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 The Brancatelli File

joe ANOTHER BAILOUT? NO.
NATIONALIZATION? WHY NOT?


BY JOE BRANCATELLI

September 26, 2002 -- Many of you have told me that you read this column with your morning cup of coffee. If so, please put down your mug. I don't want you doing a spit take onto your computer monitor and into your keyboard when you read these numbers.

Coffee down? Good. Now consider the following: Last year, just weeks after 9/11, Congress voted the nation's airlines a taxpayer-funded grant of $4.5 billion. On Tuesday, Delta chief executive Leo Mullin, speaking for the nation's largest carriers, went to Congress and begged for about $4 billion more. Today, when the markets closed, the total market capitalization of the nation's Big Six airlines was less than $3.4 billion.

Those statistics behoove me--and I generally only behoove when I haven't finished my morning coffee--to ask the obvious question: Why would we give the airlines more than they are worth? Or, perhaps more to the point: Why would we give the airlines more than they are worth again?

Here's a better idea: Let's nationalize the Big Six, pay off the shareholders and then put our best minds to work on a gigantic salvage project.

Mind you, I'm not suggesting frequent flyers get together and buy just one airline, a concept I presented two months ago. We're past that now. I'm not even suggesting that we reregulate the airlines, an idea I proposed when the carriers demanded their bailout last year. Regulation now would probably just lock the incompetent bosses and their inefficient practices in place.

What I'm suggesting today is an outright government buyout of the Big Six: American (market cap of $756.8 million); United ($167.3 million); Delta ($1.417 billion); Northwest ($641.6 million); Continental ($375.8 million); and even bankrupt US Airways, selling for 58 cents a share over the counter and worth just $38.1 million. What I'm proposing is that the U.S. government, our duly designated representative, buy these suckers lock, stock, planes, ticket jackets, air-sick bags, under-seat floatation devices and barrels of jet fuel.

(By the way, you may resume drinking your coffee now. I promise there'll be nothing to induce a spit take in the upcoming paragraphs.)

This concept is not as crazy or as foolhardy as it sounds.

Let's start with the money part of it. In his testimony before the House Aviation Subcommittee, Mullin said that the airline industry has been saddled with $4 billion in government-mandated security costs since September 11. He thinks these security costs should be borne by the government, not the airlines. He thinks taxpayers, not the airlines, should pay for airline security.

Let's take Mullin at his word--and I normally wouldn't take Mullin's word for anything, even if he held a mirror up to my face and told me I was bald and fat--and accept that taxpayers somehow owe the airlines $4 billion.

Rather than pay this to the Big Six, let's just nationalize them and compensate the shareholders. Four billion dollars should more than cover their loss. And if you think that the shareholders wouldn't bite, consider this: That alleged 56 cents a share that US Airways is worth will soon be wiped out in the airline's Chapter 11 bankruptcy reorganization. If I'm a United shareholder, $2.94 a share looks like found money when you consider United is careening toward bankruptcy, too. And if I were a Continental shareholder and watched my shares skid from nearly $53 just 26 months ago to yesterday's $5.80, I'd get out now.

Once we owned the Big Six, what would we do with them? For starters, we'd pull them off the money-losing routes where they are harassing the well-run airlines. I'd stop United and American from shadowing JetBlue on the new transcontinental routes it pioneered. I'd stop United from destabilizing Frontier at Denver. I'd force Delta to stop bludgeoning AirTran. And I'd want them all to stop attacking America West, which is under relentless assault because it decided to stop the fare insanity.

Once the remaining independent airlines were reassured that America nationalized the Big Six to protect competition, not destroy it, we'd go about remaking the nation's high-fare carriers. We'd rationalize their fleets, simplify their in-flight services and create new fare structures that would enhance revenue, not depress it. We'd get a clean sheet of paper and create airlines that make sense for today's market.

When they emerged, the Big Six might only be The Big Three. But they would be strong--with right-sized and decently paid rank-and-filers, streamlined management, logical fleets and understandable, reasonable fares and services. Then I'd take them public and leave them free to compete like normal businesses.

I understand that this idea is radical. I freely admit that there would be obstacles, unknowns, a few setbacks and, with a war looming against Iraq, a perilous short-term outlook.

But what other choice do we have? We tried letting the Big Six merge and purge in the 1980s. That didn't work. We tried letting buccaneers plunder and mismanage them in the 1990s. That didn't work. We tried a bailout last year and that didn't work.

Before we let the Big Six rob us blind again, I say we buy them out, send them home and get on with the job of fixing the mess ourselves.

This column originally appeared at JoeSentMe.com

Copyright 1993-2004 by Joe Brancatelli. All rights reserved.