Category AVIATION &ТНЕ ROLE OF GOVERNMENT

There has been an on-going shake-out in the air transportation business for 35 years. We have attempted to trace the progress of this evolution in the preceding chapters and what we have seen is not pretty. Economic deregulation has brought chaos to the airline industry.

The air carrier industry has become just about as lean as it is possible to get, mostly at a cost to the airline employee and the comfort of the traveler, yet profits are scarce and undepend­able. Capacity has decreased. Air fares are rising. The last legacy airline has gone into Chapter 11.

There can be no question that the consumer has benefitted greatly—but at what cost? The
entire sector is barely hanging on, trying to sur­vive between one uncontrollable externality and the next. Under deregulation, unfettered com­petition has taken the place of any discernible national transportation policy. Is this sustainable?

One authority on the subject, Robert Cran­dall, former American Airlines CEO, thinks not:

«Three decades of deregulation have demonstrated that airlines have spe­cial characteristics incompatible with a completely unregulated environment. To put things bluntly, experience has established that market forces alone cannot and will not produce a satis­factory airline industry, which clearly needs some help to solve its pricing, cost, and operating problems.»

The airline industry is composed of or affected by at least four main entities: airline labor, airline passengers, airline management,
and airline company shareholders. Their indi­vidual interests are vastly disparate, but their one common interest is airline profitability. Yet, airlines are not reliably profitable; in fact, they are rarely profitable. Under the private enterprise system, a corporation will not long exist if it does not make a profit.

As legacy airlines have slimmed down under Chapter 11 or gone out of business, and as new entrant airlines have picked up the slack in capac­ity and service abandoned by the legacy carriers, a tentative status quo has been maintained. But at some point this process as a means of maintaining an air carrier system must cease, and a sustainable model for a profitable and durable airline system must emerge. Whether this can be done without at least some form of governmental control or eco­nomic re-regulation is now an open question. But there are powerful interests that now suggest that some sort of re-regulation, different from the kind of onerous and inclusive CAB regulation previ­ously in place, must be entertained.

Endnotes

1. Discussed more at length in Chapter 40.

2. Bin Laden was killed by members of United States Navy Seal Team 6 on May 1, 2011 in Pakistan.

3. Pub. L. No. 107-42; 115 Stat. 230.

4. Pub. L. No. 107-71; 115 Stat. 597 (2001).

5. Representative John Mica, Chairman of the House Transportation Committee.

6. Wall Street Journal, April 9, 2012.

7. Pub. L. No. 107-296; 116 Stat. 2135 (2002).

8. The SARS epidemic was the outbreak of a viral respira­tory disease in Hong Kong in late 2002, which spread worldwide during the ensuing months, causing over 900 deaths. Although the death rate of SARS is only 1 percent for people aged 24 or younger, it is 50 percent for those 65 or older. SARS caused a worldwide reduction in airline traffic volumes.

9. Hedging refers to the practice of buying crude oil futures contracts. Prices can be locked in at a predetermined (current) price even as the price of oil goes up.

Hedging does carry some risk since to buy a futures contract assumes that the price will rise in the future. If it does not, then the owner of the futures contract will either make no profit or will lose money. Given the history of oil prices, hedging has been a lucrative practice in recent years.

10. Fuel would soon surpass wages as the largest airline cost of doing business.

11. In January 2012, Southwest reported its 39th consecu­tive year of profitable operation.

12. The Pension Benefit Guaranty Corporation’s (PBGC) single-employer insurance program is a federal program that insures certain benefits of the more than 34 million worker, retiree, and separated vested participants of over 29,000 private sector defined benefit pension plans. Defined benefit pension plans promise a benefit that

is generally based on an employee’s salary and years of service, with the employer being responsible to fund that benefit, invest and manage plan assets, and bear the investment risk. A single-employer plan is one that is established and maintained by only one employer. It may be established unilaterally by the sponsor or through a collective bargaining agreement.

13. Operating loss does not include interest expense and other allowable expenses. The net loss was $23 billion total for all airlines.

14. Alaska Airlines is part of a system of airlines that origi­nated in 1932 and existed as a feeder airline during the period of regulation. It took the name “Alaska Airlines” in 1944. It is the only pre-1978 intrastate airline not to have sought bankruptcy protection.

