After years of airline subsidies, how about a payback for taxpayers?

by Stephanus Surjaputra on July 31, 2008

Taxpayers have been subsidizing the airline industry since its inception. Now, three non-profit organizations have put together a report that details a litany of airline subsidies from low-cost loans to pension guarantees and offer proposals about how the airline industry can repay taxpayers.

The East Bay Alliance for a Sustainable Economy (EBASE), Los Angeles Alliance for a New Economy, and Working Partnerships USA, feel that it’s time for the airlines to pay us back.

From the first days of flight up until the 1970s, taxpayers, through the federal government, provided more than $155 billion in direct support for the aviation industry. Even after deregulation, federal and local governments have continued to provide infrastructure support, tax exemptions and low-cost financing. For example, the government has provided $4.64 billion in taxpayer funds for cash grants and $1.65 billion in loan guarantees in case the airline loan defaults.

After September 11, the industry received approximately $8 billion in federal assistance that continued even after most airlines returned to profitability. Furthermore, the federal pension reform legislation that was passed in 2004 and 2006 provided relief to the airlines valued at more than $3 billion.

Since 2002, in California alone, the airlines received approximately $487 million in state and local subsidies that included tax exemptions and low-interest bond financing. For example, the airlines are exempt from state sales taxes on jet fuel purchases for some flights. This exemption for international flights will cost the state and local governments more than $800 million from fiscal year 2005 to 2009. Despite this, the airlines still want to expand the exemption for out-of-state domestic flights.

Airlines at LAX have received approximately $1.3 billion in low-interest financing to improve or construct their facilities and buy equipment. United Airlines alone received $413 million in low-interest bond financing for improvements at LAX and San Francisco.

In days past, the airline industry provided jobs for the middle-class. It allowed the workers to provide for families, receive healthcare and a good retirement benefit. However, since 9/11, the airlines have turned to contracting policies, which drive down wages and benefits.

When current airline workers earn less than the living wage and are unable to afford healthcare or aren’t even offered healthcare, they rely on government assistance programs. As taxpayers, we bear that cost as well.

Cost-cutting measures and contracting out critical duties without appropriate standards have jeopardized security and passenger safety. Additionally, lack of training and under-staffing led to inadequate airline services for the elderly and the disabled.

How can the taxpayers get a fair return on investment? The groups suggests three things:

1. Provide middle-class jobs and ensure quality service and passenger safety.
2. Federal, state, and local officials should take action to raise standards for job quality, security, and service quality.
3. Goverment programs that provide subsidies to business should contain public benefit requirements.

You can download the full report (PDF) on their website.

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  • Steve

    Interesting report. It may be challenging from a policy perspective, but it seems entirely in the public interest to have future subsidies tied to improvements for passengers and airline workers.

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  • Hugh Jorgan

    I hardly consider any of those listed to be subsidies. You want to be upset about something write an article about agriculture subsidies. Nobody seems to care at all about those.

  • http://thenorthcoast.blogspot.com Laura Louzader

    A discussion of subsidies and favors granted the airline industry in this country, is timely, especially now that we are considering massive subsidies for high speed rail.

    However, per Steve’s comment regarding the huge subsidies for agri-business, the better to make food more expensive for the taxpayers who underwrite the entire hairball of corporate welfare and subsidies, from operating subsidies to low-interest loans to tax abatements and TIF districts to outright bailouts, for inefficient and/or obsolete industries, we need to start steeply rolling back subsidies of all kinds. We now have such a tangle of subsidies that we have completely no idea what really pays its own way and what does not.

    At the same time, we need to level the regulatory playing field for the various modes of industry and power generation, as well as other industries. The only way to rebuild a sustainable economy OR a sustainable transportation system is upon industries that pay for themselves.

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