Clinton seeks overhaul of aviation industry

January 07, 1994|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- The Clinton administration proposed yesterday the biggest shake-up of the $80 billion U.S. aviation industry since it was deregulated in 1978, seeking to create a new government corporation to run the air traffic control system, encourage employee ownership of airlines and open domestic carriers to more foreign investment.

The package is designed to increase efficiency, competition, safety and profitability for an industry that has lost $11 billion in the past four years and seen some of its most famous carriers either disappear or enter bankruptcy.

"I believe the core elements of a strong revival for the U.S. airline and aircraft industries are emerging," said Transportation Secretary Frederico Pena. "The aviation industry is critical to our country."

Industry representatives said the changes would help airlines recover their financial footing.

"We think this is a good package," said Tim Neale, of the Air Transport Association, which represents 17 of the nation's major airlines. "While the outlook for 1994 is better than it has been for the last couple of years, we still don't feel we are out of the woods."

While the administration says it hopes to bolster the ailing airlines, it rejected the industry's request for an immediate cash injection through a reduction in the passenger tax from 8 percent to 5 percent.

Laura D'Andrea Tyson, who chairs President Clinton's Council of Economic Advisers, said the central problem for airlines is global economic weakness, not the domestic tax structure. She pointed out that the industry stands to gain $1.4 billion a year from its exclusion for two years from the 4.3 percent increase in the federal gasoline tax and other tax changes in this year's budget.

"The most important thing that can be done to address some of the problems of these two industries [aviation and aerospace] is to restore overall strength to the U.S. economy," she said, adding that the economy now appeared headed for a period of sustained, moderate growth.

Most of the changes proposed yesterday were recommended by the 15-member National Commission to Ensure a Strong Competitive Airline Industry, established by Mr. Clinton last year and headed by a former Virginia governor, Gerald Baliles.

The most drastic proposal was to strip the Federal Aviation Administration of responsibility for the nation's air traffic control system and to create a new corporation, along the lines of Amtrak, to oversee the system.

"We believe it is important to bring a business-like orientation to the air traffic control system," Mr. Pena said.

Controllers endorse change

The move was welcomed by the National Air Traffic Controllers Association, which has complained of bureaucratic bungling, equipment delays and staffing levels since the controllers' strike 12 years ago.

"We think it will directly benefit the flying public, the air carriers and the controllers by making for a more modern and efficient system," said Jeff Beddow, the association's spokesman.

He dismissed concerns in Congress, where the legislation to create the new corporation is likely to come under intense scrutiny, that the shift of responsibility could undercut safety margins by reducing the number of controllers and increasing their air-space responsibilities.

"We don't think that's going to happen," said Mr. Beddow. "The bureaucracy the system has had to deal with over the 12 years since the strike certainly contributed in no way to a safer system."

He said it was not yet clear whether the number of controller jobs would increase. Currently, he said, there are 15,000 air traffic controllers, but the association would like to see at least 2,000 more.

The administration will encourage employee ownership and "gain-sharing" programs. It is also working on strategies to keep a competitive edge in high-skill, high-wage jobs, and to protect and help aviation workers hit by mergers, acquisitions and route sales.

Under the proposals, U.S. airlines would be opened to greater foreign control -- but only if the government of the interested overseas investor has signed a liberalized aviation agreement with the United States, allowing freer U.S. access to its airspace and greater investment opportunities in its aviation industries.

Current law limits foreign holdings of U.S. airlines to 25 percent of voting stock. This would be increased to 49 percent if Congress accepts the proposal.

USAir directly affected

This could affect British Airways' holding in USAir. A new U.S.-Britain aviation agreement is under negotiation, with a March 17 deadline. If agreement is reached and Congress accepts the administration's proposal, British Airways would increase its stake in USAir to 49 percent.

In a statement yesterday, British Airways said: "British Airways supports the goal of liberalization, and we support and endorse any developments which will help bring that about.

Among other major initiatives proposed by the administration yesterday:

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