Loan program could make feds part-owner of airlines

WASHINGTON -- In exchange for its financial help, the government may buy stock in airlines, a concept that worries some aviation analysts.

"There's an inherent conflict of interest here," says Darryl Jenkins, director of George Washington University's Aviation Institute. "You could not be secretary of transportation and own stock in an airline."

The stock purchase was made possible by a provision in a $15 billion bill to help the airline industry, still hurting from a loss of business following the Sept. 11 attacks.

America West Airlines, the first to file for government help, received conditional approval Friday for $380 million in loans.

The precedent for taxpayers buying a piece of private companies was set during the 1979 Chrysler bailout.

Proponents of the deal say taxpayers should get the same benefits as anyone else lending money to a financially troubled industry; some airlines were struggling even before the attacks. Others, however, argue that the government shouldn't own part of a business that it deregulated in 1978.

"When we deregulated, the whole idea was to get government's hand out of the airline business. This kind of lets them in," said Dean Headley, associate professor of marketing at Wichita State University and co-author of an annual study on airline quality.

Congress voted to provide $5 billion in cash payments and $10 billion in loan guarantees. At the time, lawmakers told airlines that wanted taxpayer guarantees for their loans that they should allow the government to buy stock in their companies.

Sen. Jon Corzine, D-N.J., an author of the provision, said that with the Chrysler bailout, taxpayers profited by a rise in the automaker's stock once loans helped turn the company's fortunes around.

But airlines are not eager to let the government buy into their companies, and the requirement that they do so may discourage loan applications, said John Heimlich, director of economic and market research for the Air Transport Association, the trade group for the major airlines.

"Yielding ownership to the government is certainly not something that was volunteered prior to the terrorist attack," Heimlich said. "From a company's standpoint, it's something you'd rather not do."