In the days immediately following September 11, members of Congress took to the airwaves and the floor of the Capitol with dire warnings that if Congress did not act quickly, the American airline industry would go belly-up, bringing the nation's business to a halt. The major airlines were estimated to be losing $300 million a day. Sen. John McCain (R-Ariz.) declared: "The effect on the airlines of the September 11 terrorist attack put Congress in the unenviable position of having to take immediate action to prevent the collapse of the aviation industry as a result of the federally ordered grounding of all aircraft."
With lightning speed, virtually no hearings, and almost unanimous support, Congress swept into action. The result was a bill designed to protect the nation's "essential air service," with a package of loan guarantees and outright cash grants, totaling $15 billion. In supporting the bill, Sen. Charles Grassley (R-Iowa) said that he was pleased that the Senate was "moving with great speed to insure the short-term stability of our nation's airlines. . . . the Senate has come together for the good of this great nation to do the right thing. That is, to keep the airlines in the air."
Despite the insistence of members of Congress that the airline bailout was of vital national importance, it was immediately decried as a boondoggle for big business. And why not? Companies like American Airlines and Northwest lobbied hard for its passage and are indeed its primary beneficiaries; $3.1 billion had already been paid to these big firms by the end of January, and billions more are still to come.
What most people don't realize, though, is that the bailout bill was also a boondoggle for hundreds of little aviation companies, far from the terrorist-crippled corridors of New York and Washington, whose business activities hardly qualify as critical public transport. Thanks to the aviation industry's friends in Congress, the term "essential air service" now includes practically every tour bus with wings.
Hub and Stroke
When Japanese businessmen want to take a vacation in the great American outdoors, they frequently seek the help of Warbelow's Air Ventures. Warbelow's is a charter service that, among other things, delivers mail to remote Alaskan villages and takes hunters and fishermen on guided trips into the Alaskan bush so they can shoot grizzlies and caribou. It also happens to be an unexpected beneficiary of the federal airline bailout. While it can't match the losses of Delta Airlines, Warbelow's has so far received $95,000 from the federal bailout fund.
Even company president Art Warbelow was a little surprised to hear that he'd been the recipient of so much government largess. "$95,000? Wow!" he exclaimed. Warbelow says his company was closed down for only two days after the terrorist attacks. He says his firm makes about $20,000 a day on average, so his payment more than covers the loss. So how did he come into such good fortune? Warbelow says the local industry group, the Alaska Air Carriers Association, prodded him to fill out some paperwork. Warbelow says he wasn't even required to submit any documentation with the seven-page form.
Along with Art Warbelow, helicopter companies have joined the rush for federal funds. At least 17 helicopter firms have claimed $2.6 million in compensation. Many of those companies are tour operators like Sundance Helicopters, which received $37,906, and which gives tours over the Grand Canyon. Las Vegas Helicopters specializes in tours of the Strip and airborne wedding services. (For an extra $175, you can be married in the air by Elvis.) It got $4,572, a paltry sum, but still. . . Firms from Hawaii and Florida also dominate the list.
Other helicopter companies include Aircam National Helicopter Services in Englewood, Colo., which provides helicopters for film and video stunts, aerial photography for real-estate site surveys, as well as some corporate charters. (The photo on the web site looks like an ad for a Warren Miller ski movie.)
The helicopter firms getting the biggest handout, though, service the gas and oil industries in the Gulf of Mexico and Alaska. Included among the recipients of nearly $4 billion in federal aviation payments are companies such as Petroleum Helicopters, a chopper service that flies employees back and forth from off-shore oil landings. Petroleum Helicopters has so far received a whopping $688,785. Air Logistics, another oil-and-gas-related firm, received $450,836.
Because these companies cater to corporate clients rather than the general public, it's hard to see how they might qualify for federal aid. Some, too, apparently contract with the government for their services, making their businesses fairly recession-proof. But according to the U.S. Department of Transportation, it's all perfectly legal for them to claim bailout money, which they never have to pay back.
Still, you'd think that, given its proclivity for distinguishing between the "deserving" and the "undeserving" before giving out far more stingy federal aid to the poor, Congress would have made some distinctions when it came to the airline bailout. Even excluding, say, aircraft that fly in circles or that don't land on runways, might have narrowed the field a bit.
And while Congress rightly included smaller, regional airlines in its calculations, is Casino Express Airlines really a critical part of the nation's transit system? According to its web site, Casino Express flies tourists from around the country to exactly one place: the Red Lion Inn in Reno, Nev. But Casino Express was grounded just like American Airlines, so it received $829,389 from the bailout fund.
And what about Servicios Aereos Profesionales, an air charter service based not in the United States but the Dominican Republic? According to the Department of Transportation, SAP got $30,789 in American taxpayer dollars, even though it flies to more cities in Cuba than in the United States. (The airline flies only to Miami and Orlando.) SAP services almost entirely international locations unaffected by post-September 11 flight restrictions. But SAP holds a certificate from the FAA as a charter service, and as such, apparently felt compelled to get some compensation.
