United States. And that industry today has 930 aircraft on order, that is, Boeing and Airbus; that does not include the regional jets worth 63 billion. And the manufacturers of those aircraft and engines employ 200,000 Americans and that does not include the subcontractors or suppliers or the secondary manufacturers such as those for avionics.
Page 178 PREV PAGE TOP OF DOC This industry is the most reliable and cost effective on Earth, and it is considered key to the competitiveness of the American economy. When we talk about what government can doin fact, what I think it needs to do to preserve the industry, what we look at it as a kind of a six-point prescription.
We have already talked about the government needs to help restore faith in the safety of the air transportation system. Passengers will not come back unless they believe that that will occur. The government needs to provide the airline industry with sufficient capital to survive.
It said this is an unusual time that calls for extraordinary measures. Where I had previously thought that the government could limit its action to absorb the liability of American and United that resulted from these specific events, it has become clear in the last 48 hours that an ongoing liability shield from the consequences on third parties from acts of terror is needed.
I think also that the government needs to provide some relief from the collective bargaining agreements. Now I say that very cautiously, I am a Democrat and I am not advocating abrogation just an ability to modify given these difficult circumstances. I note that management and labor are already working together in many cases and have had very unusual and fruitful discussions.
In fact, I can look at AirTran and see that they have already reached agreement with labor to take actions that are necessary to preserve the companyat the moment, the airlines are in an unusual situationthat following layoff criteria and collective bargaining agreements means a great deal of cost and time that is difficult for the airlines to absorb at this time.
In addition, I think the government seriously needs to look at an enhanced safety net for employees that are displaced, hopefully temporarily, from airlines and related industries.
Page 179 PREV PAGE TOP OF DOC In addition, the government needs to create a mechanism to prevent aircraft and engine manufacturers from being impacted. Incentives to ground older aircraft and to continue to take deliveries will be essential if we are to avoid severely impacting the significant manufacturing sector and possibly doing further damage to our already weak economy.
Lastly, the government should provide a one-time exemption from antitrust laws so that governments can coordinate their capacity reduction and thus minimize the impact on small communities and at the same time maintain competition on the greatest numbers of routes.
I think that these types of actions are unusual but necessary.
And, you know, we have talked about precedent. There is no precedent for what occurred. The best example I can think of is, steps the government took after World War II where it paid for the cost of providing an ongoing transportation system, granted, which was mobilized for the Government's war effort. Thank you.
Mr. OBERSTAR. Mr. Chairman, may I ask Mr. Gibson to offer a footnote on what he personally experienced last Tuesday at his office window?
Mr. YOUNG. If the gentleman wishes to do so.
Mr. GIBSON. I will, first of all, I will say that my firm, which is headquartered in New York and the people that we personally work with, our colleagues that we directly work with at the Port Authority and the financial community have all managed to survive this, so we know of where everyone is that we work with. But I know there are quite some number of people who are still missing and have already been identified as not surviving.
From our offices, we had an excellent view of the North Tower at the World Trade Center. We had two of our employees who actually saw the first aircraft hit. And then we all gathered to watch and to listen and saw the collapse of the tower. And, candidly, it was a surreal event.
I live and work in midtown Manhattan. And you wouldn't know this is happening. Power, water, phones are actually working. But it is clear that the city is radically changed. The foot traffic and vehicle traffic last week became almost nonexistent. And while the city has bounced back to life, from our perspective, Wall Street is just not there. The financial community is starting to function, but barely. These people are not travelling. People are not coming to visit them. And most of them do not have offices. So you have a whole sector of New York's economy and key to the Nation's economy that really is not capable of functioning today despite the fact that the stock market is up and going.
Page 180 PREV PAGE TOP OF DOC Mr. YOUNG. I thank the gentleman. And I appreciate the panelists' testimony.
Mr. Hall and Mr. Roach both, I don't think we can do it in this bill, but I happen to agree with you; do you think there could be a second bill or national emergency cause or some way we can set up a safety net because of this action, because it is going to take time to recover? And if we can take an out for the taxpayersa training program and try to make sure that those that are relieved of duty have access back to the companies that relieve them.
I mean, I don't know how we are going to do it, but somewhere along the line, this does have to happen. I don'tif you could help figure out a way to do this, it would be very helpful to me personally because there are a lot of ideas out here, but none of them, so far, solidified as far as I am concerned on how we do it. Comment on that.
Mr. HALL. I think that you described it. Because of the need to act quickly to give cash to the airline industry, there is going to have to be a second and a third bill. But I think the way that has to be done isin the first instance, is that the corporations, the airline industry and their supporters in Congress have to understand their responsibility to support immediate assistance to laid off airline workers as they are getting this large amount of money which they desperately need.
To address the other areas now, you have to go back to make sure you hold the corporationif you will, accountable to live up to their responsibility to phase 2 or phase 3. But I don't think there is any way we can reasonably or rationally deal with all of them now in the time we have left to put cash into the system.
Mr. YOUNG. That is not a bad idea. We might put a caveat in this bill to make sure they support the other two provisions. That is a good idea.
Mr. ROACH. I agree with what Sonny said. It has to be something, and it has to be, whether it is in this bill or another bill. But there has to be something that requires these things to happen. Otherwise they are just not going to happen.
Page 181 PREV PAGE TOP OF DOC Mr. YOUNG. Goes backhow do you pronounce your name again? Neidl?
Mr. Neidl, you are a free marketerand by the way, I watched some of this, as I have other meetings today, and I heard the word ''bailout'' and I actually don't believe this is a bailout. The Chrysler situation was a bailout; that was government interference in a free market. But this is a totally different thing; and I don't like the word ''bailout'' when it is used, because this was not anyone's fault.
But you believe that one of those provisions is a federalization of the security primarily because.
Mr. NEIDL. As a separate item. I really do think this is a functionone function the government can do better than the airlines. You know, they do national defense. They do the FBI. They do national police. And it probably would be much more efficient and hard on following procedures if they monitored the whole system instead of airlines, whose primary function is to transport people and not to be policemen.
So I think by putting it in Federal hands, one, it would be more efficient. But number two, I really don't believe that the airlines should be incurring these costs. Somebody earlier asked about that. They said, well, it should be the traveling public through a surcharge, but the thing is, it is a national cost. If a plane is high-jacked and crashes into a building, it is more than just the passengers that are affected. It is really a national obligation.