15. Air Transport Association. “List of Bankruptcies.” http:// www. airlines. org/economics/specialtopics/ USAirlineBankruptcies. htm.

16. This is an unusual result since stockholders of a bank­rupt company, even in Chapter 11, usually get wiped out.

17. U. S. Department of Transportation, FAA Aerospace Fore­cast, Fiscal years 2012-2032.

18. In 1995, the FAA brought regionals flying aircraft with 10 or more seats under the same regulatory scheme as the major airlines.

19. These incidents are taken from Public Broadcasting Corporation website Frontline http://www. pbs. org/wgbh/ pages/frontline/flyingcheap/etc/cronfaa. html#six).

As a result of the band-aid approach to fixing the deficiencies of Warsaw, the world interna­tional transportation community operated under a patchwork of rules governing liability and com­pensation in cases of loss. Under the auspices of ICAO, an international conference was convened in Montreal in 1999 and adopted what is now referred to as the Montreal Convention of 1999 (Montreal 99). The basic provisions of the Con­vention (Montreal 99) include: (1) imposition of strict liability for the first 100,000 SDRs of proven damages for passenger death or injury, (2) removal of all arbitrary limits of liability for amounts in excess of 100,000 SDRs for passen­ger death or injury (assuming there is carrier neg­ligence), (3) increases the number of jurisdictions (countries) where suits may be brought than was allowed under Warsaw, and (4) clarifies carrier responsibilities under code-sharing arrangements.

Montreal 99 was ratified by the United States on May 9, 2003, and entered into force as of November 4, 2003, as the Montreal Con­vention—1999. As of 2012, the Convention had been ratified by 102 countries and is considered the law of most of the civilized world in airline liability.

18 The Chicago Conference

Toward the end of World War II, the United States invited representatives from the countries allied in the war effort against the Axis countries, as well as representatives from some of the neutral coun­tries, to participate in an international conference on the subject of civil air transportation. World consensus was that there would be a mighty surge of international civil aviation and commerce after the expected end of hostilities. The United States at that time was in a preeminent position, vis-a­vis the rest of the world, to extend its influence all over the globe, and to capitalize on the great advantage that it held in international aviation as a result of the American air fleet produced dur­ing the war. American airplanes of the transport category had proliferated after wartime production began in 1941, and they had pioneered intercon­tinental routes in support of United States ground and naval personnel dispatched to all corners of the globe to meet the aggression of the Axis Pow­ers. America, in fact, held a virtual monopoly on transport aircraft capable of intercontinental reach.

Economic Issues Affecting Competition

National airlines of the European countries had been the object of national pride, support, and ownership for many decades, as discussed above. Under the new regulations of the Council effec­tive in 1993, however, subsidization of national
airlines was recognized to be a major problem and impediment to the goal of free competition within the EU. Still, such a long-standing and venerable practice was a difficult subject for the Commission to approach. In 1994, the Commis­sion adopted a complex set of “guidelines” as a statement of policy, and a basis for potential enforcement, on the subject of government aid of airlines.

The guidelines apply not only to carriers but to the operations “accessory to air transport.” These activities would include flight schools, duty-free shops, and airport facilities. Notably, aircraft manufacturing subsidies were not included in the guidelines, an omission that effectively removed any consideration of the

consortium Airbus Industrie from the pol­icy of non-subsidy. State aid to airports and funds for new airport construction were also not included in the scope of the guidelines.

The thrust of the rules governing subsidies is to prevent any operator from achieving a com­petitive advantage over any other operator based in the EU countries by subsidy. The guidelines recognized at least five types of government aid that would be objectionable and contrary to the purpose of the EU. Direct operational subsidies are the most obvious and flagrant form of state aid. State “investment” came under scrutiny by the Commission and became subject to evalua­tion using certain tests and criteria to determine if the aid is really “direct subsidy” in disguise. Other forms of state assistance may include:

• Capital injection

• Loan financing

• Loan guarantees

• The granting of exclusive rights

It had been proposed, prior to Sputnik, that inter­national relations with respect to the high seas should be precedent for space. To understand why, we will take a quick look at the concept of national sovereignty and how it relates to the high seas.

