Legacy carriers faced with diminished influence in Congress

When United Airlines CEO Glenn Tilton and Chief Financial Officer Frederic Brace made their midnight ride to Washington in mid-June to plead with Bush administration officials for one last chance at a federal loan guarantee -- to prop up the carriers ailing bankruptcy strategy -- it was a desperate pitch in a battle that insiders say was already lost.

While Uniteds last-minute lobbying effort was well-publicized, controversial and prompted an investigation by the Treasury Departments inspector general into concerns over lobbying tactics, it also provided a startling contrast to the airlines former lobbying prowess. Washingtons political community watched in awe immediately after the 9/11 attacks as airline-industry lobbyists mounted a massive campaign to provide assistance to already-troubled airlines.

Whether the United decision is a sign of decreased clout from the airlines, I dont think we know for sure yet, said Steven Weiss, a spokesman for the Center for Responsive Politics, which tracks lobbying and campaign finance. But the airlines are famous for mobilizing their forces. A week after the terrorist attacks, they had a government bailout bill passed. It was the quintessential lobbying effort, moving quickly and getting what they wanted. Whats happened with United, that is in high contrast.

What the carriers wanted, immediately after the 9/11 attacks and shortly thereafter, was compensation for the airspace shutdown that grounded flights for days after the attacks, a federal loan guarantee program to help them get financing, relief from security and related costs and help with suddenly skyrocketing war-risk insurance premiums.

Airline lobbyists played hardball, according to reports in the New York Times, which said Continental intimated it would try to help defeat Rep. Lloyd Doggett (D-Tex.) in his re-election campaign over his failure to support their proposals. Another indication of the airlines clout came in spring 2003, when Congress approved a $2.9 billion financial-aid package for the carriers as part of a $79 billion emergency wartime-spending bill.

Change is in the wind

But a decision by the Air Transportation Stabilization Board (ATSB) denying Uniteds revised loan-guarantee bid after an unprecedented third review carried a new message: The days of wine and roses for the major airlines in Washington have ended. And with that is coming change -- not only for the airlines but for the travel industry, as well.

Airline insiders said Uniteds failed loan application -- an application vigorously opposed by some of the carriers competitors -- is now being seen as the beginning of the death throes for a business model under which the major carriers have spent tens of millions of dollars to pursue government relief and intervention, while also demanding deregulation.

The airlines ability to rely on the influence of powerful lobbyists, who reap millions in fees every year for their knowledge of and access to political leaders and for their effectiveness in arguing on behalf of the airlines, is a given to many in Washington.

But a number of political observers said a backlash against the airlines, which has bubbled up after months of expert financial and business testimony before Congress and federal agencies concerning the airlines worsening financial condition, has been sending a strong message that government bailouts for airlines are a thing of the past.

Even the Air Transportation Association (ATA) [the most potent of the airline industry lobbying groups] says it is in a duck-and-cover mode right now, said one prominent industry analyst with close ties to executives of the organization. There is no political solution to the problem any longer. It is a marketplace issue now.

The ATA did not respond to requests for comment.

Even after the ATSB had twice denied Uniteds loan application, House Speaker Dennis Hastert (R-Ill.) and Treasury Secretary John Snow, responding to pressure from Uniteds top management, were able to get that last-minute third review for the airlines revised bid.

But their efforts only solidified the growing resistance to the powerful airline lobby that has for years been crafting financial breaks and helping the airlines in their struggle to avoid new security costs and reduce tax burdens.

Battle stations?

While airline insiders say that the political battle to save the behemoth legacy carriers is finally over, some who have watched the airline lobby battle for tax breaks and relief are not so sure.

They [United] packed their bags and left town awfully quickly, said David Williams, vice president of policy for Citizens Against Government Waste, a longtime taxpayer rights lobbying group. Its made us wonder if they wont be back to try again.

Not likely, say insiders.

They wont be back because this battle is over, said Vaughn Cordle, chief analyst and principal owner of Airline Forecasts. Cordle is a United pilot turned aviation consultant whose company just completed a strategic analysis of the industry.

In fact, despite millions of dollars spent on lobbying by the airlines, little tangible help for United, American, Northwest, Continental and Delta has emerged over the past year, with one exception being the governments passing of a bill allowing airlines and steel companies to defer billions of dollars in contributions to employee pension plans.

In addition, the government is continuing a program to provide war-risk insurance to U.S. airlines at a substantial savings on commercial premiums. Airlines are primed to lobby for an extension of that program, currently scheduled to expire by the end of this year.

Analysts note that US Airways successful $900 million loan guarantee from the ATSB, which faced less opposition from other airlines than Uniteds bid, hasnt made a significant dent in that airlines financial problems.

Financial experts have been predicting for weeks that US Airways will seek Chapter 11 bankruptcy protection for a second time, most likely this fall.

Government aid may not arrive despite hundreds of thousands of dollars funneled into political campaigns by the airlines, not just on the national level but at state and local levels, too, where airlines see opportunities to protect their interests in gates and tax incentives at airports.

But political observers say those contributions are unlikely to be much help even if  Hastert, who has legislated for and supported the airline industry throughout his congressional career, could not get more than a rehearing for Uniteds request of a loan guarantee.

Diminished influence

The idea that political influence by the major airlines is in decline has taken some political elements in Washington by surprise, including citizen and consumer-protection groups that filed a barrage of opposition letters with ATSB decision-makers in the months before Uniteds denials.

Williams said his tax-rights organization felt outgunned and outmanned -- and expected to lose -- when it launched a fight against Uniteds loan-guarantee application last year, particularly in view of Uniteds support from Hastert, in whose Illinois district United operates.

The $1.5 billion assistance idea, we think, started mainly in the speakers office, Williams said. United has a strong presence in his district, so he had a personal interest in pushing for the loan guarantee. That was red-flagged automatically because if any sort of business is going to get a loan guarantee, it should get it on its merits, not because an influential member of Congress is pushing it.

How hard United pushed the ATSB is still unclear.

Rich Delmar, counsel to the Treasury Departments inspector general, said an investigation into whether improper pressure was applied to ATSB members over the United application -- an investigation requested by Sen. Peter Fitzgerald (R-Ill.) -- is underway. No decision has been made on how that investigation will be reported to the public, he said.