Mr. YOUNG. One of the things that you bring up a very good point on is, I talked to some of the CEOs today after they were on the panel. Other than a surcharge, they would be willing to paythey are paying approximately a billion dollars now for security; they would be willing to just give a billion dollars to the government, and let the government run the security, because they do believe, as you believe, that we can do a better job through Customs or whatever it may be.
Page 182 PREV PAGE TOP OF DOC Mr. NEIDL. It is even more important, just like if management is doing a bad job in a company, you replace them, and that new management is given a sweetheart period to fix the job. The public doesn't trust the security system now, rightly or wrongly. By changing it and saying we are in charge now and this isn't going to happen again, I think that would bring back confidence a lot quicker.
Mr. YOUNG. Mr. Gibson, you may be a Democrat and you may not believe in collective bargaining with Mr. Hall next to you, but I am a conservative Republican and happen to believe very strongly in the unions and how they work. So when you say I am a Democrat, be careful, because I am Republican.
Mr. GIBSON. I was saying, it is not that I don't believe in collective bargaining. I believe it in very, very firmly. I just think that this is an extraordinary time and to move quickly, that there is some action needed to relieve airlines from a cost impact that results from these agreements. And it is not to abrogate the fact that the agreements are there. It is a function of how do you deal with this in a timely matter to do cost avoidance.
Mr. YOUNG. Okay. That is fine. My time is up.
Mr. Honda, you had your hand up first. We are going to go with the hand routine.
Mr. HONDA. Mr. Chairman and Ranking Member Oberstar, thank you for putting this together so quickly. I don't think I disagreed with much of what was said today, but I do have some concerns.
One, the comment about the unions taking phase 2 or phase 3 down the line. My sense is that at times when the heat of need leaves us or diminishes, the willingness to follow through, I think sometimes diminishes also. It is not to say that people aren't going to keep their word, but I think historically we have seen people back off on obligations, on the commitments that they made in the past.
Page 183 PREV PAGE TOP OF DOC Are there not current programs on work force retraining that could be bolstered or amended or given more appropriations while we do this? And that is one question.
And the second question is, it was said that some companies, some airlines, were in trouble prior to the terrorist attack. And now all of us are up front, here in line, looking for relief; and I want to help them, because I do believe that the national economy, and the global economy, is in balance right here with the situation with the airline industries.
The question is, those who were in some sort of financial jeopardy before, will they be held to a different standard or expectation, or will there be some sort of monitoring in terms of expectations for performance and other things when they receive any kind of financial assistance? Or should they be?
Mr. HALL. In response to that and also as a caveat or a clarification of what I was talking about earlier about phase 2 and phase 3, I envision, and I think labor envisions, that within phase 1 the industry will have to address at the very beginning, before they get the kinds of dollars we are talking about, how they are going to treat their workers.
More in terms of phase 2 and phase 3 is where the Federal Government steps in, like a TAA program for training. We need an expansion of that for the airline workers to be part of that, because that is really tied to trade, and they have little money in that program right now. Nor does that agreement in any way deal with or that language within the TAA deal with health benefits.
So I see as phase 2 what the Federal Government can do beyond what the industry can do. I think when the dollars come, at the very first phase, it must be very clear in terms of what they must do in terms of treating their workers and honoring a contract, but more thanbeyond that, about how they are going to lay off people; and be able to prove to the employees and talk to their own employees and labor organizations about how can we redirect our workerswhether they can be moved from one job to anotherbefore you just unilaterally say, I am going to lay off 5-, 10-, 20,000 people. I think that is all within phase 1.
Page 184 PREV PAGE TOP OF DOC But phase 2 and phase 3 are other things that are really tied to what the government can do in addition to what the industry can do for their own employees.
Mr. ROACH. If I might, Mr. Anderson, the CEO of Northwest Airlines answered the question and said ''whatever is in the collective bargaining agreement'' and what is in the collective bargaining agreements that was tied to these extraordinary circumstances that we are faced with today.
And there is no mortgage protection. There isn'tas Sonny said, there aren't any health benefits. All these benefits are just 12 weeks of severance pay. And thinking about it, certainly that should be tied to the money that is going to be distributed at this time, rather than wait, because their official comment is, they don't intend to do anything special; and it should be tied to the fact that they are going to get this money and they are looking for these guarantees, and there should be something in this bill that can tie them to getting these things done.
They threw out a number of 20 percent of all airline workers are going to be laid off100,000 people. That is going to have a devastating effect on the economy and all the people, and there should be some sort of safety net put in place now.
Mr. HONDA. Perhaps Mr. Gibson can answer the question about expectations through the Chair.
Mr. GIBSON. I am sorry. Ask the question about the expectation.
Mr. HONDA. The question was, you stated that there were some companies that were not very healthy, and with this tragedy, we need to help them.
Mr. GIBSON. The calculation that the collective group of carriers has put together has really been one of the effects of the shutdown and for the month of September and in the cash injection. So that, in effect, takes no account of where the world was before and is trying to say, this is what has occurred on top of where the industry was on an individual carrier basis.
Page 185 PREV PAGE TOP OF DOC The allocation mechanism is designed to spread it, you know, in a relatively uniform fashion between carriers. And I think the fact that you have seen all different-size carriers agree to the formula that has been proposed is kind of reflective of that; and I don't think the allocation, as proposed, gives any benefit to a carrier that may have been in either trauma beforehand or, you know, a much worse case than where we are today.
Mr. YOUNG. The gentleman's time has expired.
I am sorry, Mr. LaTourette; she was ahead of you. I am sorry.
Mrs. KELLY OF NEW YORK. Thank you very much, Mr. Chairman.
Mr. Hall and Mr. Roach, I am very interested in hearing from you how you feel about the suggestion that we have heard here today that the government take over the security of the airlines. Do you see that as a potential for using some of the perhaps displaced workers on a retraining basis? Could that substitute for some of your workers?
Mr. ROACH. Yes. Certainly we believe that the Federal Government should be involved in the screening of passenger protection in the airport. I think they need to be assisted by trained people and airline employees, which is in my statement, that they should be assisted by trainedhighly trained, properly paid employees; and there should be some retraining in moving those people over. Those are some of the things that can be done to stop some of these layoffs that the CEOs said have to take place.
