Board Acted "Like Investment Bankers" In Airlines... And Made Money

This may come as bad news for members of the United Auto Workers, but the old Air Transportation Stabilization Board, which oversaw the federal bailout of the airlines following the 9/11 attacks, is being eyed as a model for how a bailout of domestic automakers might work.

The Wall Street Journal reports the airline industry rescue, the last by the feds for a non-financial sector of the economy, was a hard pill to swallow for the industry, but actually wound up profiting the taxpayers by $300 million.

"Nobody in their right mind wanted to lend to the airlines," former ATSB executive director Mark Dayton recalled to the WSJ. "We didn't know if there was going to be another attack or a string of 30 attacks."

There are many parallels between the two cases. Both involve troubled companies seeking government-subsidized loans, blaming the crisis on factors beyond their control. Congressman Barney Frank wants to set up a board to conduct "rigorous" oversight of automakers who accept federal loans, receive stock warrants, and demand viable restructuring plans before getting the money.

This idea has grim echoes for auto workers. In the airline bailout, managers gave up pay and perks, but unions faced the choice between long-term concessions to reduce costs, or the loss of their jobs completely if the companies folded. The terms were so rigorous that some troubled airlines, including American and Delta, walked away. Nine others were turned down by the ATSB.

US Airways and America West -- which later acquired the former out of bankruptcy -- were the two largest beneficiaries of ATSB funds, receiving a combined $1.28 billion in loan guarantees.

Jeffrey Shane is a former ATSB member and undersecretary of policy at the UD Department of Transportation. He recalls, "We were supposed to act like investment bankers at the end of the day. We were supposed to do things prudently. We made money."

FMI: www.ustreas.gov/atsb