National sovereignty implies complete legal authority over an area or a population, which is defined by established national boundaries. Nations that bound the oceans have historically extended their sovereignty from their coastlines into the oceans for a defined distance. These areas are known as “territorial waters” and for many years the standard limit was three miles.12 The high seas begin at the point territorial waters end.

Since Roman times, national sovereignty also extended ad coelum, the Latin phrase mean­ing “to the sky.” With the advent of airplanes, this doctrine was applied by international law above the territory of all nations, for as high as airplanes could fly. In all cases, that was in earth’s atmosphere. It continued to be applied to the sky, at least within earth’s atmosphere, even after the launch of the first artificial earth satellites,13 but by custom and acceptance, it has not been applied to flights above the Karman line.

The legal relationships between sovereign nations are governed by international law. As we saw in Chapter 36, international law has devel­oped primarily through the agreement of two or more nations in the form of treaties, which become binding upon ratification and entry into force. In addition, sources of international law derive from “customary international law,” which is based on universally accepted principles and general prac­tice. These principles are often based on concepts of right and wrong, ethics, and responsibility.

All land masses on earth are “owned” by sovereign nations with the exception of Antarc­tica. As we have seen, international law concern­ing that continent is now the subject of treaty. The other 70 percent of the earth, known alter­natively as “international waters” or the “high seas,” since the early 18th century, has univer­sally been accepted by custom as “free seas.” Hugo Grotius14 in 1609 set out in a dissertation called Mare liberum (free seas) the logical prem­ise and argument for a natural right residing in all nations and in all peoples to have free access and use of the seas. The concept of free seas implies the right of passage, the right of navigation, the right to fish, and the right to trade. The seas, being unbounded by man and incapable of pos­session, constitute an equitable, common benefit to the human race.15

Although it was a shock to the average citi­zen, the orbiting of Sputnik came as no surprise to either the scientific or legal community. In the scientific world, in fact, it had been an advertised feature of the International Geophysical Year that an artificial earth satellite would be launched before December 31, 1958, but it had always been assumed that it would be launched by the United States. In the international legal commu­nity, debate and discussion had been occurring for some years on many of the questions that were expected to arise once orbiting satellites were a reality.

There had been significant discussion, for instance, of whether the ad coelum doctrine would or should apply in outer space, but there was no agreement. Persuasive arguments were made for each position. But when Sputnik was launched, all of the sterling legal arguments were suddenly rendered irrelevant. Sputnik was a scientific and technological fact, and there was nothing anyone could do about it. It became clear that law was going to have to follow science.16

There was not one objection by any nation that its national sovereignty was being violated by Sputnik’s transits overhead. There was now an acceptance of a limit to national sovereignty somewhere around the Karman line. But more importantly, the conclusion was compelling that outer space was, indeed, like the high seas. As Grotius had said, “What cannot be possessed is necessarily free for all to use.”

The precedent of international maritime law influencing space law was a good thing. Since nations had been sharing the seas for millennia, there was now some basis to believe that the earth-based international community might, after all, be able to agree on how to use outer space in a peaceful way.

Another terrestrial precedent is aviation law. When airplanes became capable of overflying borders into another country’s airspace, leaders of those countries sat down together and worked out the details that extended maritime law principles to aviation and devised new mles required by the new aviation technology. Examples of these include the Paris Conference of 1910 and the Paris Conven­tion of 1919. (Refer to Chapter 37.) As aircraft became capable of longer range and higher flight, international civil aviation was born to replace, in large part, the maritime passenger industry and to supplement the maritime shipping trade.

The future for international civil aviation was set by the Chicago Convention of 1944. Recognizing the increasing importance to the world of aviation after World War II, contract­ing nations agreed to set up a structure for the adoption of international regulations, standards, and procedures that would govern and control essentially all aspects of international flight.17

But in the years just after the first launches of artificial earth satellites, there were still only two participants in outer space, the United States and the U. S.S. R., and they were still engaged in the “Cold War.” It was obvious that some bilat­eral accommodation between these two powers would have to accompany, if not precede, any effective peaceful solution to the problems of outer space.

