U.S. Airlines: From Bad to Nationalized?

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Airfares are lower than they were in 1988

It certainly hasn't been a breeze for the airlines lately. But things could get a whole lot worse. Tomorrow (Tuesday, March 11th), the Air Transport Association, a powerful Washington lobbying arm of the major U.S. airlines, will release a grim report on the industry — and the prospects for an even darker future. TIME has obtained a copy of the 34-page report, "Airlines in Crisis: The Perfect Economic Storm," which lays out four bleak scenarios for the industry.

Of course, the airlines are already in the midst of a pretty bad scenario, as the report notes. A few causes of the pain include a frail underlying economy, high fuel prices, fear of terrorism and war, and increased security costs. The moribund combination leads to gushing red ink for the airlines. But there has been a silver lining for consumers: airfares are lower than they were in 1988 in nominal, not inflation-adjusted dollars.

Now lets return to the ATA's stated scenarios. They range from a 'no war' situation, where the airlines would still lose an estimated $6.7 billion in 2003, to the worst case — that's a war plus a major terrorist incident. And that, says the ATA, would result in a $13 billion loss. "Under this case, a total industry collapse is virtually certain," says the report. Such an event would ripple throughout the economy, since the US aviation market is huge: it is valued at $800 billion and employs 10 million jobs. The ATA's study concludes by raising the specter of a dire proposition: "...it becomes starkly clear that...the forced nationalization of our airline system" is one of the risks the country confronts.

The report does not offer a specific proposals for government assistance, but the airlines have been making the case in private meetings on Capitol Hill and even with the White House. TIME has learned that last Thursday several airline CEOs met with the key members of the Bush Administration economic team, including Treasury Secretary John Snow and Office of Management and Budget chief Mitch Daniels, in the Roosevelt Room to lay out the heavy tax burden they face and the $4 billion in government-ordered security mandates they have had to pick up. According to those familiar with the conversations, the Administration officials listened, but offered no commitments.