The Economics of Post-September 11 Financial Aid to Airlines
30 Pages Posted: 20 Nov 2002
This Article considers the economic and policy merits of the Air Transportation Safety and System Stabilization Act, passed by Congress and signed into law in the immediate aftermath of the Sept. 11, 2001 terrorist attacks. The Act provided immediate cash relief to airlines to compensate them for losses resulting from the federal ground stop order during the first four days after the attack, as well as established the Air Transportation Stabilization Board to consider further federal financial assistance such as loan guarantees to airlines hurt by the actual terrorist events and the threat of future such events. During the year after the terrorist attacks, however, it became increasingly clear that the continuing lack of profitability of the industry (which lost about $7.5 billion in 2001, and, as of early November, was on track to lose an equivalent amount in 2002) was due to structural problems in the industry as well as fear of further terrorist events and overall weakness in the economy. Thus the loan guarantee part of the program inevitably put the ATSB into the business of choosing winners and losers in a troubled industry that needs to restructure. The promise of financial support to the industry, which may have been important symbolically in the days after Sept. 11, has had the effect of thrusting the federal government into a questionable role of setting industrial policy at a micro-level, via detailed examination of corporate strategies of individual airline.
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