October 7, 2008

Next Federal Bailout Could Be Up in the Air


WE HEARD much about market forces last week as Main Street America and Congress wrestled with the historic financial bailout of Wall Street. But did anyone notice the other battle over market forces in northern New Jersey?

This tussle involved commercial jetliner traffic at Newark Liberty International Airport.

In a move considered a prescription for chaos by some and an example of economic fairness by others, the Bush administration proposed to auction take-off and landing rights to Newark. But last week, the Government Accountability Office, the investigative arm of Congress, suggested this auction plan might be illegal.

So now what?

As the Bush administration called a bureaucratic time-out to study its next move, it's worth taking a look at what was really going on here.

Was this really a fight for economic fairness? Or does this confrontation contain the same kind of reckless economic logic over deregulation and market-driven forces that have rocked Wall Street and the retirement accounts of millions of hard-working people?

Consider how this airport auction plan began.

Airport congestion

In announcing the auctions last August, the U.S. Department of Transportation said its real goal was not to collect fees from airlines but to cut down on airport congestion.

If you wondered how an auction would do that, you're not alone. The Port Authority, which runs the regions' airports, asked the same question. So did most major airlines.

Meanwhile, the possibility of auctions for the right to land and take off was hardly inconsequential news for North Jersey. Not only are our skies crowded with all manner of planes and helicopters, local airports seem as congested as parking lots at Garden State Plaza during the Christmas shopping crush.

But the news of the auctions was important for another reason. Newark-Liberty, which ranks only behind New York City's LaGuardia Airport with the worst on-time arrival record among the nation's 32 largest airports, was to be the first experiment in auctioning.

Two slots at Newark, formerly allotted to bankrupt Eos Airlines, would be put up for bid first - an evening departure slot and a landing slot at 5 p.m. on some days and at noon on others. Because Eos had declared bankruptcy, the Federal Aviation Administration assumed control of the take-off and landing slots.

Normally the FAA would simply give the slots to other airlines without charging anything. But the Bush administration has a different view on how air traffic should work. And to understand this, all you need to do is consider how the FAA handled complaints in recent years about over-crowding at Teterboro Airport.

Despite demands from scores of public officials as politically diverse as liberal Democratic Rep. Steve Rothman and conservative Steve Lonegan, the FAA has tried for years to wash its hands of imposing strict controls on take-offs and landings at Teterboro. The reason? The FAA claimed repeatedly it had no right to interfere with free-market choices for air travel. The FAA game plan seemed to say that if you could pay to have a private jet at Teterboro, good for you.

In other words, safety be damned. Let the market decide what is best.

Remember what this kind of market-based logic did to Wall Street? Well, consider the possible chaos at an airport.

Nonetheless, this was precisely the mindset behind the airport auction program.

News of the auction of two slots at Newark -- and the added demand by the FAA that as many as 208 slots at Newark, JFK and LaGuardia airports might be put up for bid eventually -- created a frenzy among airlines. The airlines don't pay for slots now, only for the right to land at area airports. What's more, airlines that dominate the regions' airports have sunk millions into terminals for passengers.

If they lost their slots through auctions, what would become of their terminals?

That was just one question. Here is another that is even more basic: If the airlines had to bid for scheduling slots, wouldn't they merely pass on the cost to passengers?

The Port Authority estimated that some airlines would have to raise ticket prices as much as 12 percent. How would this cut down on airport congestion?

The auction anti-congestion theory was neatly summed up in August by U.S. Transportation Secretary Mary Peters. She said that forcing airlines to bid for scheduling slots at the busiest times of the day at the busiest airports would force airlines to rethink how they operate. In other words, market forces would force the airlines to change.

Her suggestion: The airlines might simply buy bigger planes.

Memo to Ms. Peters: Where will the cash-strapped airlines get the money for new planes?

"Market-based mechanisms are the best way to ensure consumers will receive quality service at affordable prices," she said.

That sounds nice. But Peters seemed to overlook a far more likely possibility. If airlines had to pay more, they would surely find ways to save more - like packing even more travelers into already crammed jetliners.

What a wonderful concept.

And then, when the airlines continue to lose money, perhaps they could fall back on a well-worn safety net -- the same one used by Wall Street.

Yes, a bailout.

Anybody want to bid on that?


Mike Kelly is a Record columnist. Contact him at [email protected]

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