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Will Congress Pass the Airline Bailout Act of 2012?

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Airline Bailout Act of 2012.PNGWhen members of Congress come back Washington, D.C., they’ll likely be confronted with a bill that could become known as the Airline Bailout Act of 2012. The bill in question -- S. 1956 from Sen. Thune (R-N.D.) -- would direct the U.S. government to require U.S. airlines to violate a European law mandating that all airplanes reduce their global warming pollution for flights to and from the European Union. The airlines have pushed hard for this bill behind closed doors, working to have it quickly approved without much public debate. A little known provision in that bill could force U.S. taxpayers to bailout the airlines -- to the tune of at least $22 billion -- by putting the federal government on the hook for fines resulting from the failure of U.S. airlines to comply with the EU law. And all this over an EU policy that would cost at most $3 per transatlantic ticket. (Yes, those same airlines that seem to nickel and dime you for every drink, checked bag, seat or child that you would like to have seated next to you instead of with a stranger.)

The bill passed through the Senate Commerce, Science, and Transportation Committee last month (see minutes 30 to 32 of the mark-up where the committee discussed the bill). The bill’s proponents are pushing for quick Senate action, as the House has already passed a bill with similar provisions.  This bill went through committee with very little review, analysis or consideration of how one little provision would be implemented and what impact that would have on U.S. government expenditures (and taxpayers). The provision in question is Sec. 3(2) that states:

“The Secretary of Transportation, the Administrator of the Federal Aviation Administration, and other appropriate officials of the United States Government…shall, as appropriate, take other actions under existing authorities that are in the public interest necessary to hold operators of civil aircraft of the United States harmless from the [EU] emissions trading scheme” [emphasis added].

“HOLD AIRLINES HARMLESS” HAS FINANCIAL CONSEQUENCES FOR TAXPAYERS

If signed into law and implemented (as its proponents clearly want) the bill could put taxpayers at risk of a significant bailout for the airlines through the “hold airlines harmless” provision.  Failure to comply with the EU law automatically subjects the airlines to fines of around $125 (€100) for every ton of carbon dioxide their aircraft emit during all their flights to and from Europe, as spelled out in the EU law. In 2010, the big five U.S. airlines emitted 16 million tons of carbon dioxide for their flights between the U.S. and Europe with significant growth projected through 2020. So failure to comply with the EU law would subject U.S. airlines to a potentially whopping $22 billion in fines through 2020, according to congressional testimony.

Faced with this fine, who do you think the airlines will ask to foot that bill?  They certainly would not absorb the cost themselves and, seeing how hard they object to the $3 per ticket cost of the EU policy, they would probably not pass it on to their customers. Instead, they will demand that Congress foot the bill since Congress mandated that they be “[held] harmless,” essentially holding the government hostage for a bailout. After all, they will say, they were only subject to that $22 billion fine because Congress adopted a law directing that they commit a crime in Europe, disregarding their original role in lobbying for the measure.

So implementation of the “Airline Bailout Act of 2012” (S. 1956) could subject U.S. taxpayers to a potentially whopping $22 billion airline bailout through 2020.

And even larger financial consequences are possible if airlines fail to pay those penalties. If airlines fail to pay the $125 per ton penalty, then they are subject to a process that could lead to their aircraft being impounded, their rights to fly to Europe revoked, or many other measures.  As the EU law states:

“In the event that an aircraft operator fails to comply with the requirements of this Directive and where other enforcement measures have failed to ensure compliance, its administering Member State may request the [European] Commission to decide on the imposition of an operating ban on the aircraft operator concerned” [emphasis added].

And who do you think the airlines will turn to when faced with this additional costs? Most likely the government who conveniently handed them their get out of jail free card. So $22 billion could be just the beginning of the costs borne by the U.S. taxpayers because the airlines were unwilling to clean up their emissions.

AIRLINE BAILOUT ACT OF 2012: A $22 billion taxpayer expense

Proponents of this bill claim that all they are doing is pushing the EU to seek a global solution. While that is a dubious claim given over 15 years of inaction by the U.N. global aviation body, proponents of the bill conspicuously avoid adding text to the bill authorizing the United States to join such an agreement, a sure sign of a bait and switch down the road. Instead, they simply bide their time while the “hold airlines harmless” provision opens up the flood gates to another airline bailout.

People need to ask the proponents of this bill: “Why are you passing a law that will potentially lead to a $22 billion bailout of the airlines?” That doesn’t make sense as the airlines don’t need a bailout. Instead the airlines should just undertake the small cost to invest in cleaning up their carbon pollution.  We know they can do it as airlines continuously tout their “green” credentials and airplane manufacturers are competing to see who can produce the greatest fuel-sipping plane. There are literally $22 billion reasons to not pass the “Airline Bailout Act of 2012” (S. 1956) and instead do some good for the environment, while avoiding another airline bailout.

So I hope that members of Congress and the Obama administration come to their senses quickly on the “Airline Bailout Act of 2012” (S. 1956). Otherwise U.S. taxpayers may be asked in the future to support a $22 billion bailout (approximately $70 for every U.S. taxpayer) when the airlines could have easily complied with the EU law for less than $3 per transatlantic ticket -- way less than the price of a checked bag.

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