National Airlines will emerge from

National Airlines will emerge from Chapter 11 bankruptcy. The Las Vegas-based carrier has managed to find $112 million in new financing. Kudos to them! However, their CEO made a rather bizarre statement about the role of private dollars:

    “This financial package displays the support the private sector has shown for our business plan and their recognition of the evolution of the airline industry toward efficient, low-fare carriers. Unfortunately, the Air Transportation Stabilization Board (ATSB) failed to recognize this dynamic change in the industry when they rejected National’s loan guarantee application.”

Let’s see — they got the dollars they needed from the private sector — so why should the government have given them guaranteed loans? On the other hand, one statement from the National CEO does ring true:

    “The ATSB has sent a clear signal that they are committed to perpetuating certain high-cost, high-fare major airlines, which runs completely counter to the preferences being made by the traveling public.

Big surprise there — government industrial policy picks winners and losers. Sad, but an inevitable outgrowth of state subsidies for industry.

In any event, these ATSB guaranteed loans

  • are dangerous because they give the federal government a direct say in the way that an airline is run.

  • give the feds even more of a role in a bankruptcy proceeding
  • create terrible incentives — the government now prospers to the extent that the airlines with guaranteed loans prosper, encouraging the government to further skew the playing field against airlines who don’t take funding — not to mention encouraging future intervention to ensure the initial investment.

As National Airlines proves, private funding is still available, even for flagging airlines. There is no reason for the federal government to be stepping in here, no matter what Dick Gephart thinks.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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