Mullin says Congress must act quickly on airline tax relief

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Mullin says Congress must act quickly on airline tax relief

Delta CEO Leo Mullin yesterday called for the next Congress to lift the security cost burden from airlines and also reduce other ticket taxes as one of its first priorities, and said airlines risk a government takeover unless such action is taken quickly.

Mullin believes Congress will be more receptive to providing tax and security cost relief when lawmakers return to work next year, because the United Chapter 11 filing and US Airways' continuing problems have put even more emphasis on the industry's plight since Congress last considered the issue. Moreover, Mullin said the airlines' tax relief proposal is compatible with White House plans for an economic stimulus package. Speaking at an Aviation Safety Alliance briefing, Mullin echoed Air Transport Association President Carol Hallett (DAILY, Nov. 11), who said "failure to fix the root causes of the airline industry's meltdown may necessitate nationalization of the industry." Mullin said the airline industry runs the risk of following the plight of the northeast railroads in the 1970s, when a string of bankruptcies forced the government to nationalize these companies. Without tax relief and security reimbursement, "the government will by default come to own airlines, possibly leading to a Conrail-like saga," Mullins said.

Apart from security costs imposed after the Sept. 11, 2001, terrorist attacks, federal aviation taxes are much higher than in other industries, Mullin said. He estimated a $300 airline ticket is taxed at 19%, higher even than the "so-called sin tax" of 18% applied to a packet of cigarettes.

Airlines pay about $9.3 billion in taxes currently, not including the new security tax, said Mullin. If Congress reduced this burden to about the level paid by companies involved in distilled spirits and handguns, it would cut the total by 50% to about $4.6 billion.

If Congress also takes over $4.2 billion in additional security costs, the savings would nearly equal the $9.8 billion pre-tax loss the airlines are expected to suffer this year.

Mullin also reiterated his belief that the DOT will approve the proposed Delta-Northwest-Continental code share agreement, and that any other outcome would not be equitable. If the three-way code share is declined, United and US Airways would have an unfair competitive advantage after their code share was approved. Both code share proposals should be approved, as they are both in the public interest, Mullin said.

Commenting on the low-fare carrier that Delta plans to introduce, Mullin said it will be "an organization unto itself, in a holding company structure." He said it will have its own name and identity, and even the aircraft livery will differ considerably from that of the parent company. The aircraft "will not look like Delta -- [passengers] are going to know the difference," Mullin said.

He said the Delta subsidiary will have an advantage over independent low-fare carriers such as JetBlue and Southwest because its passengers will have access to the mainline frequent-flier program. Admitting that other major carriers have failed with low-cost subsidiaries, Mullin said Delta has studied previous similar attempts "and I don't see any reason whatsoever why we can't succeed."

Commenting on the Air Line Pilots Association's renewed legal challenge against the carrier's use of force majeure to break job protection contract clauses, Mullin said he expects the court to once again rule in the airline's favor. He said the airline "vetted in extreme detail" the force majeure clause before it was enforced. He said the conditions for force majeure will end eventually, "but not yet."

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