Mr. HALL. Mr. Hoffa has a million members more than me. I would love to have them there. I obviously agree.
But I think also that what is needed is what has not happened yet, even with the labor organizations, never mind with the workers in the field. There is a need to communicate, even before this bill is finalizedand there are a few days to do thatwith the workers themselves.
Page 186 PREV PAGE TOP OF DOC I can tell you that the AC mechanics, the cleaners, if you will, could tell you right now the problems that are within the system in terms of security and the kinds of work they could do to help shore up that. So if you needed less cleaners, these are experts about how to get in and out of the airline illegally and will make sure thatthey probably would be the first ones that you trainto maybe retrain them for these jobs, so they have a big piece of that ingredient.
Mrs. KELLY OF NEW YORK. I thank you very much. In other words, you do feel strongly that retraining some of thesethe potential displaced workers would be a good thing if the government were to take over the security of the airlines?
Mr. HALL. I think more than that. I think it should be mandatory before the companies get a penny.
Mrs. KELLY OF NEW YORK. I feel very strongly and continue to feel very strongly, in spite of what we have heard today, that if this airline industry is granted the money that they are asking for, they absolutely must account to us, the American public and the Congress, for every single penny that they are getting from us and spending as a result of this bill. I hope you all agree with me.
And, Mr. Gibson, I wonder if you care to speak to that.
Mr. GIBSON. No. I would just say that yes, Congresswoman, I agree totally. And I think that the industry, from what I see, is prepared to go do that.
Mrs. KELLY OF NEW YORK. Mr. Hall, did you have a comment?
Mr. HALL. I just want to comment. In the meeting this afternoon, myself and Brother Roach and othersand James Hoffamet with Secretary Mineta; and one of the strong recommendations that came out that the Secretary embraced is that there should be a joint task force that would meet periodically, every couple of weeks if necessary, every 3 weeks, every 4 weeks, to make sure we are living up to actually what we committed to each other, both the carriers and the labor organizations, track it to make sure it is going well.
Page 187 PREV PAGE TOP OF DOC And I think that should be mandated, that kind of language, when they are receiving dollars that they must report back to the Department of Transportation, certainly to this committee, and should all be tied in the first instance of this particular bill to make sure what the carriers are saying they will do that they are forced to do under this legislation as they receive billions of dollars, which they need and we encourage they should receive.
But we are concerned, of course, that if we wait until tomorrow to take care of the employees and other needs of the employees, that it may never happen.
Mrs. KELLY OF NEW YORK. I thank you very much.
Mr. Gibson, I just want to say one thing to you and that is, I heard your description of what went on in New York. I represent a lot of commuting people who go into New York, some of whom were there. And I know that you said that New York was changed. New Yorkthe building skyline may be changed, but New Yorkers are strong as ever, and we will continue to be strong.
Thank you very much, Mr. Chairman.
Mr. MICA. [Presiding.] I thank the gentlelady.
Let me yield to Mr. Sandlin.
Mr. SANDLIN. Thank you, Mr. Chairman. I would like to ask a question of Ms. Donofrio and say thank you for coming today.
On the issue of elasticity, we have had discussion about a surcharge or a tax or some sort of fee being placed on the public to be applied to research. Does your research or your historical data indicate that doing that would adversely affect demand?
Ms. DONOFRIO. I think the issue we have right now is that it really depends on your assumptions going forward with respect to how quickly demand is going to bounce back. I mean, that is a very big issue.
You are looking at added costs, as well, that are going to be put into place. So it is very fluid.
Page 188 PREV PAGE TOP OF DOC In terms of historical, there are a number of airlines, such as Southwest, who has very minimal fare increases and the reason isand you can see a fall-off in demand even fromyou know, it sounds like a very small increase, and that is a couple of dollars. So there is evidence.
Mr. SANDLIN. I was just wonderingin this sort of extraordinary circumstance where the public is so united behind having security and flying safely and making sure the airlines are stable, I was wondering if there was any sort of historical data or research indicating that the public wouldn't mind doing that. It is my general impression that it would not cause a problem, but I have no data.
Ms. DONOFRIO. Air fares have been going down throughout the year. So it actually has been stimulating travel. Fares have not been going up.
Mr. SANDLIN. Mr. Roach, a question for you: In determining the relief that is requested, was labor consulted last week? Did you feel like you had input in trying to set forth what was needed in the package?
Mr. ROACH. My organization represents about 290,000 people between transportation and aerospace; about 155,000 North American airline workers. And we were not consulted about any of this. Sometime late in the day, we were given some documents and said, this is what it is. We want you to support it, but we had absolutely no input.
That is why we believe it is essential going forward. There must be a joint task force between labor and management and the Federal Government to ensure that the things being said are carried out, and to ensure that employees are being trained and that the process is working.
Mr. SANDLIN. Do you feel your input today is important in formulating a plan and attempting to provide relief that will save jobs?
Mr. ROACH. I certainly do.
Page 189 PREV PAGE TOP OF DOC Mr. SANDLIN. Let me ask one morefrom your perspective, did anyone working at any airline lose his or her job as a result of not holding a vote on Friday, but rather waiting until today and having the debate?
Mr. ROACH. No, I don't think so.
Mr. HALL. I just want to comment on the issue about labor organizations being contacted, that my union also did not receive it. Quite frankly, if it wasn't for this committee and members of this committee telling us in advance, at least a few days before last Friday, what they really were looking for, so we could have some idea of what was going to be happening on Friday, when we thought the legislation would pass, we would have had nothing.
So we thank this committee for communicating with us, to our transportation trades department and others.
But in terms of the carriers, we received nothing.
Mr. SANDLIN. We appreciate your coming here today and cooperating. I think it is a real opportunity for labor, the carriers and the government, both Congress and President Bush, to work together and formulate a plan. It is critical that we maintain our transportation infrastructure and keep the airlines flying and make sure that people have their jobs and feel safe. I think it is going to take a partnership from all of us, And we appreciate your commitment to that.
And then, Mr. Gibson, I had one final question. You talked about the need that the government should absorb the responsibility of American and United. Do you think we have enough information right now to move on those issues or should we pause and do a little more research?
