Taxpayer Bailout Grounded; 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 its guarantee 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 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 all three federal agencies represented on the ATSB agreeing to the decision, the board paid heed to expert testimony, adhered to its fiduciary responsibility to taxpayers, and ensured discipline in the airline industry,” CCAGW President Tom Schatz said.  “A loan guarantee would have diminished the urgency in correcting the problems that caused United’s bankruptcy in the first place.”

As reported by the Associated Press on June 18, 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.

“United Airlines is clearly not ready for prime-time flying,” Schatz continued.  “If the application had won approval, and a sound business plan never materialized, taxpayers would be left holding an oversized carry-on bag.” 

In a May 19 report to the United States Bankruptcy Court for the Northern District of Illinois Eastern Division, economist Daniel Kasper 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.”  

In December 2002, ATSB denied United’s first request for a loan guarantee 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.

“By denying United’s application, the ATSB recognized concern for taxpayers in a time of record federal budget deficits,” 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 subsidized by taxpayers.  It would have granted the airline an unfair business advantage and might have encouraged more risk-taking by the airline industry.  Taxpayers and the airlines are better off as a result of the ATSB’s decision.”

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.