In 2003, NASA started a new program known as “The Centennial Challenges” based on a recom­mendation of the National Academy of Engineering in 1999. This recommendation was that Congress should encourage federal agencies to experiment more extensively with inducement prize contests in science and technology. The NASA Centen­nial Challenges were named in recognition of the Wright brothers’ first flight 100 years before.

The “Challenges” set up a monetary prize format similar to that discussed above, and which actually relates back to the British prize of

20,0 pounds sterling offered in 1714 for a reli­able method of determining longitude on a ship at sea. (See Chapter 1.)

The NASA Challenges typically coordinate the competitions with private foundations, like the X Prize Foundation, the Spaceward Foundation, or others, which actually mn the events. The Chal­lenges are announced annually and range over a wide spectrum of scientific and technical issues. Examples from past competitions include the Astro­naut Glove Challenge (to devise the best performing glove for space use), the Moon Regolith Oxygen Challenge (the extraction of oxygen from lunar soil), and the Suborbital Payload Challenge (to achieve suborbital altitudes that provide enough linger time for the kind of microgravity research NASA needs).

The Strong Tether Challenge and the Power Beaming Challenge are designed to produce

FIGURE 41-11 Hybrid rocket engine used by SSI.

technology that will put humans and objects into space without the use of rocket propulsion. These Challenges are subparts of the larger “space elevator” concept that was first mentioned by Konstantin Tsiolkovsky in the late 19th century, and then more specifically proposed by a Rus­sian engineer (Yuri Artsutanov) in the 1960s. The basic idea is to anchor a tether (a ribbon with a diameter half that of a pencil) at a point on earth that will extend into outer space, to a point beyond the geosynchronous orbit. A counterweight positioned at the space end of the tether would provide enough inertia through the rotation of the earth (centripetal force) to keep the length of the tether taut. Payloads would be attached to the tether for delivery into space.

When first proposed, and even in 1960, the idea was assigned to science fiction because there existed no material strong enough to construct a workable tether. In 1991, science discovered a new class of molecule known as the carbon nano­tube, which possesses over twice the strength necessary to make the tether work.

The Strong Tether Challenge is held at the Space Elevator Conference sponsored by Microsoft, The Leeward Space Foundation, and the International Space Elevator Consortium. Although as of 2011 there has been no win­ner, the strength of the tethers has continued to increase for the five years of the competition. The prize purse has continued to increase over the years and is now at $2 million.

The Power Beaming Challenge is a competi­tion to build a wireless lifting mechanism, called a climber system, powered by electricity from a ground electrical outlet that is “beamed” (wire­lessly) to the climber apparatus. The beam is a high-power low-intensity laser. The lifting mecha­nism must lift a payload a prescribed height within a prescribed time. Beamed power competitions held since 2005 finally resulted in a winner in 2009. LaserMotive LLC was awarded $900,000 that year for successfully driving the climber up a cable one kilometer high, suspended from a helicopter.

In the meantime, Don Burr had concluded that he wanted to run his own airline, in his own way. Burr had basic philosophical differences with Lorenzo about how to treat employees and people in general. Labor strife at Texas International was increasing due to Lorenzo’s business practices.

Bun – left Texas Air Corporation, taking with him several other executives, and launched his own airline on April 30, 1981. He named it Peo­ple Express. People Express made its headquar­ters in an old abandoned terminal at Newark, and began operations with hand-me-down 737-100s purchased from Lufthansa. The airplanes were reconfigured for high density, one-class seating. The first routes of the new airline were from Newark to Buffalo, Columbus, and Norfolk.

From the early days of commercial passen­ger service there had been a certain cache and attempt at elegance and elitism in the airlines’ treatment of passengers. And although Texas International had dispensed with many of the historical amenities of airline travel, the extreme People Express approach was a shock. With the exception of wartime, nobody in the early 1980s had ever seen anything like it.

There were no meals, no free beverages (coffee was $.50), and no free checked baggage. Passenger baggage that had been checked, for a charge of $3.00 (a substantial amount in 1980s money), was not even transferred to connecting carriers. This required connecting passengers to pick up their bags upon deplaning and carry them to their next departure point. People Express distinguished itself in other ways. Fares were the lowest in the industry, perhaps ever. Greyhound Bus Lines lost business to People Express.