One recipient of government aid admits that his business was barely affected by September 11. Tex-Air Helicopters in Houston, which has received $41,220, gets 97 percent of its work from contracts, according to Anthony Loague, director of operations. As a result, Tex-Air lost mostly time, not money, because of the grounding. And while it took several days to catch up and return to a regular schedule, Loague says they had no reason to lay off employees. In fact, he says, the terrorist attacks actually brought in additional business afterwards.
So how did the federal airline bailout become such a bonanza for flying wedding chapels and oil company shuttles? Back in the heady days after September 11, when Congress was hustling to keep the airlines airborne, major airlines like American and Northwest secured a package of cash grants and loan guarantees for themselves. Once Congress agreed to the big airlines' demands, the rest of the industry came running for a handout, too.
The mission of the bailout quickly changed from insuring the "short-term stability of the airlines" to compensating every mom-and-pop operator that missed a day of work because the big bad FAA shut down the airports after the terrorist attacks. By that definition, even Cinnabon ought to qualify for fat government checks.
After the smaller regional commuter airlines got a spiff, it wasn't long before the major cargo airlines started demanding their share, too. Companies like FedEx, UPS, DHL, and Airborne Express have now received payments totaling roughly $135 million and counting.
You'd think the handout list might have ended there, given the dwindling surpluses and the slumping economy. But that calculation would overlook a major factor in the debate: The Alaskan congressional delegation. Sen. Ted Stevens (R-Alaska) is the ranking member of the Senate Appropriations Committee and serves on the Commerce Committee's aviation subcommittee. Rep. Don Young (R-Alaska) is chairman of the House Transportation and Infrastructure Committee. No airline bailout bill was going to make it through their committees without taking care of the constituents back home, including every little puddle-jumper company flying the Alaskan bush.
According to Eric Byer, manager of legislative affairs from the National Air Transportation Association, the lobbying group for small, air charter companies, these men were instrumental in ensuring that the bailout bill included companies known as "Part 135" carriers. These companies are certified by the FAA as air taxis or on-demand charter firms---the kind of companies with a handful of Lear jets or little Cessnas that fly college hoop teams to their away games or shuttle rich corporate board members to retreats in Aspen.
Alaska, incidentally, has a gaggle of these Part 135 companies. One city in Alaska has 17 different air carriers. But because the state is so reliant on air travel, the FAA also exempted Alaska from most of the post-September 11 aircraft restrictions, and its planes were back in the air after only two days, according to Karen Casanovas, executive director of the Alaska Air Carriers Association.
Still, the industry was suffering from a slump in tourism, which had fallen over the summer by 20 or 30 percent below the year before, thanks in part to troubles with the cruise ship industry and the disappearance of Japanese tourists suffering from their own recession. So, with help from its well-placed congressional delegation, the Alaskan air industry managed to get the airline bailout bill broadened to include it.
Sen. Stevens is unapologetic. "Secretary Mineta's decision to ground the planes saved a lot of lives, but it also impacted many more carriers than most people realize," he says. "In Alaska, small aircraft are the only means of access to rural villages where no roads exist. Congressman Don Young and I worked hard to ensure that small carriers like Warbelow's Air Ventures were included in this funding."
To accommodate the Alaskan companies, however, Congress also had to give every chopper that hovers over the Bellagio a piece of the action. Still, Alaska dominates. About $2 million went to at least 19 small Alaskan aviation firms. (The troubled Alaskan Airlines, incidentally, also has picked up a cool $71.6 million so far.) Dollar-wise, the Alaskan small firms' share of the bailout fund is a drop in the bucket, but just in sheer numbers, those firms account for a disproportionate 13 percent of all the companies paid by the Department of Transportation. By all accounts, the folks back home are pretty satisfied with their elected representatives.
Of course, not everyone is so thrilled with the outcome. The hotel industry, for instance, which estimates that it lost $700 million in the 10 days after September 11, hasn't gotten squat from the government. But in the spirit of post-September 11 patriotism, these industries aren't griping about their aviation colleagues' good fortune. They're simply trying to get a piece, too. The American Hotel and Lodging Association is currently pushing for hundreds of millions of dollars in tax breaks and other "stimulus" items for its industry, including restoring the spousal deduction for business travel. And taking a cue from the aviation industry, those measures would benefit everyone from the New York Waldorf Astoria to the Hope, Ark., Motel 6.
"A lot of this spending is not done in the national interest," says David Williams, vice president for policy at Citizens Against Government Waste. "Every industry uses this as an excuse for more money---travel agencies, cruise ship companies. It's opportunistic on everyone's part. It's a shame that members of Congress have to participate. They just can't say no."