And secondly, do you have any suggestions, maybe some sort of creative suggestions, as to what we might do as a Congress or as an industry to address the immediate and current needs of our families as a whole? Maybe part of the money should be set aside in a relief fund and delivered immediately? Or might we have some subrogation issues? I don't know. I am asking for some input that you think might be helpful to families.
Page 190 PREV PAGE TOP OF DOC Mr. GIBSON. Answering the second part of your question first, I really am not enough of an expert in that area to be able to comment. It is certainly not possible today to estimate what the sums are that are involved here. But I think it is possible for Congress in a sense to craft the responsibility lines in terms of what insurance carriers would generally cover and what are extraordinary events. And again, it is really the third-party damage as a result of acts of terrorism. The dividing lines in terms of responsibility can be crafted, based on what we know today.
Mr. SANDLIN. We are out of time. But let me say, thank you again, to all of you. And I think we can all work together and work with the President to do something that is good for the country, that preserves jobs and preserves the industry.
Mr. MICA. I thank the gentleman.
Let me recognize Mr. LaTourette at this point.
Mr. LATOURETTE. Thank you very much, Mr. Chairman. Before I ask questions of this panel, since I guess I am assuming there is not going to be a markup of this legislation, I do want to make a couple of observations, more for your benefit than for the record.
When we had previous panels, there was an observation as to whether or not Americans who have airline tickets that they have paid for and the route has changed, or the airline goes out of business, or there is another cancellation, whether or not they are going to have an opportunity to get another ticket on another air carrier or a refund. And representatives from the airlines have said, that is our policy and not a problem.
I would like to suggest that if the staff could consider if it is truly not a problem, since we are dealing with extraordinary circumstances, that perhaps that could be included in the draft legislation when it goes to the floor.
That being said, Mr. Roach, is the largest employer of members of your organization in the airline field still UPS? Is that still your largest employer?
Page 191 PREV PAGE TOP OF DOC Mr. ROACH. United Airlines.
Mr. LATOURETTE. When were you and Mr. Hall notified that there were going to be layoffs of your membership?
Mr. ROACH. We have heard rumors. The only official notification, I believe came fromwe really didn't get any official notification of layoffs. We heard from everybody in the newspapers and there have been discussions back and forth with our people, but there has been no official notification of layoffs. We have heard more about layoffs here today than we have heard from the carriers.
Mr. LATOURETTE. So whenfor instance, in the Cleveland paper, I think there was an article that 12,000 Continental employees are going to be laid off. I would assume that would affect some of your membership; and that was how you were getting the information as well?
Mr. ROACH. Yes.
Mr. HALL. Same is true. I learned it through the media. We expected that it is going to be one of the issues we have to deal with. But the first we heard of it directly from the airlines, including American Airlines, which we have some 60,000 membersI am sorry, 50,000 membersthat we have not heard anything from them directly. And frankly, we would not expect them to lay off one member until they sit down and talk to us.
Mr. LATOURETTE. I read with interest in your testimony, Mr. Roach, the fact that the catering service and some of the contracted-out jobs relative to maintaining increased security at airports. And you may or may not know, but this Congress passed the Airport Security Act of 2000, and President Clinton signed it into law.
I think all of us thought that things would get better as we did sort of a top-to-bottom review of not only the people that get into the airport through the scanners, but those who have access to the tarmac that are bigger security risks than others. That was the good news that we did such a thing.
Page 192 PREV PAGE TOP OF DOC The bad news was that we gave the agencies a year from last November to this November to come up with the rules and regulations to implement those policies. But I believe then and I believe now that that is the kind of legislation we need to look at. And I would hope that your organization and your organization, Mr. Hall, would give us a hand with crafting ways to make sure that the people at the scanners have good training, have good wages and know what it is that they are looking for; and the same with those that are servicing and have access to the tarmac.
Mr. ROACH. Certainly, we will help in any way that we can. We believe those jobs were taken away from airline employees some years ago because of alleged costs. We believe those jobs should come back within the airline industry, to airline employees, to make them good jobs, so that people will believe they have careers and not just jobs.
Mr. LATOURETTE. Well, and one of the things that a lot of people that would watch this don't even know one of the aspects of it was for those who were on the magnetometers, there is no background check for them. You could hire a mass murderer. You could hire a burglar. You could hire someone that was subject to corruption and bribery to man those stations. And that was one the things we tried to correct. I am shocked that it hadn't been done before, but thankfully the Congress did it last year.
Ms. Donofrio, we were told last week that the airline industry needed cash, and if there couldn't be immediate cash, that with the market opening up on Monday that there needed to be a signal sent that the government was at least, if not ready, were ready to help and willing to help. Was it important in your estimation that Congress send a signal last week that there was going to be some relief in the form of cash, either grants or loans given to the airlines?
Ms. DONOFRIO. I think it was important. In talking with investors, their biggest concern was, why didn't it get passed on Friday? What is holding it up? Is it because Washington doesn't understand the magnitude of the issue? And that is reflected in the airline stock prices, which did close down 50 percent when they did open.
Page 193 PREV PAGE TOP OF DOC I thinkyou know, going forward, I think there does need to be some type of signal given that you do understand the magnitude, and we can see the cashyou know, what we are expecting with respect to cash going forward, which is really drawing it really quickly.
And the other big concern now from investors that I am hearing is that these lines of credits that everybody thought was kind of a cushion was going to be drying up.
Mr. LATOURETTE. Thank you, Mr. Chairman.
Mr. MICA. I thank the gentleman.
Let me recognize Mr. Boswell.
Mr. BOSWELL. Thank you, Mr. Chairman.
Mr. Roach and Mr. Hall, this question, or maybe just a comment, is directed to you. It seemed like we had part of the story left out, that we received from Mr. Anderson about what would happen as far as layoffs if the agreement that is in place does not address health and some of those things.
Mr. ROACH. The Northwest agreementMr. Anderson is from Northwest and Northwest's agreement does not address any health insurance for people who get furloughed in this process.
Mr. BOSWELL. I think it doesn't tell the whole story, and as I felt like when I asked him to finish answering the comment made by Mr. DeFazio, buying overseas aircraft versus U.S., and he gaveand I thought it was pretty good comments about sticking with the engine manufacturers and so on.
But then I got information from somebody that 15 percent of Airbuses are made in the U.S. versus 80 percent of Boeing. Do you have any information on that?