Equality was the order of the day—there were no vice-presidents and no secretaries. Non­technical employees were cross-trained in most jobs and were required to lend a hand where necessary, and there were no nine-to-five days. It was difficult to distinguish the pilots’ uniforms from those worn by cabin stewards. In the 1980s, People Express had an air of the communistic People’s Republic except for one noticeable dif­ference—it was clearly profitable.

People Express began operations during one of the most turbulent economic times in memory. Interest rates, fuel prices, recession, and the air traffic controllers strike all combined to test the new theories of deregulation. In spite of the dif­ficult economic situation, both New York Air and People Express began to thrive, and that was instructive. The no-frills concept took flying to the masses, where the main consideration was price. The effects of deregulation, good and bad, were beginning to be defined.

We will return to the People Express phe­nomenon later in this chapter.

<i People Express is clearly the arche­typical deregulation success story and the most spectacular of my babies. It is the case that makes me the proudest, w

Alfred Kahn, Professor of Political Economy, Cornell University, Time Magazine, 13 Jan 1986

From a historical point of view, the machinists’ union, IAM, can be considered to remain the most intransigent in labor negotiations. IAM is a cen­tralized union with bargaining units outside of the airline industry. As a union with strong, central leadership that generally controls ultimate deci­sion making in negotiations and concessions, there is a more consistent negotiating position through­out the union, and much less fragmentation due to local union authority. Mechanics are also less affected by either work stoppages or the fear of long-term unemployment due to bankruptcies of their employers since they are readily employable at other carriers or outside of the airline industry. One drawback to IAM is the fact that it represents significant numbers of much less skilled, or even unskilled, workers both within and outside of the industry. Aircraft cleaners and other ground employees, in some locations, are able to control the union. It is apparent that the interests of these disparate groups are not identical.

Pilots, 90 percent of whom are represented by ALPA, are all employed with the airline industry, and their mobility within the industry is seriously constrained by the seniority system employed on all airlines. They are also much more impacted by work stoppages or by car­rier bankruptcies since they have no comparable opportunities outside of the industry, or even within the industry due to the seniority rosters. Finally, local ALPA chapters have had much more autonomy than IAM and have been more amenable to concession bargaining on an indi­vidual carrier basis.

Flight attendants traditionally have had less bargaining power than pilots and mechanics. They were organized much later than the other two crafts, and they have been less unified. In the early 1980s, there were 11 bargaining units representing flight attendants. Their training is much less extensive than pilots or mechanics and, before 2004, there was no FAA certifica­tion requirement for flight attendants. In the fall of 2003, Congress established a flight attendant certification requirement under the Vision 100— Century of Aviation Reauthorization Act. The Act requires that after December 11, 2004, no person may serve as a flight attendant aboard an aircraft of an air carrier unless that person holds a Cer­tificate of Demonstrated Proficiency (certificate) issued by the FAA.

As we saw in Chapter 26, computer reservation systems were developed independently by United States airlines starting in the 1950s, beginning with American Airlines’ SABRE, followed by United Airlines’ APOLLO, TWA’s PARS, Delta Airlines’ DATAS II, and Eastern’s System One. By 1988, these same five systems were in use in the United States and were also in common use by travel agents.

These proprietary systems had preferences built into them that favored the owning airline, created competitive disadvantages for airlines that did not possess these systems, and presented distorted options to travel agents. Travel agents typically used only one CRS, usually the one owned by the largest, closest airline to the travel agent’s city, so that the travel agent naturally pre­ferred that airline’s offerings. The agent would also typically have an incentive contract with that airline. In 1984, the CAB adopted rules to insure fair competition among all airlines.

