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AIRLINES Industry seeks $9B in tax cuts



Published: Fri, March 14, 2003 @ 12:00 a.m.



The government should allow the airline industry to shrink, some experts say.

WASHINGTON (AP) -- Major airlines say they need government's help -- $9 billion in tax cuts -- to withstand the decline in air travel and rising fuel costs that could result from a war in Iraq.

The Air Transport Association, which represents major airlines, predicted Tuesday that a war in Iraq would result in passenger traffic's falling more sharply than in the 1991 Persian Gulf War.

Airlines would lose $10.7 billion, nearly 10 percent of daily flights would be canceled and 70,000 airline jobs would be cut, the association said.

"We're in a crisis," said James May, the association's president. He said the airlines weren't asking for a bailout, but for help in withstanding the consequences of war.

Congress already gave the industry $5 billion in cash when many people stopped flying after the Sept. 11 terror attacks.

The size of that relief package, which included a $10 billion loan guarantee program in addition to cash grants, dampened lawmakers' appetite for giving the airlines the $9 billion in tax cuts they say they now need, said a spokesman for House transportation committee chairman Don Young, R-Alaska.

"At what point do you set a limit to how much you can give to one industry?" asked the spokesman, Steve Hansen.

Want taxes suspended

The airlines want six taxes they pay into a trust fund suspended from the start of any war and resumed one year after it ends. They include user fees on cargo and passengers, a $2.50-per-passenger security surcharge and a 4.3-cent-a-gallon jet fuel tax.

The airlines also want the government to pay for security improvements at airports, saying they are a matter of national defense.

Some economists say the industry needs to shrink to its proper size whether there's a war or not.

"What happens if we lose 20 percent of flights?" asked Severin Borenstein, a University of California professor at the Haas School of Business in Berkeley. In that case, he said, "we have a network system as large as it was in 1995. I don't remember people saying in 1995 we have too primitive a system for the economy to survive."

Lawmakers are more likely to extend war-risk insurance, which protects airlines from liability claims for injuries resulting from war or terrorism, said House aviation subcommittee chairman John Mica, R-Fla.

Issued after attacks

Congress authorized the government to issue the insurance, which got too expensive in the private market after the terrorist attacks on New York and Washington.

"The aviation industry has some fundamental problems that go beyond any threat of war," Mica said, citing too much capacity, management shortcomings and tough competition.

"I don't think there's any stomach for bailing out airlines," Mica said. "The best thing they can do is get behind the president to get the Iraq conflict behind us."

In the Senate, aviation subcommittee chairman Trent Lott, R-Miss., is looking for a way to grant the airlines at least some temporary tax breaks and to have the government pick up more security costs, said his spokeswoman, Susan Irby.




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