Mr. ROACH. We represent people at Pratt & Whitney, GE and Boeing. Eighty percent of Boeing aircraft is American and 15 to 20 percent of Airbus is the correct figure.
Page 194 PREV PAGE TOP OF DOC Mr. BOSWELL. He left a little bit out there, too.
I would like to change over to Ms. Donofrio. In your testimony that much of the industry is already in debt, maybe already burdened with heavy debt, what Federal program do you recommend we do? You may have said this earlier. I had stepped out for a phone call. I have been here all day. Maybe if you have addressed this, I will check the record.
Ms. DONOFRIO. I think over the near term, it appears to be pretty clear that cash is needed. I think with respect to longer-term effects, it is not my area of expertise.
Mr. BOSWELL. Everybody today is agreeing that we need to get on with this assistance, so I don't see any exception with the other panels or this one. So thank you again for having this hearing and let U.S. get down to business and see if we can get some legislation moving.
Mr. HALL. Can I respond quickly to the Congressman, in joining my Brother Roach, my testimony and the heart of the testimony, if you have the opportunity to read it later, really specifies where the shortfalls are within our respective labor agreements in terms of health care and what is needed both by the carrier to extend more as they get more money, and also where the Federal Government needs to step in in a special way.
Mr. BOSWELL. Thank you, Mr. Hall, for being here to give U.S. that information. We need to hear that.
Mr. MICA. I thank the gentleman.
Let me recognize the gentleman from North Carolina, Mr. Hayes.
Mr. HAYES. Thank you, Mr. Chairman. And let me assure each of you fine panelists that because you are here late in the day, you are no less appreciated than anyone who has come. So thanks for your patience.
Along the lines of Mr. LaTourette, let me help for just a moment to refocus on our purpose in being here, and that is to discuss how the Federal Government can financially assist the airline industry. And the airline industry is the heart of this discussion. From the industry flow all of the important things and individuals that we have discussed today.
Page 195 PREV PAGE TOP OF DOC Now, having said that, Mrs. Donofriois thatI checked with Mr. LaTourette. He comes further north than I do, but as a representative of the markets you, Mr. Neidl and Mr. Gibsonon Friday we had a discussion, and Mr. Young and Mr. Oberstar very wisely brought, with a very strong sense of urgency and immediacy, this issue of financial assistance for the airline industry to the attention of the Congress. Becauseand I remember very vividly, we do not want the stock market to open on Monday morning and have, because of this tremendous uncertainty, the airline industry stocks lead the plunge that draws the market down.
So the reason for bringing it up and trying to immediately was in no way to exclude anyone. And they are being brought to the table now, but it was the immediacy of sending that signal.
You have been here a long time. You have heard a lot of things, all important. As a representative of the market, are you reassured as to the commitment? I mean, you have heard different angles, but I have heard unanimity of support for the industry and everything that it includes. As a market representative, are you encouraged and do you feel a resolve here that that is going to be appropriate?
Ms. DONOFRIO. I feel much better going in today. I was very concerned when I got here this morning, given the fact that Friday, nothing did get done. And I do feel much better that it is getting addressed.
And it does appear that you do understand that this isn't a bailout. I mean, all we are really trying to do is reset the bar back to where the industry was financially and then let the marketplace decide who are the winners and losers. So I am very encouraged.
Mr. HAYES. Well, unfortunately, the press was here en masse this morning. I hope the word is getting out to the appropriate folks late in the day, just what you said.
And Mr. Neidl, would you and Mr. Gibson comment?
Page 196 PREV PAGE TOP OF DOC Mr. NEIDL. Yes. When I came in this morning I was pretty confident that you people had a good understanding of how severe the situation was. And after listening to everybody talking today, coming from different angles, I felt very good that we weren't going to let this whole industry go into Chapter 11 like one commentator last night said they should, which would be disastrous to our economy.
So I think that you guys have all the information you need and you do know what has to be done. And like you, I am disappointed that the media is not here now to report it. I just hope that we have more positive headlines tomorrow.
I understand the stock prices of airlines went way down today again with the market. And what we need is to get the word out to the media tonight that the government is not going to let this industry en masse go Chapter 11. And if that is the case, I think that should stabilize the markets.
Mr. GIBSON. I would agree. And I think this is certainly very encouraging. But I think to some degree, people are going to be waiting to see that something actually does come out and happen and that the markets will be skittish until action is actually taken.
You know, one of the questions that was asked before was what impact there was on the airlines by not acting last week. The fact is, no one else went bankrupt. But what happened was that several airlines, in a sense, began the process of defaulting on payments to aircraft lessors and lenders. So what we are doing is upstreaming the airlines' problem into the financial industry. The more time that goes on, the more that will occur as airlines try and prevent having to go do a Chapter 11 filing or something even more extreme.
Mr. HAYES. I hope and trust the market is listening. And I hope the media is listening. And you all's participation should reinforce that commitment to supporting this vital part of our commerce.
Page 197 PREV PAGE TOP OF DOC Thank you, Mr. Hall. Thank you for enthusiastic support.
Mr. HALL. I wanted to comment on that.
We are enthused by the way this committee conducted itself last Friday, and also today. But I would like to repeat, we are not yet confident with the oral commitment from the carriers in terms of their employees. And I wanted to repeat that that is one of the concerns that we have. And we hope that in the first legislation that gets passed, that it is not an oral commitment that the carriers are making to their employees, that it is a written one.
Mr. HAYES. I heard them very clearly say we are committed to our employees. And that is easy to say. But I believe that. And I know you all in your heart of hearts believe it.
Mr. Chairman, my time has expired. Thank you very much.
Mr. MICA. I thank the gentleman.
Let me recognize Mr. Menendez.
Mr. MENENDEZ. Thank you, Mr. Chairman.
You know, we do have C-SPAN and they go to millions of people in this country and I am sure we are going to get the word out in that regard, with regard to the commitment of the committee to having this industry survive and rebound. And I am sure that word will get out.
But I would like to start with Ms. Donofrio.
Would it not be fair to say that notwithstanding any actions that might have taken place last Friday, that the airline industry was going to take a hit on the stock market on Monday?
Ms. DONOFRIO. You mean if Tuesday didn't occur?