As computer reservation systems became diversified internationally, the CRS acronym yielded to the more accurate GDS, represent­ing the “global distribution system.” By the mid 1990s, U. S. airline owners had divested them­selves of ownership in the domestic GDS sys­tems, which by 2003 were dominated by SABRE (43 percent), Galileo (formerly APOLLO, 20 percent), and Worldspan (formerly PARS and DATAS II, 29 percent). These GDS compa­nies accounted for 92 percent of all U. S. airline bookings.13

While U. S. airlines continue to use GDS booking services with accompanying fees, at the same time they began creating Internet applica­tions, including their own websites, and the large airlines have also created their own travel tech­nology companies, such as Orbitz. Southwest and some of the low-cost carriers do not participate in the global distribution system and rely instead on their own websites for information distribution, reservations, and ticket sales.

a The Internet

The appearance and growth of the Internet has generally contributed to a leveling of the com­petitive playing field in airline advertising and bookings, primarily because the consumer is the active, originating participant who searches out the desired information on the Internet. This access has been facilitated by the airlines revising their company access outlets to provide user-friendly websites available to travelers on a 24/7 basis right in their own home or office.

The aftermath of September 11, 2001 and the resulting economic downturn saw a signifi­cant increase in the use of the Internet by both business and leisure travellers for making travel arrangements directly with the airlines. This also had the effect of countering some of the incumbents’ economies of scale and CRS/GDS advantages.

The Internet is also not a one-way street. It has provided consumers with a way to provide undesirable feedback, not only to the airlines, but also to the world of travelers out there. One example was the passenger who had his Tay­lor guitar trashed by some gorilla bag handlers at United in Chicago. When United apparently chose to ignore the problem, this guitar man wrote a very uncomplimentary description of the affair in a song entitled “United Breaks Guitars” and posted it on the Internet. At last count it had over 12 million hits.

4. 49 USC sec. 41714.

5. Market-Based Alternatives for Managing Congestion at New York’s LaGuardia Airport, Michael 0. Ball, University of Maryland.

6. Nextor is a consortium of government, academic, and industry representatives dedicated to the advancement of aviation research and technology and is sponsored by the FAA. The eight universities associated with Nex­tor are George Mason University, Massachusetts Insti­tute of Technology, University of California at Berkeley, University of Maryland at College Park, Virginia Poly­technic Institute and State University, Georgia Institute of Technology, Purdue University, and The Ohio State University

7. The FAA had determined that large carriers who control almost all slots at LGA are using the airport to serve their medium and large hubs, and that the average size aircraft operated into the airport has shrunk to 98 seats.

8. For a full discussion of the proposal applicable to LGA, see Congestion Management Rule for LaGuardia Airport, Docket No. FAA-2006-25709, RIN 2120-A170, April 16, 2008. The proposed rules were considered in two separate dockets, one for JFK and EWR, and one for LGA.

9. Long Beach, CA (LGB) and John Wayne Orange County (SNA) are slot-controlled under local airport authority.

10. General Accounting Office Report, Airline Competition: Higher Fares and Reduced Competition at Concentrated Airports, (GA)/RCED-90-102, July 1990.

11. The LGA perimeter rule was first established in the late 1950s under an informal arrangement between the Port Authority and the airlines. It was formalized in 1984 and unsuccessfully challenged in Western Airlines v. Port Authority of New York and New Jersey, 658 F. Supp. 952 (SDNY 1986), aff’d 817 F2d 222 (2nd Cir., 1987, cert, denied, 485 U. S. 1006 (1988).

AIR-21 in 2000 and Vision 100-Century of Aviation Reau­thorization Act in 2003.

Europe-based GDS companies, like Amadeus, are not included in the discussion of domestic airline ownership.

Airport-controlled or common-use arrangements are completely under the control of the airport authority. The airport may assign gate and facil­ity usage on a temporary, per-turn basis or for a short-term duration. These types of arrangements have been popular in Europe and other foreign regions for some time. The concept has gained popularity to the point that it has acquired the acronym C. U.T. E., or Common Use Terminal Equipment, to describe what is being increas­ingly seen as the best way for an airport to orga­nize its gates and check-in counter facilities.

The International Air Transport Association (IATA) has even issued a recommendation (No. 1797) favoring common-use systems as a means of efficient and cooperative use of available ter­minal facilities worldwide.

