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Benefits, Bailouts and Breaks
A Decade of Handouts and Now They Want More
Over the last decade, the airlines have received billions in government benefits, bailouts and breaks. At the same time, they have been short-changing their workers and customers, and awarding huge financial windfalls to their executives. Now they want more, and it is time for the government to stop rewarding this industry once and for all.
A Look at the Last Decade:
- $21 Billion in Pension Relief: The U.S. Government Accountability Office reports that as of the end of 2004, “Legacy airlines reported a [pension] deficit of $21 billion.”1 To make matters worse, GAO also reports that airlines often contribute less than they could: “[I]n 2000, the airlines PBGC [government-backed Pension Benefit Guaranty Corporation] examined could have made a total of $4.2 billion in tax-deductible contributions, but they contributed only about $136 million despite recording profits of $4.1 billion.”2
- $1 Billion in Insurance Coverage: Laws passed in 2002 reduced the airlines’ third-party liability by an estimated $1 billion, and made the FAA responsible for all damages to people and property on the ground.3
- $196 Million in Unpaid Security Fees: In February of this year, Bloomberg reported that U.S. airlines refused to pay the government $196 million in unpaid airport security fees.
- $15 Billion in Bailouts and Guarantees: In 2002, Congress awarded the airline industry $5 billion in direct subsidy and $10 billion in loan guarantees.4
- Multiple Tax Holidays: In 1996 and 2003, various aviation taxes lapsed. Rather than passing on the savings to their customers, GAO found that “during the 1996 ticket tax lapse and 2003 security fee holiday, carriers generally raised ‘base’ airfares (i.e., airfares net of taxes and fees) compared with what they were in periods before the absence of the tax or fee. The effect of this to consumers was to maintain or increase gross fares.”5
As if that Wasn’t Bad Enough:
- Executive Compensation: Workers at the top U.S. airlines are protesting continued pay cuts in the face of lavish compensation packages that are being awarded to executives. According to the Minneapolis Star Tribune, CEOs of top airlines hold stock totaling between $14 and 40 million.6
- Arenas/Sponsorships: While doling out stock options to executives and begging for tax breaks from the government, airlines have also paid multiple millions for the right to put their name on a sports stadium. For example:
- American Airlines Arena in Miami, FL – estimated value: $42 million
- American Airlines Center in Dallas, TX – estimated value: $195 million
- U.S. Airways Center in Phoenix, AZ – estimated value: $26 million
- Continental Airlines Arena in East Rutherford, NJ – estimated value: $29 million
- Delta Center in Salt Lake City, UT – estimated value: $25 million
- United Center in Chicago, IL – estimated value: $36 million
And according to the airlines’ own lobbyists, airlines are seeing record profits of $2 -3 billion in 2006.7
Haven’t the Big Airlines Received Enough? Do They Really Need More?
- The Big Airlines’ Latest Scheme to Pad Their Bottom Line: The airlines’ latest scheme is to convince Congress to overhaul an aviation tax system that has worked successfully since its implementation 40 years ago.
- The Dallas Morning News reported, “The U.S. airline industry is looking to cut as much as $2 billion in taxes from its annual tab, shifting those costs to smaller business aviation users and other aircraft.”8
- The Big Airlines’ Plan is About Controlling More and Paying Less
- The Wall Street Journal quoted the airlines’ top lobbyist, Jim May, as saying “We need to get Congress out of this process.”9
- The Taxes that Fund the FAA Are Set to Expire in September 2007: The FAA has introduced a new funding proposal, backed by the big airlines, which would transfer billions of dollars of the carriers’ tax obligation onto the backs of small and mid-size businesses that depend on general aviation. The Senate recently introduced an alternative proposal that includes a combination of tax cuts for the big airlines and “user fee” tax hikes which would ultimately be devastating to small businesses and communities.
- Industry sources calculate that under the Senate’s alternative proposal, airlines are likely to save $500 million annually due to a complete elimination of their fuel tax requirement.10 In both the big airlines’ FAA bill and the Senate alternative, a public-private board dominated by airline interests would be created to oversee FAA funding and operations.
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1GAO-05-945, September 2005: Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms of Underlying Structural Issues.
2 GAO-05-945, September 2005: Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms of Underlying Structural Issues.
3 “Airlines' Insurance Relief Stirs Administration Debate,” Aviation Week & Space Technology, December 2, 2002.
4 Air Transportation Safety and System Stabilization Act, Public Law 107-42.
5 Source: GAO-04-406R: Aviation Taxes and Fees, U.S. Government Accountability Office, March 12, 2004, http://www.gao.gov/new.items/d04406r.pdf.
6 “Unions call NWA stock awards ‘obscene’,” Minneapolis Star Tribune, May 5, 2007.
7 “2007 Outlook: "Reaching for the Skies?,” March 18, 2007.
8 “Airlines push fees to fund FAA,” Dallas Morning News, March 9, 2006.
9 “Airlines Seeking Greater Voice In Reshaping Air-Traffic System,” Wall Street Journal, March 9, 2006.
10 “Rockefeller-Lott Bill Seeks to Lighten Burden on Airlines,” The Hill, May 2, 2007.
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