Mr. MENENDEZ. No. Last Friday, lack of action has been portrayed as possibly creating undesirable results. And your answer was, in part, the stock market and its effects upon stocks. But you could not possibly tell the committee that even if the committee had acted last Friday, that stocks would not have plunged somewhat for the airline industry.
Page 198 PREV PAGE TOP OF DOC Ms. DONOFRIO. You had fear of terrorism obviously in peoples' minds. I can point to the Gulf War period where a fear of terrorism did reduce airline stock prices by roughly 25 percent, just to give you some type of magnitude.
Clearly, the signal on Friday exacerbated the situation.
Mr. MENENDEZ. So even in the set of circumstances that no airline was used in the Gulf War and no commercial airline was used, it dropped 25 percent because of the consumer confidence issue. So the airlines were going to take some hit on Monday, and hopefully they will rebound as we move forward.
But I would hate it to be portrayed that that lack of deliberate actionwe have heard many questions raised today, and we have gotten some good answersthat the American public needs to be convinced of in order for U.S. to give 20 or so billion of its moneys to an industry even for a good cause.
And I am sure you all on Wall Street would like U.S. to act in prudent judgment, or else you would be thinking we are acting irrationally, too, which sometimes the people do believe around here.
But let me just make one statement to my good friends, in representing working men and women; I was a little confused at the beginning, and now I fully understand your position. I disagree with Mr. Gibson that the government should provide relief and in essence have government intervention in abrogating a collective bargaining agreement, even under these exceptional circumstances.
It seems to me that what the industry should have done and should do is to sit down with the representatives who, in essence, are the human capital of their businesses and say, how do we togetherwe are in this togetherand you so eloquently both said, Mr. Hall and Mr. Roach, that we are in this together. You recognize if there is no industry, there are no jobs.
Page 199 PREV PAGE TOP OF DOC You recognize that, but the industry needs to recognize that that human capital which is essential for them to fly needs to be an important part of the equation. And I wish I had known when they were all sitting here, based upon the statements I heard that they hadn't engaged you. That is ridiculous. And that is why I am concerned, as much as I want to help the industry, that if they hadn't had the foresight to meet with the representatives who are the forefront of the human capital of their companies, which are essential for them to prosper and flourish, that they didn't talk to you about how to minimize the effectpreserve our human capital, that is alarming.
And so I hope the clear message that goes from this hearing, which is why I came back at this sector of the hearing, is to make sure that there is something in this bill that says, you have got to deal with some of these consequences.
And I understand there are going to be losses. And Mr. Hall, I saw your statement and I read it here. And what you are referring to, I think, is not only reasonable, but minimal. And so I certainly hope that, number one, we don't do anything in this legislation to abrogate collective bargaining agreements, that is, governmental intervention in the marketplace in a perverse way because the marketplaceyou, your members and the airlinesdecided what they could both afford and what they could give. So we shouldn't have the intervention in that context.
And I do hope that the airline executives understand that we will have many members who will have serious problems, even though they support the industry, that they are not speaking to the leadership of the human capital that is so important for them to fly.
Thank you, Mr. Chairman.
Mr. MICA. I thank the gentleman.
Let me see, Mr. Carson, did you have something?
Mr. CARSON. A couple of questions for our analysts, if I could.
Page 200 PREV PAGE TOP OF DOC First of all, Ms. Donofrio, in your testimony, you speak quite compellingly about the risks of more loans to highly leveraged industry already; and perhaps a scenario where airlines are forced to discount tickets, and you get in this vicious cycle of people undercutting one another. Given the fact that we are offering $12 billion in loansloan guarantees today, I would like for you to comment on whether you think there is any possibility that the legislation we are talking about could actually exacerbate the crisisunderlying crisis in the airline industry.
Ms. DONOFRIO. I think that is a great question, and I think you need to be careful about that. I think one way to address it is to have the various airlines justify why they need the money. And you know, your goal is to maybe take how they were financially, the way they were before; and your goal is really to get them back there, not to prop them up and push them up further.
Mr. CARSON. Does anyone else on the panel have any comments about any potential dangers from extending loan guarantees to already highly leveraged industries?
Mr. NEIDL. Yes. The way I interpret these loans, if they were enacted, would be very short term, and I don't see any harm in that. I would see harm if the government got involved long term.
But this is an extraordinary situation, and the loans would be an additional way for airlines to raise cash, but it should be very short term until the industry stabilizes. And if they couldn't pay back their loans, they should go bankrupt once the industry stabilizes.
Ms. DONOFRIO. Maybe you could use some type of barometer and see how quickly demand is coming back.
Mr. CARSON. The $5 billion in direct assistance that we are granting the airline industry, is that sufficient to get them to resolve the liquidity problems that we are seeing and get them back to where they were before the terrorist incident?
Page 201 PREV PAGE TOP OF DOC Ms. DONOFRIO. I believe it is, but I have to do further analysis.
Mr. CARSON. One other question then for everyone: We heard this afternoon American Airlines is laying off 20,000 workers. Continental just did, 12,000.
Can you discuss, given the problems with the softening business climate in the world and the troubles airlines are already having, kind of what your projections for airlines would have been absent what we saw this past week? Were they going to be laying off workers? What was the financial situation that we could perhaps use as a benchmark from which to compare the layoffs that we are witnessing?
Mr. GIBSON. What the industry was really looking at before this was capacity reductions on the order of 1 to 2 percent, and what we are looking at now is 20 to 25 percent. And that is a good benchmark for what the potential impact was on labor before and after.
Mr. CARSON. Ms. Donofrio, would you.
Ms. DONOFRIO. We had relatively flat unemployment rates, very little change. What we were seeing was capacity growth this year of a little under 2 percent and next year about 1.5. It appeared to U.S. that the employment level was pretty stable.
Mr. CARSON. I yield back the remainder of my time.
Mr. MICA. I thank the gentleman.
Let me recognize Mr. Boehlert.
Mr. BOEHLERT. Thank you, Mr. Chairman.
Following up on Mr. Menendez's comments, it is an area of concern that we share on both sides of the aisle, and I had expressed that earlier in the day in my questioning of Mr. Hoffa. I don't know if Mr. Hall or Mr. Roach were here when I talked to Mr. Hoffa about that, but it is a very important point; and I was reassured by the responses. I was somewhat concerned by the responses by Mr. Hoffa that there hadn't been adequate consultation, but I am reassured by what Mr. Mullin said, representing the industry, a recognition of the very valid point he makes of the human capital which is such an important part of this overall equation.
