Delta & Northwest file for bankruptcy: is it time to ground a major airline?

(2.) See MARIAN JELINEK & MARIJA ILIC, DEP'T OF ENERGY, OFFICE OF POLICY AND INT'L AFFAIRS, A STRATEGIC FRAMEWORK FOR ELECTRIC ENERGY: TECHNOLOGY AND INSTITUTIONAL FACTORS AND IT IN A DEREGULATED ENVIRONMENT 6 (2000), http://www.pi.energy.gov/documents/mitref2.pdf. Before 1978, the U.S. airline industry was "protected from competition and assured a profit." Id. There was no need to file for bankruptcy because "inefficient carriers were kept afloat by enforcement of rates based on the average costs of the industry." Robert M. Hardaway, Transportation Deregulation (1976-1984): Turning the Tide, 14 TRANSP. L.J. 101, 137 (1985).

(3.) Michael A. Katz, The American Experience Under the Airline Deregulation Act of 1978--An Airline Perspective, 6 HOFSTRA LAB. L.J. 87, 88 (1988) (observing that between 1938 and 1978 "not one new airline began operations as a large passenger air carrier").

(4.) See Airline Deregulation Act of 1978, Pub. L. No. 95-504, 92 Stat. 1705 (1978) (codified as amended in various sections of 49 U.S.C.). "Congress' intent was to allow for maximum reliance on the competitive market forces, which would further efficiency and innovation in the airline industry." Laynie Giles, Interpreting the Airline Deregulation Act of 1978: Federal Preemption Over State Deceptive Advertising Laws, 22 TRANSP. L.J. 87, 92 (1994) (citing Morales v. Trans World Airlines, Inc., 504 U.S. 374, 378 (1992)).

(5.) See Great Aviation Quotes, http://www.skygod.com/quotes/airline.html (last visited Apr. 1, 2007). Compare remarks made by Robert L. Crandall, former CEO of American Airlines, in 1977, while addressing a Senate lawyer prior to airline deregulation ("You can't deregulate this industry. You're going to wreck it. You don't know a goddamn thing!"), and Bruce Lakefield, former CEO US Airways, while between bankruptcies in October 2004, ("This entire industry is in a death spiral, including this company, and I can't get us out of it. Deregulation is an abysmal failure and we have no more furniture left to burn."), with Richard Ferris, former CEO of United Airlines, in 1976, ("Deregulation will be the greatest thing to happen to the airlines since the jet engine."), and Alfred Kahn, the airline economist and Chairman of the Civil Aeronautics Board who was responsible for deregulating the industry ("Whenever competition is feasible it is, for all its imperfections, superior to regulation as a means of serving the public interest."). Id.

(6.) Alex Marshall, Bad Air Days, GOVERNING MAG., Apr. 2005, at 68 (commenting that everyone has lost under deregulation, including small localities, passengers, suppliers, and investors).

(7.) Katz, supra note 3, at 94 (noting that over 100 carriers have merged or gone bankrupt since deregulation began).

(8.) See, e.g., Joseph C. Anselmo & Michael A. Traverna, Bad to Worse; Bankruptcy Filings Highlight Woes in U.S. Airline Market, but Fuel Prices Also Are Taking a Toll in Europe and Asia, 163 AVIATION WEEK & SPACE TECH. 26 (2005) (discussing that air carriers' losses in 2005 were due to oil prices, the cost of borrowing money, and labor costs).

(9.) Joel G. Chefitz, A Tale of Two Mergers; American/TWA and United/USAir, 14 DEPAUL BUS. L.J. 215, 218 (2002).

(10.) Id. at 219.

(11.) Michael Arndt & Wendy Zellner, How to Fix the Airlines, BUS. WEEK, Apr. 14, 2003, at 74. The federal government provided $5 billion in cash compensation and $10 billion in loan guarantees during 2001-2002. Id.

(12.) Chefitz, supra note 9, at 219.

(13.) Voluntary Petition, In re Delta Air Lines, Inc., No. 05-17923 (Bankr. S.D.N.Y. Sept. 14, 2005); Voluntary Petition, In re Northwest Airlines, Corp., No. 05-17930 (Bankr. S.D.N.Y. Sept. 14, 2005).

(14.) Two Airlines Confront Bankruptcy; Debt-Ridden Delta and Northwest Assure Passengers Schedules Will Be Maintained, THE RECORD, Sept. 15, 2005, at E6.

(15.) James A. Lovell, "Houston, We've Had a Problem," in APOLLO EXPEDITION TO THE MOON 13.1 (Edgar M. Cortright ed., 1975), available at http://www.hq.nasa.gov/office/pao/History/SP-3501ch-13-1.html (quoting the famous words uttered by Jack Swigert during the Apollo 13 space mission).

(16.) See, e.g., Anselmo & Traverna, supra note 8 (listing oil prices, the cost of borrowing money, and labor costs as reasons for the airline industry's recent struggles).

(17.) See Financial State of the Airline Industry: Hearing Before the Comm. on Commerce, Science, and Transportation, 107th Cong. 5 (2001) [hereinafter Hearing] (statement of Rep. Kay Bailey Hutchison, Member, Comm. on Commerce, Science, and Transportation) ("Almost 100,000 people have been laid off in the aviation industry."); id. (statement of Rep. Conrad Burns, Member, Comm. on Commerce, Science, and Transportation) (discussing that load factors are down to levels where airlines cannot break even).

