For airlines, salvation lies in Washington, not on Wall Street

Investors punished airline stocks Monday, the first trading day since last week's terrorist attacks, underscoring for Northwest Airlines and its competitors that the industry's near-term hopes for salvation will be found in Washington, D.C., not on Wall Street.

Among the seven largest U.S. airlines, ailing US Airways was hit the hardest as investors sliced its stock in half, closing at $5.57, down $6.05. US Airways said Monday it expects to lay off 11,000 employees, or 24 percent of its work force, and cut nationwide service.

UAL Inc., parent of United Airlines, and AMR Corp., parent of American Airlines, dropped 43 and 39 percent, respectively, while Eagan-based Northwest shed 36.7 percent of its share value. By way of comparison, the Dow Jones industrial average was down 7.1 percent.

Given its losses so far, the steep declines in advance bookings and an uncertain future, the industry faces its worst operating environment in memory.

"We do not believe every airline's survival is guaranteed under any circumstances," said Jim Higgins, analyst at Credit Suisse First Boston in New York. Higgins said the industry will lose at least $5 billion this year.

Rep. Jim Oberstar, D-Minn., the ranking Democrat on the House Transportation and Infrastructure Committee, on Monday described the commercial airline industry as losing $350 million a day and in desperate need of an immediate financial bailout.

Sen. John McCain, R-Ariz., the ranking Republican on the Senate Commerce Committee, also said the industry is in "dire trouble. ... If we don't act soon, I'm afraid that it will be even more difficult to resuscitate this key industry in the future."

Oberstar and Don Young, R-Alaska, are assembling a proposal for a $24 billion rescue package -- $5 billion to cover immediate losses incurred by the airlines in recent days and $19 billion during the next year while the industry shores up its security and regains public confidence.

He said he and Young are attempting to assemble a hearing on Wednesday to "fashion a bill that we can bring to the House floor on Thursday."

Saying that major carriers are flying planes with 60 percent of their seats empty, Oberstar noted that the aviation sector accounts for $700 billion of the nation's $7 trillion economy. "If we don't restore air service to levels approaching normalcy in the next six months, you can forget about other tax incentives," he said. "You won't have an economy to worry about."

Oberstar noted that with demand suddenly slackening and some airports closed, the airlines have idled a large portion of their fleets. He said this had the effect of "devaluing" aircraft worth $250 billion to $300 billion by about 80 percent. "If the asset is devalued," he said, "their line of credit is diminished," causing banks to cut off or restrict credit.

Oberstar said much of the $19 billion could be funded in part by allowing the airlines to retain federal ticket taxes and waybill taxes for up to a year, generating about $9 billion, and fuel taxes, generating $1 billion.

He also recommended that President Bush direct the U.S. Customs Service to take over responsibility for airport security.

Michael Wascom, a spokesman for the Air Transport Association -- which represents 21 passenger and cargo airlines, including all the major carriers -- said, "We support this package."

"We've lost $5 billion since Sept. 11," he said. "The main problem now is a protracted reduction in passenger demand that is expected to decline by 25 to 60 percent from what was forecast prior to Sept. 11."

Layoff rumors

With the ranks of workers flush with rumors and speculation about Northwest's next financial step, union leaders could do little more Monday than advise their members to sit tight. One union leader said that details about layoffs are likely to be known today.

John Massetti of the International Association of Machinists (IAM) said the unions will meet jointly with senior Northwest management Tuesday afternoon and should learn about the impact on their members.

Massetti said union leaders had a preliminary meeting with the company on Monday and were told of Northwest's plans to fly at 80 percent of capacity, at least through October. The airline would make further decisions about its level of flying once it determined the volume of advanced bookings for November and December.

On Sunday, Continental Airlines announced it was cutting 12,000 jobs. American Airlines is expected to announce layoffs later this week.

Mesaba Holdings Inc., the parent of Mesaba Airlines, said it is reducing its flight schedule by 20 percent and cutting jobs.

An industry group said Monday that as many as 100,000 layoffs are likely in coming weeks. Major carriers already have trimmed schedules by at least 20 percent and laid off more than 26,000 workers, including Monday's cuts.

-- The Associated Press contributed to this report.