Page 202 PREV PAGE TOP OF DOC The way I compared it earlier, we are all in this together. And I saw a lot of nodding of heads, starting with Mr. Hoffa, right on down the line. It is critically important that the industry work with organized labor to work out the solution in the best interest of the industry. And the industry is not just equipment, it is people; the people are vitally important to make certain that equipment functions.
So I would once again say what I said earlier in the hearing, and I am sorry Mr. Menendez wasn't here because we are sort of singing from the same hymnal on this one, that we are all in this together and we had better work together to get U.S. where we want to get.
Thank you very much, Mr. Chairman.
Mr. MICA. I thank the gentleman.
Let me recognize the ranking member, Mr. Oberstar.
Mr. OBERSTAR. Thank you, Mr. Chairman for sitting here all this time, and especially our witnesses for waiting so long and for their splendid testimony, very crisp, sharp and clear to the point, each one.
Ms. Donofrio, I appreciate your crisp, clear, sharp presentation.
Mr. Neidl, you said so well, airlines became a victim last Tuesday. And I would add, in Tuesday's assault, America was the target, not American Airlines. Just as Pan Am 103, in that tragedy, the American flag was the target, not Pan Am.
Mr. Gibson, watching the strikes and the tower collapse must have been a bone-chilling experience in inextinguishable memory, but it certainly hasn't dulled your ability to do financial analysis.
The question I have is, how long can the airlines wait, given their cash burn and the numbers that you have cited, which we don't need to revive here? How longand I raise the question because we keep hearing, well, we have time to wait on this. There are 2 weeks since we tried last Friday, almost. How long can I wait?
Page 203 PREV PAGE TOP OF DOC Mr. GIBSON. You know, to a degree it varies airline by airline. There are some which haveI think Jim Kelly from Alaska Airlines said he had 110 days' worth of cash at his current burn rate. There are some smaller vulnerable carriers that we are talking days literally.
And the question is, when we say cash burn, you make a whole bunch of assumptions. The question is, what do you not pay to keep yourself in business, and when does the creditor then try and foreclose and shut you down against your wishes.
So it is very hard to know exactly, but the main thing that we can look at, you know, and I am relying on Gordon Bethune's public statements, I know that he wasn't here today, but he said about 4 days ago that he had 22 days' worth of cash with the assumption of him ceasing certain payments. And, you know, I think we are starting to see that. The $70 million that Continental did not pay last Friday is basically 3 days' worth of continuing operations for that company.
So airlines are already doing things to avoid the sort of Damocles, but I think that for some of the smaller, more vulnerable guys it is soon. And the question again is what is the ripple effect of them not paying certain of their bills, and what the impact is on other folks upstream.
Mr. OBERSTAR. The likely first fallouts are going to be the new-entrant low-fare carriers, consolidation of the industry in a very short term, that will leave the competitive force in the market stranded or out of business.
Mr. GIBSON. The most vulnerable segment is that
segmentyou know, you have got to put Southwest off to the side, but the low-fare segment of the industry, you know, folks like America West who just spoke here today, and the smaller new entrants are the ones that are must financially most vulnerable and are the ones that are providing the bulk of the low-fare competition today.
Page 204 PREV PAGE TOP OF DOC Mr. OBERSTAR. Thank you.
Mr. Hall, in your response to Mr. LaTourette, I understood you to say that if the airlines don't provide satisfactory verbal assurances to the employees, the first legislative package should require the airlines to protect employees. What types of protection are you thinking about, and how should it be included? Is it your position that amendments should applyshould include the concept of the Trade Adjustment Assistance Act?
Mr. HALL. Yes, I think that is one. I think another one is.
Mr. OBERSTAR. Are you saying that they should be deferred to a phase 2? I wasn't clear.
Mr. HALL. No, I don't think it should be deferred to a phase 2. I think they need to be clarified in the beginning, even to the point of perhaps saying, if you are going to receivefor a number, $6 billionis that $1 billion of that has to be to help your employees soften the impact of layoffs, to make sure that you can give them benefits that allow their families to survive. We are not talking about layoffs that could occur and come back 2 or 3 months later. I heard earlier by CEOs, you know, saying they can go from one facility to another.
This is far more severe than that. We are going to lose workers who are not going to have jobs unless somebody does something about it for years, if ever. So you need to go beyond that. And I think that is an obligation not only of the Federal Government, but of the carriers who are going to be receiving billions of dollars of relief.
Mr. OBERSTAR. We have to be very clear about what thewhat your concerns are and what you would like to have included, because my hope and the Chairman's hopeChairman Young's hope and expectation is that we will bring a legislative package to the House floor by week end, get it through the House.
Page 205 PREV PAGE TOP OF DOC So if labor is going to be part of theof the proposition, we have to have something very clear what it is you are concerned about and theand how we can do this without getting us into an institutional problem of sequential referral, because the Speaker said he doesn't want to have a whole bunch of committees wrangling over this package either.
So we needI would just like to say to the gentleman from Ohio Mr. LaTourette that I will include in the committee hearing record a statement of the progression of events on the criminal background check issue dating from our Aviation Security Commission recommendations and the 1990 Aviation Security Act in which the airlines resisted 10-year criminal background checks, and I will spell that all out for the gentleman.
And finally, I justmaybe we shouldI know there is at least one more Member to speak and the Chair, but I think we need a high note. And President Chirac today of France addressed the French community in America, concluding: [speaking in French.] Once more as in the past, democracies will prevail. Together we shall prevail. Long live the United States, and long live France.
Mr. HALL. If I could also add, a detailed anticipation of what we need in terms of labor has been presented to the committee by the Transportation Trades Department, and maybe that should be the document used, if you will, to talk to the CEOs who were here earlier talking about oral commitments and commitments to their employees.
What do you think about this? Before we pass this
bill, we have time, at least to the end of the week or at least Thursday or Friday, to say this is what labor says they need in fairness with the money we are going to give you. And if you can get them all to sign something, it would be very helpful.
Mr. MICA. [Presiding.] I thank the gentleman.
Did you have a quick question or comment, Mr. Hayes?
Mr. HAYES. Comment. For Wall Street's sake, I think it is crucial that this issue and this bill be kept clean and thatthe issues that you raised, as important as they are, they can be and will be included in subsequent discussion. But, for the purpose of today, the initial idea of Mr. Oberstar and Mr. Young to get this support out there, we need to keep it clean.
Page 206 PREV PAGE TOP OF DOC Mr. MICA. I thank the gentleman.
Let me just ask a couple of questions in closing to the financial analysts first. This week or next week or later on for the package? Can you respond? What should Congress do, pass it this week?
Mr. NEIDL. As quickly as possible. They asked the question before, were you disappointed that it didn't pass over the weekend? At first I was, but now that I think about it, it is much better doing it this way, having the hearing, getting information, making.
Mr. MICA. The question is acting from this point forward.
Mr. NEIDL. From this point forward, as quickly as possible now.
Ms. DONOFRIO. Concur.
Mr. GIBSON. Yes, I would agree.
Mr. MICA. One of the other questions is we have air cargo included in this package. Some have said that they haven't had the impact that the major airlines and other passenger carriers have. From a financial analyst standpoint, if they are not included, what would be the results? Could you each comment briefly?
Mr. GIBSON. Well, I think that they were talking
aboutmy recollection was 15 percent thatwhich, in effect, takes care of their portion of the impact. What I think Fred Smith was saying was that they were impacted by the shutdown, but their business has rebounded to more normal-type levels relatively quickly.
So he was looking for abasically something to make him whole from the shutdown, but didn't have the ongoing problems that the passenger carriers did.
Ms. DONOFRIO. I think the concerns from the air cargo carriers will be addressed with respect to security at airports, so that would be included.
Page 207 PREV PAGE TOP OF DOC Mr. NEIDL. Their crisis isn't nearly as bad as passengers'.
Mr. MICA. Finally, we are getting inundated with calls that we have assisted the airlines or we are about to assist the airlines, we have had a hearing on the airline situation, but there are many other industries and businesses affected. Maybe very briefly you could tell me where else we may be looking to assist or having calls to assist and that may be justified.
Ms. DONOFRIO. You mean with respect to the impact from the airlines?
Mr. MICA. Right. Well, from the incidents of last week.
Ms. DONOFRIO. Airlines, restaurants, lodging, just to name a few. You you can add on, Ray.
Mr. NEIDL. I think you should just stick with airlines. As callous as that sounds, this country can survive without restaurants and hotels. They cannot survive without the airline industry.
Ms. DONOFRIO. My point was that in addressing the airlines, you would actually impact all of those other industries as well.
Mr. GIBSON. I would only make the caveat, which is kind of an outcome of the airlines, the aircraft manufacturing segment, which is such a key portion of the economy. What we are talking about here is where we are bordering on a very weak economy, and the package going forward with the reduction in airline capacity meansstill means no more aircraft deliveries for some time. I don't think that is a situation that we really want to look at from the economy's perspective.
Mr. ROACH. Representative.
Mr. MICA. You can briefly respond.
Mr. ROACH. Boeing and GE. Boeing announced that 30,000 people will be laid off. I think at the very least that if aircraft purchases are going to be cancelled, the Airbus should be first before we start canceling Boeing aircraft that is 80 percent built in America. I think this should be a concern about Boeing and the people that work at Boeing.
Page 208 PREV PAGE TOP OF DOC Mr. MICA. Sir.
Mr. HALL. Just to add to that is that is what I was trying tothe point that I was trying to make earlier about phase 2 and 3, as Brother Hoffa raised earlier, about the members that he represented in terms of rental of cars and those organizations that would be badly hit. That is something that can't be addressed right now. The airline industry recovering itself is what must be addressed, and those issues can be talked about a little later.
Mr. MICA. Mrs. Capito, did you have a final question?
Mrs. CAPITO. Yes, I had one quick question, thank you. I come from a community, Charlestown, West Virginia, who was informed yesterday that USAir is pulling out from Charlestown and laying off half of the 44 people that are working there. One of the layoffs comes with a gentleman who has the lowest seniority, and he has been there 21 years, so this is going to devastate our small community. But our airport is also going to be devastated, because they get their revenues from the passenger boarding.
Do you have any hope or any sense that in a rebound effect, Charlestown, West Virginia, and other areas in the community could ever see USAir coming back in or a large carrier like that to serve our community? It is just going to devastate us economically.
Mr. NEIDL. Yeah. If we can stabilize the situation, and keep some of our smaller discount carriers alive, that would be a perfect market for an airline like AirTran to go in there with low fares. That is the type of markets that they are looking for.
But right now the situation is so bad that AirTran is retrenching. We have to stabilize the situation before we can think about new services, in my opinion.
Ms. DONOFRIO. Yes. All I was going to add is that, unfortunately, in a time of downturn like this that is so sudden, you know, you really do look to cut costs as quickly as possible. Obviously the marginal routes, unfortunately, are the ones that will be affected first.
Page 209 PREV PAGE TOP OF DOC So as long as we can stabilize the situation and get things more profitable and back to where we were, we should see service again.
Mr. NEIDL. I think eventually, too, once we stabilize the situation when more regional jets come in, smaller markets like that will be perfect for the regional jet, and you will probably end up with more service.
Mr. GIBSON. We have seen, even in the economic cycle, small communities lose service and regain it based on the overall health of the industry and the business environment. So what everyone is hoping is that this downturn in passenger traffic is something that is not permanent. And to the degree it is not permanent, I am certain that they are going to be coming back to your community and others.
Mr. MICA. Thank you.
I want to take this opportunity to thank our witnesses, both those from financial industry and also from labor, for being with us today. It has been a very long day. We have been at this for over 7 hours. We appreciate, again, your cooperation in working with us as we craft this legislation; hopefully we will get it passed through the Congress.
I want to thank the Ranking Member and the Minority for their work in this effort, and the Members on both sides of the aisle.
We are going to leave the record open for an additional 30 days. We may have additional questions to submit to the witnesses.
But on behalf of the full committee, I want to thank each of you. There being no further business to come before the House Transportation and Infrastructure Committee, this hearing is adjourned.
[Whereupon, at 6:10 p.m., the committee was adjourned.]