Page 1 TOP OF DOC75–397 PS
2001
H.R. 2891, TO PRESERVE THE CONTINUED VIABILITY OF THE UNITED STATES AIR TRANSPORTATION SYSTEM
(107–45)
HEARING
BEFORE THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
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
(ii)
CONTENTS
Text of H.R. 2891, to preserve the continued viability of the United States air transportation system
TESTIMONY
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 DOCGibson, 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 DOCCarson, 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
Anderson, Richard
Donofrio, Susan
Gibson, Scott C
Hall, Sonny
Harris, Hollis L
Hoffa, James P
Horton, Tom
Page 8 PREV PAGE TOP OF DOCKelly, John
Mullin, Leo F
Neidl, Raymond
Parker, Douglas
Roach, Robert, Jr
Skeen, Kerry
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 DOCUnfortunately, 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 DOCThe 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 DOCThe 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 DOCThe 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 DOCMr. 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 gentlemen—you 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 DOCI 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.
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 carriers—planes 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 step—and I emphasize first step—in 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 DOCMr. YOUNG. Thank you.
Mr. DeFazio.
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 DOCMr. 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 attendance—your 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 that—I 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 DOCMr. YOUNG. Thank the gentleman.
Mr. Clement.
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 DOCMr. 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.
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 DOCAt 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 DOCOur 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 DOCNext 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?
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 DOCUSAir, 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 DOCThe 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 tried—many of us—to 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 DOCMr. 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?
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 DOCI 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 gotten—my 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 DOCMr. 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 my—in California, throughout California—and 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 others—and bear in mind that as chair of the Women's Caucus, 82 percent of travel agencies are headed by women—I 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 DOCSecondly, 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 continue—for 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 DOCSo 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.
Max Sandlin.
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 DOCLong 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.
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 DOCMr. 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 morning—I 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 DOCAnd, 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.
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.
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 DOCThree 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.
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 system—commercial, 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 DOCI 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 DOCMr. 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.
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 DOCThese 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 immediately—and 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 DOCMr. 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 DOCRegional 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 of—that 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 DOCThree, 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 DOCTo 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 DOCMr. 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 DOCOnce 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 DOCMr. 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 DOCLet 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 DOCThis 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 DOCWe 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 DOCTherefore, 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 DOCIt 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 DOCBecause 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 DOCSecond 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 DOCThe 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 questions—and I will use my first question myself.
The cargo industry—you 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 bellies—by the way, that was not problem on the 11th—it 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 DOCMr. 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 the—been 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 DOCMr. 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 those—the 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.
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 DOCMr. 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 may—that 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 DOCMr. 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 DOCMr. 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 without—from an elasticity standpoint—a 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 just—I 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.
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