(18.) Conrad de Aenlle, Steering Through Clouds Look Past Airlines for Industry Fliers, INT'L HERALD TRIB., Sept. 17, 2005, at Finance 3; see Alan Cowell et al., First Details of Bombs Emerge; Toll Reaches 49 and Some Bodies Aren't Recovered, N.Y. TIMES, July 9, 2005, at A7 (describing the London subway terror attacks); Elaine Sciolino & Don Van Natta Jr., Searching for Footprints, N.Y. TIMES, July 25, 2005, at A1 (describing the terrorist bombings in Egypt).

(19.) See Hearing, supra note 17 (statement of Rep. John McCain, Member, Comm. on Commerce, Science, and Transportation) ("[T]he aviation sector was already in financial difficulties before last week's acts of terrorism ... The airline industry does cycle with the economy, and with a poor economy the airline industry was in some significant difficulty before.").

(20.) Energy Information Administration, http://www.eia.doe.gov/oil_gas/petroleum/info_glance/jetfuel.html (last visited Apr. 1, 2007) (follow Weekly Spot Prices History hyperlink; then average the U.S. Gulf Coast Kerosene-Type Jet Fuel column by year) (stating average U.S. jet fuel spot price, based on U.S. Gulf Coast Kerosene-Type Jet Fuel Spot Price FOB, was $72.49 for 2001, $68.70 for 2002, $82.35 for 2003, $115.10 for 2004, $171.55 for 2005, and $192.29 for 2006).

(21.) David Bond, Higher Yield Haven; Having Ridden Out 9/11, SARS, and the Iraq War, International Service Looks Like a Life Preserver to Distressed U.S. Network Airlines, 163 AVIATION WEEK & SPACE TECH. 44 (2005).

(22.) Anselmo & Traverna, supra note 8, at 26.

(23.) See Bond, supra note 21, at 44 ("You can't reduce interest expenses if your survival depends on borrowing more and more to keep up operations.").

(24.) Anselmo & Traverna, supra note 8, at 26.

(25.) Mark C. Mathiesen, Bankruptcy of Airlines: Causes, Complaints, and Changes, 61 J. AIR L. & COM. 1017, 1031 (1996).

(26.) See U.S. Dep't of Labor, Bureau of Labor Statistics, http://data.bls.gov/oes/search.jsp (last visited Apr. 1, 2007). The May 2005 Bureau of Labor Statistics showed that the average airline worker was paid $58,130 annually, versus $37,870 annually for the average worker. See id. (To obtain airline worker annual mean, search multiple occupations for one industry; then select sectors 48 & 49; choose air transportation, code 481000; select TOTAL, ALL OCCUPATIONS code 000000; choose May 2005, data type annual mean wage, and data output HTML. To obtain national annual mean wage, choose one occupation for multiple geographic areas; select TOTAL, ALL OCCUPATIONS code 000000; choose national; choose May 2005, data type annual mean wage, and data output HTML.).

(27.) See, e.g., David Field & Donna Rosato, Airlines Delve Deeper into Net with E-Booking, Check-Ins, USA TODAY, Feb. 29, 2000, at B1 (discussing that the Internet is gaining momentum as more and more revenue is earned from bookings made online).

(28.) Chefitz, supra note 9, at 218-19 (discussing that airlines are earning lower revenues from decreased business travel).

(29.) See Sally B. Donnelly, Should the U.S. Keep Bailing Out Airlines?, TIME, Dec. 1. 2003, at 22.

(30.) See Tim Boreham, Criterion, THE AUSTRALIAN, Dec. 13, 2005, at 25 (commenting that customers are turning to the Internet to locate the cheapest fare).

(31.) Dan Fitzpatrick, Biggest Issues Facing the America West-US Airways Merger, PITTSBURGH POST-GAZETTE, May 20, 2005, available at http://www.post-gazette.com/pg/05140/507674.stm (stating that overcapacity is a problem because "too many seats are chasing too few passengers").

(32.) See Bond, supra note 21, at 44. Domestic overcapacity causes airlines to lower fares when they can least afford it. Id.

(33.) See Delta Rivals Bid to Thwart Cap on Fares, DES MOINES REG., June 17, 2005, at D1 (stating that in mid-June 2005 Northwest tried to raise the $499 cap Delta had on certain one-way fares by $50, but the fare increase fell apart after Delta and American failed to match it).

(34.) See Martin Moylan, Big Airlines Find Profitable Skies Overseas, DULUTH NEWS TRIB., Apr. 22, 2005, available at 2005 WLNR 22923389.

(35.) Bond, supra note 21, at 44 (stating that "[d]omestic overcapacity wouldn't be a problem if it weren't driving down fares" and explaining that these low yields (revenue per seat mile flown) have erased the carriers' efforts of filling airplanes).

(36.) A Surprising Boom; The Airline Industry, THE ECONOMIST, Nov. 12, 2005 (stating that by the end of 2005 the world's airlines will have lost a total of approximately $43 billion since 2001).

(37.) Anselmo & Traverna, supra note 8, at 26.