Uncle Sam gives large freebie to US airlines

US airlines are getting a cash grant of $5 billion and government guarantees on loans up to $10 billion. The US Congress approved the freebie last week and President Bush promptly signed it into law. But even before the Tuesday Terror in New York and Washington DC, the US airline industry was in dire condition. After Tuesday, they quickly announced employee layoffs, dramatizing their state of despair.

Well, Terrible Tuesday may have ironically bought the US airline industry some time. Uncle Sam's freebies will enable them to meet the demands of their cash flow until the end of the year. Beyond that, Uncle Sam's guarantee will embolden banks to start lending to the airlines again.

I can understand why Uncle Sam must help the airlines. If they start filing for bankruptcy one after the other, confidence in American business will pierce rock bottom. Not only that, if they are forced to cut down the number of flights or cancel flights altogether, it will be chaos as they approach the Holiday Season. That's normally a peak time for travel in the US.

What I cannot understand is how easily the US Congress and the White House acceded to the request for financial assistance from the airlines. No conditions were imposed for service improvement or improved corporate governance. The only limitation was a ban on salary increases for airline executives earning $300,000 a year. Actually, a salary cut would have been a nice way to share the pain with the taxpayers. Uncle Sam should have also sought warrants that will enable the taxpayers to recover when profitability returns.

Anyway, all that does not concern us since we do not pay any taxes in America. But I wonder if granting such subsidy is allowed under WTO rules. That also goes against the free enterprise concept that America preaches.

Airlines are having financial problems not just because of the economic environment but also because they made mistakes in the past. Their workforce is bloated and inefficient, thanks to years of union victories. There is also excess capacity. Uncle Sam may be taking away the only incentive under the free enterprise system for airline management to manage well and behave themselves.

Not all the US carriers are problematic. I understand that Southwest is doing fine. But that's because it is run by a lean and mean management team and their no-frills concept has caught on with economy conscious American travelers. I wonder if this virtual reward for inefficiency of its competitors is unfair for Southwest.

The only real justification I can see for government to compensate the airlines anything at all is government's own negligence in the security aspect of airport management and the weeklong shutdown following the Tuesday tragedies. Hopefully, with Uncle Sam's handout, the airlines will buy time to reorganize for efficiency and profitability.

As we have seen in our own experience with Philippine Airlines, nothing makes an airline behave like being in the brink of death. Today, until flights to the US were cancelled, PAL was starting to report some profits and has started to expand its routes again. PAL's losses the other week may be recovered during the balikbayan holiday travel season. It is obvious that by operating on a downsized mode after reorganizing itself for improved competitiveness, PAL is in a good position to survive this current industry turmoil.

I think that outright grant from the American treasury constitutes unfair competition to PAL and other foreign airlines in the same markets as the US airlines. America should learn to practice what it preaches about the free enterprise system. Government shouldn't always be there to cuddle the inefficient.

Market patriotism

They are still at it. They now even have a name for it. They call it market patriotism. Last Friday, the day after George W Bush made that much applauded speech before a joint session of Congress, TV anchors thought the stock market would bounce back because of the patriotism factor. It didn't. In fact, it was a record fall. With all due respect to patriotism, people have debts to pay, fears to calm down.

Robert Reich, a former Secretary of Labor, wondered in his column at the Washington Post, how come it is now the American's patriotic duty to spend. "Spending seems like an odd way to demonstrate patriotism," he mused. "Patriotism normally suggests a willingness to sacrifice for the good of the nation – if not lives, fortunes and sacred honor, at least normal creature comforts. But market patriotism suggests a strange kind of sacrifice: Continue the binge we’ve been on for years. Usually, it’s just the opposite in wartime. Consumers are asked to tame their appetites. And if voluntary restraints don’t work, government resorts to rationing."

But that's because during past wars, there was limited production capacity that must be used for producing war materials. Now, there is so much idle capacity and not enough demand. If consumers stop buying because they are already deeply in debt and are also worried about the future, the economy could go on a tailspin. That's not something anyone will want to aggravate what is a rattled public as it is.

Besides, if the economy goes into recession, resources that could be made available to fight global terrorism would be limited. If consumers retreat to their shell, that means they have been terrorized. Score one for the terrorists in this war.

One wonders if it might be easier to capture Osama bin Laden in the barren hills of Afghanistan than to practice market patriotism. For starters, a consumer needs money to buy anything. The American consumers have reportedly maxed out their credit cards. Besides, Americans are in mourning these days, for those who died on Terrible Tuesday as well as for the money they have lost from the stock market that reversed the so called "wealth effect" they felt.

The problem is, too many of middle class America got stuck as the market fell. One analyst advised viewers of CNBC that unless you are young (in your early 20s) and do not need the money for college or some other need, you should forget the stock market for now. The bottom line is, they have one life to give to their country, but not a dollar more.

The moral lesson for us back here is, expect a more serious backlash in our economies from the American fall. As we said in previous columns, we must refocus inward. There is no other way for now.

Friendly advice

Reader Fe dela Cruz picked up this friendly advice from somewhere.

If at first you don't succeed, skydiving isn't for you.

(Boo Chanco's e-mail address is [email protected])