Managing Editor, Leeham News & Analysis

Scott Hamilton

The events of 9/11 were disastrous for the airline industry. The immediate effect was the grounding of the airlines for four days while new, emergency security procedures were put in place.&nbsp;
The airlines were losing hundreds of millions of dollars a day while their planes were idle. Wholesale bankruptcies were very real possibilities. So, the U.S. airline industry went to Congress seeking a bailout package. $5 billion in grant monies were immediately awarded to the airlines, distributed based on available seat miles flown. A $10 billion loan guarantee program was also authorized. The $5 billion in grants was not controversial. The same could not be said about the loan guarantee program.
The administration of President George W. Bush opposed it. Many of the major airlines feared it would be used by failing carriers. Many in Congress didn’t want to put taxpayer dollars at risk. There was also a sense of inequity in it all: if the airlines benefited from government largess, why not the hotel and other travel-related industries also hurt by 9/11?
<h2>Despite Misgivings, Federal Airline Bailout Approved</h2>
There was, nonetheless, an overriding sense that the airlines required special aid. Administration misgivings notwithstanding, President Bush signed the legislation establishing the Air Transportation Stabilization Board (ATSB) to administer the applications for loan guarantees. The first applicant was America West Airlines (AWA), based in Phoenix, which made no bones about the fact that it would be forced to file bankruptcy without a guarantee. AWA filed its application in December 2001 and, after jumping through some hoops, was granted a $380 million guarantee (on a $429 million loan) in January 2002.
AWA had the advantage, and disadvantage, of being first in the queue. The ATSB didn’t have any solid rules and policies and was feeling its way. This cut both ways for the airline. Since it was first, AWA was a test case of how the ATSB would handle applications. If AWA was turned down, this would not bode well for future applications. Indeed, initially AWA was turned down. Its CEO, Doug Parker, would later recall flying back to Phoenix dejected, thinking his airline was doomed. But he tried again, and this time was successful. The terms and conditions of the guarantees could not be too lenient or be seen as too onerous.
AWA was probably helped by the fact that one of the legislative sponsors of the loan program was powerful Arizona Senator John McCain, a long-time champion of the airline in Washington. Critics said that AWA was failing anyway and therefore should not be granted a loan. AWA CEO Parker deserves the highest praise for pulling this deal off, although it is widely believed that the carrier’s political connections were equally or more responsible for the approval.
The next applications to the ATSB were from Frontier Flying Service of Alaska, cargo airline Evergreen International Aviation, Vanguard Airlines of Kansas City, and Spirit Airlines of Florida. Back then, Spirit was a far different airline than the airline that travellers were familiar with before it ceased operating earlier this year. In 2001, Spirit was a traditional low-cost carrier in the mold of Southwest Airlines, before Spirit pivoted to an ultra-low-cost model. Except for Spirit, the other applications on their merits seemed silly.
Of the 14 airlines and one specialty carrier (MedJet, an air ambulance service) that applied for loan guarantees, the ATSB approved only six.
<h2>United Airlines Denied Federal Assistance&nbsp;</h2>
By far, the most controversial loan guarantee denial was that for $1.8 billion for United. The carrier immediately filed for bankruptcy. The sheer size of United’s bankruptcy, the largest in airline history and one of the largest in American business (along with WorldCom and Enron), made the ATSB’s denial an instant political target, especially considering the political pressure exerted on the board by United’s labor, congressional, city, and affiliated constituencies to approve the loan.
The application had been troubled from the start. United’s underlying business fundamentals were considered by most of the industry, and by analysts who covered the airline, to be just awful. Although largely considered to have the best route system of any airline, United’s labor costs and corporate governance structure were considered to be fatally flawed. The company’s management team was considered at best to be mediocre.
Not only was the application for the loan guarantee widely derided as being poorly put together, but United’s revenue assumptions were also criticized by its opponents (and, ultimately, by the ATSB) as overly optimistic (some said totally unrealistic). Labor cost cuts were not enough in the application, nor were other cost-cutting measures.
The ATSB’s conclusions on the United application were widely criticized. But when United filed for bankruptcy a few days later, buried deep in the paperwork were pleadings from the carrier saying that banks and lending institutions had reached the same conclusions, which is why United did not have access to capital markets—one of the criteria set forth by the ATSB before it would approve an application. In other words, private industry had already concluded that United’s business plan was unworkable, a conclusion that the ATSB could hardly be faulted for also reaching.
