Bailing out Congress: An Assessment and Defense of the Air Transportation Safety and System Stabilization Act of 2001

By Lewinsohn, Jonathan | The Yale Law Journal, November 2005 | Go to article overview

Bailing out Congress: An Assessment and Defense of the Air Transportation Safety and System Stabilization Act of 2001


Lewinsohn, Jonathan, The Yale Law Journal


NOTE CONTENTS

INTRODUCTION

  I. "CONGRESS: WE HAVE A PROBLEM"
     A. Initial Response
     B. A Bill Becomes a Law
        1. Statistical Underpinnings
        2. Theoretical Underpinnings
     C. Anatomy of a Loss
        1. Short-Term and Long-Term
        2. Five Billion Dollars in Losses
        3. Moving the Goalposts and Declaring Victory
        4. Ten Billion Dollars in Loan Guarantees

 II. THE ATSSSA IN ACTION

III. THE ATSSSA: IN SEARCH OF JUDGMENT

  A. (Overcoming) The Anti-Bailout Presumption
     1. Perverse Incentives
     2. Efficiency
  B. Comparative Analysis
     1. Retrospective Comparison: Relative Results
     2. Prospective Comparison
  C. Monday Morning Quarterbacking the ATSSSA
     1. Covert Options
     2. Other Options
  D. Outlines of a Model

CONCLUSION

INTRODUCTION

On September 11, 2001, almost immediately after receiving clearance to reenter the Capitol, (1) the United States Congress began the task of responding to the terrorist attacks. The first sessions were filled with tributes to the dead (2) and massive appropriations for rebuilding, (3) but by Friday, September 14, three days after the worst terrorist attack in the nation's history, the House of Representatives met late into the night to discuss one thing: whether to supply the commercial-aviation industry with the largest one-time corporate bailout in American history. (4)

Although the airlines were officially deregulated in 1978, (5) the industry continued to function as the "prodigal child" of the federal government. (6) This unusual, hybrid relationship emerged from the unique set of expectations facing the post-regulation industry. Even absent direct government control, consumers wanted airlines to operate with the "reliability of utilities, providing frequent flights on-time" to many destinations "at low cost and with cozy amenities." (7) At the same time, both Congress and the public expected the airlines to function as separate businesses in the public marketplace, (8) protecting workers' salaries, surviving on razor-thin margins, and facilitating economic activity. As a result, the deregulated industry was still monitored closely by the federal government. (9)

In the months before September 11, the airline industry (10) experienced particular difficulties due to the growth of low-cost carriers, decrease in business demand, and rich labor contracts negotiated during the 1990s boom. Unable to reduce excess capacity or abrogate labor agreements, the airlines approached Labor Day 2001 facing losses of between $2 (11) and $3 (12) billion. The government's response, however, was not sympathetic. Choosing to blame the industry's woes on management, Congress was concerned less with the carriers' financial position than with their treatment of passengers. As late as August 2001, Congress held "a series of hearings and threatened to approve a robust passenger rights bill despite industry lobbying efforts." (3) The prospect of a congressional bailout was simply inconceivable.

But all of this changed on September 11 when an industry that was already at the breaking point saw its "economic rubber band snapped." (14) Within hours of the attacks, the Federal Aviation Administration (FAA) issued the first ever national groundstop order requiring the shutdown of U.S. airspace. (15) With fixed costs upwards of 80%, (16) the airlines started hemorrhaging hundreds of millions of dollars per day, (17) leading to calls for government assistance even before planes were back in the sky. Industry lobbyists, (18) Wall Street analysts, (19) and national newspapers (20) all highlighted the industry's complex predicament: Insurance plans had been canceled or made significantly more expensive; (21) credit markets, unsure about the liability facing the airlines, had all but dried up; (22) airline workers were being laid off by the tens of thousands; (23) and the ripple effects were spreading across the "just-in-time" economy. …

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