Various proprietary contractors have devel­oped expertise in assisting airports in setting up these common-use arrangements so that, rather than being blocked off, the available facilities can be distributed as needed to different airlines. These facilities include check-in counters, gates, holding rooms, and electronic equipment. The systems control and integrate all components necessary to the carrier, including computers, displays, and boarding pass printers and readers.

Two airports have all airport-controlled gates—Miami International with 121 gates and Phoenix Sky Harbor with 84.

■ DOT Interest in Airport

Praetices-Unfair Competition

Prior to 2001, the Department of Transporta­tion’s authority over the gate practices of com­mercial-service airports was severely limited.6 While the DOT had jurisdiction over the gate practices of airlines, constitutional principles pre­vented interference in policies and practices of state-owned airports.

With the passage of the Wendell H. Ford Aviation Investment and Reform Act for 21st Century (AIR-21) in 2001, the DOT was given authority to require certain large and medium hub airports to submit competition plans as a condi­tion of receiving federal grant monies and as a condition for authority to impose PFCs at their airports. These airports (including those at which competition among the airlines was threatened by airline domination, gate control, and other anti­competitive practices) were required to provide the DOT detailed information concerning their gate practices. The DOT has used its authority to approve or disapprove these competition plans as a means to insure that gate practices at those airports are fair. This includes insuring broader access to gates by new entrant airlines.

Airline gate practices continue to be moni­tored by the DOT to insure that airline control of gates does not unduly impede competition. This authority can compel an airline to surrender con­trol of airport gates, or prevent tying arrangements involving subleases by one airline to another, where, for example, the lease requires the use of the lessor airlines’ ground forces by the lessee airline. So too may the DOT apply its authority to situations where an airline, with market power, exercises its contractual rights under a Mil clause to block the construction of facilities for competi­tors merely to maintain its own monopoly power.

Congress passed the Homeland Security Act in November 2002, creating a new department in the executive branch at the cabinet level known as the Department of Homeland Security (DHS). The primary missions of the Department are preventing terrorist attacks in the United States, reducing the country’s vulnerability to terrorism, and minimiz­ing damage in the event such attacks occur. Specif­ically, the scope of DHS activities includes border security, intelligence collection and analysis, emer­gency preparedness and response, and detection of chemical, biological, and radiological threats.

This statute combined over 22 existing fed­eral agencies previously scattered throughout the government into one cohesive organization. DHS includes not only the TSA, but also U. S. Cus­toms and Border Protection (CBT), the Federal Emergency Management Agency (FEMA), U. S. Immigration and Customs Enforcement (ICE), the Secret Service, the U. S. National Guard, and the U. S. Coast Guard. Some agencies and depart­ments involved in national security that are not in DHS include the FBI, the CIA, and the Depart­ment of Defense.

The Act provides for the training of air car­rier pilots in the use of firearms to be carried in the cockpit. In April 2003, the first 44 airline pilots certified as Federal Flight Deck Officers were graduated from the Federal Law Enforce­ment Center in Glynco, Georgia.

Third-party liability insurance (insurance to cover airlines for losses of those airlines to third parties, such as passengers, persons on the ground, and others) ordinarily does not cover risks of damage caused by war, sabotage, civil unrest, or terrorism. After 9/11, this specific kind of war risk insurance became prohibitively expensive for airlines to obtain, causing the issu­ance of Presidential Determination No. 01-29 on September 23, 2001. This Determination, which authorizes the issuance of war risk coverage to U. S. flag air carriers for such loss or damage, and/ or the reimbursement of insurance cost increases to such carriers, was carried over into and as one of the provisions of the Homeland Security Act.

Aftermath

Still, the nation’s airlines faced many challenges after September 11. The extraordinary provi­sions of the supportive legislation passed by Congress in 2001 and 2002 certainly went far in preventing the collapse of segments of the air carrier industry, but much damage had been done. Projections made at the beginning of 2001

forecast a $3 billion loss for the airline industry for the year. As a result of 9/11, that loss quickly became more than twice that figure, $7.7 billion.

Added to this were the U. S. invasion of Afghanistan in October of 2001, the beginning of the Iraq War in March 2002, and the SARS epidemic (severe acute respiratory syndrome) in early 2003.8

The air transport industry was in for a very hard time during this turbulent period.