Bush to United: Fly smarter

Posted: Jul 08, 2004 12:00 AM

"Let me tell you a secret," said Vice President Al Gore recently, the president is a "moral coward." Wow.

Why the latest attack? Well, the former VP accused the president of unwillingness "to stand up and say 'no.' . . . He will not choose the public interest over the private interests of a wealthy and powerful contributor." In other words, you pay, we dance. Well, then, does the administration deserve credit for saying "no" to the bailout request from United Airlines?

After all, during the last couple of election cycles, airlines gave over 60 percent of their political contributions to Republicans. According to Gore, this means the airlines simply line up behind the taxpayers' ATM, hit a few keys, grab the cash, and come back for more as necessary.

United Airlines, after 9/11, along with the other major airlines (including the profitable ones), trekked to Washington, D.C. Attributing their financial woes to the government-forced two-day commercial aircraft grounding, they asked for a package worth $24 billion in cash, loan guarantees and tax cuts. The "limited-government" Republican-led Congress and the limited-government president foolishly complied, and provided a bailout totaling $15 billion in cash, loans and loan guarantees -- you know, "emergency aid."

But why does this private industry deserve taxpayer assistance any more than, say, the mom-and-pop restaurant down the street? Yes, the government-forced shutdown cost the industry an estimated $210 million a day. But, once airlines began flying, fewer people wished to fly.
United Airlines lost $605 million in the first six months of 2001, and projected, before the 9/11 attacks, to lose still more the rest of the year. Now in bankruptcy, United took steps to reduce its operating expenses, but they still exceed the major airlines' industry average by 4 percent.

Is there something mutually exclusive about running an airline and making a profit? No. Southwest Airlines, a low-cost, fewer-frills operation, managed to make a profit in 2001 despite 9/11. Look at Jet Blue. Started in 2000, Jet Blue turned its 2002 $635 million in revenues into a $55 million profit. And, undaunted by the industry's alleged scary future, Southwest, Jet Blue and AirTran Airways -- less than one year after Sept. 11 -- all announced fleet and flight schedule expansions. Unafraid, the new Independence Air just announced flights to 35 destinations. Somehow these upstarts and start-ups seem to make it work.

In arguing the case for more taxpayer help, United's CEO, Glenn Tilton, wrote, "United's financial crisis was precipitated by the 9/11 events. . . . A (federal loan) decision was deferred to give United time to work on several concerns, which have been addressed through our restructuring. United has significantly reduced costs, gained competitive flexibility and improved revenue."

Besides, in our capitalistic system, people already exist to provide money to businesses. We call such people lenders. Or investors. They include banks, venture capitalists and "angels." They assess risk, making decisions based on the company's debt, assets, management, business model, future prospects and ability to pay.

Quite simply, government does a lousy job of picking winners and losers in the marketplace. Take, for example, the Small Business Association (SBA). The SBA lends $11 billion dollars per year, with a default rate of about 10 percent. By contrast, bankers get nervous when they see a default rate higher than their usual 1 to 4 percent.

Corporate welfare, of all types -- subsidies for businesses ranging from farms to automotive to energy research -- was budgeted, in 2003, to cost taxpayers $86 billion. Republicans properly trumpet the success of the Welfare Reform Act of 1996, which reduced welfare rolls by 50 percent. Government welfare, whether corporate or personal, takes money from party A and gives to party B, lessening the initiative of both the giver and given. Welfare distorts behavior, makes one less personally responsible and reduces the role of private charity.

This principle applies to corporate welfare.

The bad news is that House Speaker Dennis Hastert, R-Ill., aggressively, if unsuccessfully, pushed for the corporate bailout. (Coincidentally, United's headquarters is in the speaker's home state.) Hastert's attempt represents another example of Republicans who talk the talk of personal responsibility, but fail to walk the walk. The good news is that the Air Transportation Stabilization Board denied United's latest application. Maybe some Board members recognize that the Founding Fathers designed the Constitution to prevent the federal government from spending taxpayers' money, no matter how noble or worthy the cause.

James Madison, the Father of the Constitution, denounced Federal government charity: "I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents."