Wednesday, October 24, 2007

FAA History Lesson -- October 24

From the FAA Historical Chronology, 1926-1996...

”Oct 24, 1978: President Carter signed the Airline Deregulation Act of 1978 allowing immediate fare reductions of up to 70 percent without CAB approval, and the automatic entry of new airlines into routes not protected by other air carriers. CAB's authority over fares, routes, and mergers was to be phased out entirely before 1983, and, unless Congress acted, CAB itself would shut down by Jan 1, 1985. The prospective abolition of CAB brought to a culmination the work of Chairman Alfred E. Kahn at that agency (see Jun 10, 1977). Moreover, by Oct 1978, the major emphasis of deregulation had changed from an ideological campaign against government regulation to a key element in the President's effort to curb inflation. This was highlighted by the President's appointment of Kahn as head of his anti-inflation program, which was announced on this date.

This day also ended the week-long vigil of twenty-two airline representatives who had lined up outside CAB headquarters to submit first-come-first-serve applications for dormant airline routes under the terms of the new act. By the end of the year, CAB had awarded 248 new airline routes to these applicants. Smaller communities, from which the airlines might wish to shift their operations, were guaranteed essential air services for 10 years under the act, with a government subsidy if necessary. Along with the subsidies for smaller-city service, the act provided for the inclusion of commuter airlines in the FAA equipment loan guarantee program and in uniform methods for establishing joint fares between air carriers. It also authorized the use of larger aircraft by commuter airlines. These special provisions for commuter airlines boosted their already-booming growth rates, and led to important new FAA regulations later in 1978 (see Dec 1, 1978).

The Airline Deregulation Act also revived the aircraft loan guaranty program (see Sep 7, 1977), raising the total amount that could be guaranteed for any eligible participant from $30 million to $100 million, expanding the eligible participants to include charter air carriers, commuter air carriers, and intrastate air carriers, and extending the term of eligible loans to 15 years. Congress withdrew authority for the program in 1983, however, and FAA ceased issuing new loan guarantees after Jun 30 of that year. Over its life, the program had guaranteed 106 loans totaling $900 million. Twelve airlines had defaulted on 23 of the loans for a loss of $182 million, but FAA had been able to recover $132 million. “

As much as I admire President Carter, I think this was a major policy mistake. This summer’s record airline delays were just the latest manifestation of the cost associated with this legislation. Laid off employees, lost pensions and bankruptcies galore. I don’t think the price of a “cheap” airline ticket was worth the cost to our society.

Don Brown
October 24, 2007

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