Subsidizing anti-merger hysteria
Scott McCartney reports in today's Wall Street Journal that the Air Transportation Stabilization Board "is almost done with its work, and the airline-guarantee program will end with a profit of more than $300 million, according to executive director Mark Dayton." ATSB was a post-September 11 creation designed to compensate airlines for losses due to the air system's shutdown and provide up to $10 billion in taxpayer-backed loans "in case commercial loans weren't available."
The ATSB's "profit" came about because (1) the board guaranteed only $1.6 billion in loans out of the congressionally-authorized $10 billion, (2) airlines paid $220 million in fees; and (3) the board sold, or plans to sell, $135 million in stock acquired from three airlines in exchange for the loan guarantees. McCartney quoted US Airways Chief Executive W. Douglas Parker as crediting ATSB loans with fostering his airline's merger with America West. McCartney didn't mention the fact that less than two months before September 11, the Justice Department joined with several state attorneys general to stop United from acquiring US Airways. Attorney General John Ashcroft said at the time that "millions of consumers—business, government, and families—would have little choice but to pay higher fares and accept lower quality air service." United and US Airways later declared bankruptcy (the latter twice), and as Parker said, the loan subsidies kept the airlines alive long enough to merge.
Airlines inspire a particularly violent paranoia among antitrust regulators. This past January, the DOJ bullied the Transportation Department into rejecting a proposed route-and-pricing alliance between Northwest Airlines and several other airlines. Northwest condemned the Bush administration's rejection as "arbitrary, capricious and inconsistent with established DOT precedent and U.S. international aviation policy."
Indeed, the government's disdain for airline consolidation led to the ATSB's creation. "ATSB was merely delaying consolidation and restructuring necessary for the industry to regain financial health," McCartney wrote, quoting ATSB critics. Unfortunately, the ATSB's purported "profit" will only affirm Congress' belief that it did the right thing. But the real lesson here is that government should stop meddling with mergers and acquisitions. Abolishing the Antitrust Division (and the Federal Trade Commission) in 2001 would have saved taxpayers far more money than the ATSB's surplus will generate for the Treasury.