| New Air Rules |
21 April 2003
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American Air Bankruptcy Threat: Feds Must Act
Yet another US air carrier is on the edge of bankruptcy. This time, it is American Airlines, which has averted immediate financial disaster with hundreds of millions in union give backs (despite revelations of a fat pension funding scheme for the execs -- do they never learn?). However, the firm claims that it still isn't out of the woods under current business conditions. While the deregulated system that the country has enjoyed for the past several years made air travel cheap and plentiful, the new security problems require action from the Federal government. The new circumstances require new rules.
Markets inevitably rely on government rules, whether it is the regulation of the alcohol market that forbids certain sales, or more broadly, the universal commercial code that determines what is fair and what is not. The new airline system should not be viewed as an assault on the market forces at play. Instead, it is a revision of the existing rules to permit the market to continue while under terrorist fire.
Primarily, it must be recognized that America's airlines are a strategic asset upon which the country depends. They are not the defense asset that the merchant marine was a century ago, but they do represent crypto-military assets. Thus, much of the expense in running an airline is a defense issue, and therefore, should be handed to the Department of Defense.
For example, maintaining an aircraft is a major expense, and it is while under repair that an aircraft is most vulnerable to terrorist tampering. Military maintenance of major aircraft is a feasible way to relieve airlines of this cost.
Other areas for government action include staffing of airports, fuel cost reductions (fuel being the single most volatile aspect of air finance), and organization of routes. Wherever possible, market forces are preferable, but under current rules, no airline can compete with the security threats that exist. Not even the biggest and best run.