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United/ATA Chair Warns of Airline Crisis

September 29, 2009 By: George Dooley

U.S. law and regulatory structure continue to impede the ability of U.S. airlines to achieve sustained earnings and to compete in the global economy, Glenn Tilton, chairman, Air Transport Association (ATA) and chair and CEO of United Airlines said in recent policy remarks to the American Bar Association (ABA). The airlines are experiencing the greatest drop in revenue and credit availability in the industry’s history and a patchwork of counterproductive regulation, Tilton believes.

Tilton urged the government to invest in modernizing the air traffic control system and questioned the direction of government policy. “There has been little to no progress in globalizing the business environment in which we operate… an environment as you well know, that inhibits our ability to make business decisions considered “essential” and “normal” in any other industry.”

“No one denies that commercial airlines play an important and permanent role in contributing to the US economy. We enable commerce and tourism, we create jobs, connect small communities and large cities to the world – and we contribute 8 percent of global GDP. In that context, it sounds like an industry you might want to consider for your children’s college fund … or, perhaps not.”

“This is an industry that epitomizes the definition of dilemma. Although we provide absolutely essential service to the public and we enable tremendous collateral wealth creation – we have been systemically incapable of earning our own cost of capital. Although we are constrained by regulation from taking the necessary actions to strengthen our businesses, actions that could provide investment in product and services – we are asked to believe the current regulatory environment is intended to “protect” the industry.

Protect the industry from what, Tilton asked, questioning the lack of serious discussion of the airline industry’s all-too real problems. He noted that $8 billion has been allocated for development of rapid rail services as part of the Federal Stimulus bill but nothing for air traffic control modernization.

“Over the past two years, the industry is expected to lose close to $28 billion dollars. In comparison, in 2001 to 2002, as a result of 9/11, the industry lost a combined $24 billion dollars. We face historic capacity declines. With demand down, yields are also under pressure all across the globe. This year alone, IATA projects that $80 billion in revenue will disappear. In addition, we face tough credit markets.”

“We are experiencing the greatest drop in revenue and credit availability in this industry’s history. The industry is doing the work it can to build cash reserves and initiate liquidity actions across the spectrum of rather constrained opportunity. But, this does not help build long-term and healthy balance sheets for an industry that has “systemically failed to earn its cost of capital.”

Airlines are facing “creeping” protectionism and “re-regulation” proposals that restrict its ability to manage the industry in a sustainable way, Tilton warns. “Regardless of all the challenges this industry continues to confront, we have those who consider and propose actions to further impede the industry’s ability to compete and grow.”

Tilton believes global markets demand business models that allow for capital investment, consolidation and cross border ventures.” We have a couple of options: either return to a period of full regulation, or get out of the way and let airlines operate like any other global industry. As an industry, we are fragmented, with serious limitations to our ability to invest, merge or cooperate. As such we must work through the regulatory patchwork that exists today to find creative opportunities to profitably meet our customers’ needs.”

“We will continue to do our part – and we need policymakers and governments to work with us – to partner with us – across the globe to put policies in place that address the business and regulatory challenges, put critical infrastructure in place, and allow us to meet the demands that will be placed on us,” Tilton argued, urging review of anti trust laws impacting airlines ability to compete globally.

“Regulatory complexity and constraints should not prevent us from attracting foreign capital or investing in non-U.S. airlines, opportunities available to other global industries,” Tilton said. “This industry was “deregulated” more than 30 years ago, yet the nonsensical constraints on this industry remain and must be removed.”

“To compete globally – and create a sustainable enterprise -- we need to stop “protecting” this industry. What are we protecting it from? Growth? Profitability? New jobs?
Global competitiveness? Those are protections we can do without,” Tilton concluded.


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By George Dooley | September 29, 2009
The airlines are experiencing the greatest drop in revenue and credit availability in the industry’s history and a patchwork of counterproductive regulation.
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