Taxpayers Spared Possible Bailout, CCAGW Chalks Up Another Victory

(Washington, D.C.) – The Council for Citizens Against Government Waste (CCAGW) today celebrated a victory as the Air Transportation Stabilization Board (ATSB) announced it will stick with its June 17 decision to refuse a federal loan guarantee to United Airlines.  United lowered the request from $1.6 billion to $1.1 billion last week in a third and final bid to secure federal backing for private loans.  All board members joined in the decision, reaffirming that the company could probably obtain the $2 billion in private financing without a federal loan guarantee, and that the company’s struggle to emerge from bankruptcy did not threaten the nation’s aviation system.  A federal guarantee would have made taxpayers responsible to cover the costs of the loan if the company defaulted. 

“With two out three federal agencies represented on the ATSB saying they would be open to reconsidering United’s application with more information, the board should pay heed to a recent statement by airline economist Daniel Kasper,” CCAGW President Tom Schatz said.  “His May 19 expert report and declaration to the United States Bankruptcy Court for the Northern District of Illinois Eastern Division stated, ‘Notwithstanding the progress the Company has made over the past 18 months, United still needs to reduce its costs wherever possible—including its retiree health costs—if it hopes to compete successfully against both low cost and other full service airlines for the long term.’  United Airlines is clearly not ready for prime-time flying,” CCAGW President Tom Schatz said.

“Mr. Kasper’s comments make it clear the company has not done enough to correct the problems that caused its bankruptcy in the first place.  A quick screening of United shows that its problems can no longer be blamed on Sept. 11.  If the application is approved, and a sound business plan never materializes, taxpayers will be left holding this carry-on bag,” Schatz said.  

As reported by the Associated Press earlier today, Henry H. Harteveldt, vice president for travel research at Forrester Research, blamed United’s problems on “broader business issues” not related to Sept. 11.  According to the New York Times, United Airlines’ operating costs are the second highest in the industry at 10.8 cents per seat per mile.  Although the company reduced costs by 7 percent from 2001 to 2003, it still lags behind its competitors.  Over the course of the last three years, United has lost almost $10 billion, including more than $3 billion while under bankruptcy protection during the last 16 months.

In December 2002, United was denied a similar request for a loan guarantee by ATSB because its business plan was found to be financially unsound and seriously flawed.  The Board cited its responsibility to taxpayers as a major concern in deciding not to grant the loan.

“Nothing has changed since 2002 that is worth risking tax dollars, especially in a time of record federal budget deficits.  ATSB needs to remember its past concern for taxpayers,” Schatz concluded.  “It is time for United to leave the taxpayers’ nest and fly on its own.  A loan guarantee is not a safety net – it’s a safety hammock, paid for by taxpayers.  It would give the airline an unfair business advantage and encourage more risk-taking in the airline industry.”\

The Council for Citizens Against Government Waste is the lobbying arm of Citizens Against Government Waste, the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.