<h2>Other Applicants for Bailout Money</h2>
US Airways applied for $900 million in loan guarantees before filing for Chapter 11 protection. The government had conditionally approved the application before US Airways entered bankruptcy. A major difference between US Airways and United, however, was that US Airways had a good business plan that was realistic and that included a well-defined path for the future. Once US Airways completed its reorganization and exited bankruptcy in March 2003, a mere seven months after filing under Chapter 11, the ATSB signed off on the loan guarantee.
There were some curious omissions from the applicants for loan guarantees. American seemed to be a natural applicant. It was, along with United, one of the targets of 9/11 and, therefore, was disproportionately hurt by these events. American also suffered an accident the following December, when an Airbus A300-600R crashed shortly after takeoff from New York’s John F. Kennedy Airport. The event was unrelated to terrorism but, coming only three months after 9/11, terrorist fears naturally reemerged. It was revealed quickly to be “just” another airline accident, but American nonetheless suffered short-term negative effects. Losses continued to mount well into 2002 (and beyond, as it turned out), as the deadline for loan applications approached. And with American’s biggest rival, United, filing an application, it seemed to make sense that American would, too.
American’s management philosophically opposed bankruptcy and the effect it would have on employees, shareholders, and stakeholders. While admirable in theory, this approach proved to cripple American for years until it finally succumbed in 2011.
<h2>Security Elevated&nbsp;</h2>
Security procedures within the airline industry changed as a result of 9/11. Before the commandeering of the airplanes, cockpit and cabin crews were instructed to cooperate with hijackers. Passengers were likewise instructed to follow instructions of the criminals.
After 9/11, crews were trained in close-quarter resistance. ALPA, the pilots’ union, favored allowing pilots to bring guns on board (after proper training in the use of firearms). Some did; many did not. Plainclothes U. S. Marshals, also armed, began flying randomly on flights.
Passengers were not necessarily dissuaded from intervening if a threat or disturbance was seen. In subsequent years, there were many instances in which passengers took the initiative to intervene or did so at the crew's request. In one extraordinary event in 2026, a United Airlines captain announced over the public address system as a disruption was underway in the cabin that passengers and crew should protect the cockpit door at all costs.
Airport screening procedures were tightened. After a number of hijackings during the 1970s, magnetometers became standard screening equipment at checkpoints before passengers could enter the concourses. But as 9/11 tragically demonstrated, there were so many holes in the screening system that the bad guys were able to bring box cutters through the checkpoints. It was this ordinary household and business tool that was used to murder pilots and flight attendants on the four hijacked airplanes, enabling the hijackers to take over the aircraft.
<h2>TSA Created&nbsp;</h2>
The government tightened what was allowed through security. Box cutters obviously were out. Pen knives, once allowed, were banned. Even fingernail clippers with files were now banned. Airlines initially had to replace metal cutlery with plastic utensils.
But, as former American Airlines CEO Bob Crandall noted in those days, even his tie pin was banned. Yet other things that could easily be weaponized were allowed. Wood pencils can be weaponized. Mont Blanc pencils and pens could easily be used as lethal weapons.
Going through the magnetometers became a chore as people almost had to strip down. After a failed attempt by a terrorist to ignite explosives hidden in his shoe, footwear had to be removed.
The Transportation Security Administration (TSA) was created.
Over the years, security procedures were relaxed and revised. Body scans were added to the magnetometers, all but eliminating the need for pat-downs during secondary screenings. TSA PreCheck and Global Entry procedures were adopted for passengers willing to be fingerprinted and have their criminal records checked. Those who passed no longer had to put their fluids and toothpaste in baggies and place these separately outside their luggage for screening. Laptops and other small electronic devices could remain packed. Shoes could remain on. And TSA PreCheck passengers had their own security lines that bypassed the long lines of the “ordinary” passengers.
Parenthetically, as more and more people joined PreCheck, a private company called Clear offered a service in cooperation with TSA that gave pre-check to the PreCheck, allowing jumping the PreCheck queue.
This account, first published by AIN Media Group's Leeham News &amp; Analysis is an edited excerpt from the book,&nbsp;<a href="https://www.amazon.com/Rise-Fall-Boeing-Way-Back/dp/1737640538/ref=sr_1_1?crid=1Q2ZUHHFNCZPS&amp;dib=eyJ2IjoiMSJ9._Luxi6fBJC72_iNCKCM-iSJ24h0rnnynZXesaunPQ8g.YB1HfwUAk702OzmUY3XSQ3IAww7h9z-JRwFv_9OTqlI&amp;dib_tag=se&amp;keywords=the+rise+and+call+of+boeing&amp;qid=1786025777&amp;sprefix=the+rise+and+call+of+boeing%2Caps%2C177&amp;sr=8-1">The Rise and Fall of Boeing and the Way Back</a>, by editor at large Scott Hamilton. Additional reporting is included above.
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