Airlines were in red before terrorists struck, so why are they due a bailout?

By DAVID MOON, Moon Capital Management
September 23, 2001

In the midst of some of the most painful suffering in this country's history, some people are trying to take advantage of others, using this war as cover for their profiteering.

Scam artists are making bogus pleas for financial assistance, collecting money in the name of disaster relief when their favorite charity is themselves. This observation is not meant to discourage your contributions to obviously legitimate service agencies and organizations.

Ignore the phone solicitor wanting your credit card to help the rescue workers in New York. Instead, give your money to the Salvation Army, United Way, local fire department or any of numerous well-known, long-trusted organizations.

But when disaster hits, the outstretched hands begin to multiply. I prefer to spend another week lamenting the losses suffered and looking for ways to heal. But then in the midst of our most giving and grieving moment ' when we are most vulnerable to a plea for help ' out come the open hands wanting a piece of the nation's generosity pie.

The audacity of the airlines asking for a bailout is appalling. The fixed costs of running an airline are staggering. The industry estimates they lost $300 million a day during the three days the federal government grounded their fleets. Midway Airlines, already in dire financial straights, immediately called 'uncle' and filed for bankruptcy within 40 hours of the attack. Now, United, American and their brethren want the federal government to bail them out of a jam into which they have yet to enter.

In anticipation of reduced passenger demand, the airlines are asking the government (read: you) for an immediate gift of $5 billion in cash. You could buy more than 16 million $300 airline tickets for $5 billion. But wait, there's more in the great airline giveaway sweepstakes. How about another $11 billion in loans and, just in case these companies ever turn a profit, another $8 billion in tax relief?

United lost almost a billion dollars last year without any help from terrorists. US Air, also unable to make a profit last year, paid $10 million in bonuses to its CEO and president. Obviously, these executives' negotiating skills are matched only by their hubris. They are in a risky business. There is plenty of blame to share in this circumstances. But the airlines should make sure they have their own houses in order, including the airport security checkpoints (which they operate) before looking to the millions of Americans who never fly for a bailout.

Do I prefer that the airlines close up shop? Of course not. Their service is valued by millions of businesspeople and leisure travelers. But what about insurance companies? They are also critical to our society. Some of them will fail as a result of these attacks. How about all of the money lost when the stock market finally opened last week? Do you think investors should ask for a government reimbursement? In the first two trading days following the attack, American Airlines' stock declined 28 percent; hotel company Wyndham declined 58 percent.

I realize this subject is dangerous ground to tread at this still early, emotional date. The financial losses experienced by all of these businesses and industries are meaningless in the context of the real suffering of those who lost loved ones, friends, acquaintances, associates, children and parents. But like many of the airlines' problems, the industry brings this security on itself. Those companies are the ones asking for money. And they are doing it now. If the airline industry is going to come to this angry, grieving country with its collective hand stuck out, they better be ready for us to check it for dirt.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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