According to published reports, 25 members of the U.S. Congress have reported on their financial disclosure forms that they own stock in – or have other capital interests in – the Big Three, based on data compiled from the Center for Responsive Politics, a Washington, D.C., research group that tracks money in U.S. politics. [Editor’s Note: Fox News senior information specialist James Farrell pulled the data displayed in the accompanying chart, which was created by Money Morning staffers].

Details of the Bailout

The Big Three initially sought $25 billion in loans – and were almost laughed out of Washington after the chief executive officers of the three companies traveled to Capitol Hill in their corporate jets. And while the new plans include such politically palatable moves as salary cuts for top-tier executives, the sale of cushy corporate jets and the elimination of moribund brands, the three embattled U.S. automakers are also now seeking government aid of as much as $34 billion – which is as much as $9 billion more than that initial $25 billion figure that had been on the table from the very beginning of the industry’s bid for bailout money.
Here’s the breakdown:

• General Motors, the largest domestic automaker, said late yesterday that it is seeking as much as $18 billion to survive into 2010 – and that it needs $4 billion of that cash just this month in order to dodge a bankruptcy filing. GM is seeking a loan of $12 billion. It’s also requesting an additional $6 billion line of credit to provide more cushion, should the severe current market downturn persist.
• Ford is asking for $9 billion. The Dearborn, Mich.-based carmaker hopes it won’t need to utilize the federal loans, and that it just wants to have access to the capital as a backstop. Ford is aiming to return to profitability by 2011.
• Chrysler confirmed its previous request for a $7 billion loan that its executives detailed during Congressional hearings two weeks ago. But it now says that it needs the loans by the end of the year if it’s to survive, because its projected year-end cash reserves of $2.5 billion won’t come close to covering its projected major first-quarter expenses of $11.6 billion, Dow Jones Newswires reported. The loans – coupled with Chrysler’s ongoing restructuring efforts – would keep that carmaker operating through the end of March. But it will need to access the capital before the end of this year.

Ethical Issues?

According to Fox News’ Farrell, judicial ethics rules “prevent any bankruptcy judge with holdings in a company from presiding over a bankruptcy case. Essentially deciding whether the company has to file seems to be a little different.”

Added Farrell: “If GM files for bankruptcy, the stock held by the politicians becomes essentially worthless overnight because they would be unsecured creditors at the absolute bottom of the bankruptcy food chain,” noting that, at a minimum, all shareholders “would get a significant haircut.”

So why is this an issue for Congress? Currently, the bailout of the U.S. auto industry bailout is actually being debated as a specific piece of new legislation. But whether it gets enacted as an amendment to the initial legislation that actually created the Troubled Asset Relief Program (TARP) is not yet clear.

But if it is new legislation, all of Congress will have to vote on it.

Already, U.S. Sen. Elizabeth Dole, R-N.C., who lost her re-election bid, and U.S. Rep. Michael Castle, R-Del., and a number of other Congressmen who own stakes sit on committees that conducted the first hearings on the auto industry bailout request prior to Thanksgiving, Fox News reported.
U.S. Rep. John Campbell, R-Calif., said he only will vote “present” on any automaker bailout, since, as the former owner of a car dealership, still owns land on which his former business sits. According to Rep. Campbell’s staff, Campbell doesn’t even want the appearance of a conflict of interest. But a report indicates Campbell voted “yes” on the financial bailout.

The information on the lawmakers’ holdings came from Congress’s 2007 financial disclosure forms, filed in May 2008, the most recent data available. Members of Congress are not required to report actual dollar sums. Instead, they are allowed to report dollar ranges.

Note: The wife of U.S. Rep. John Dingell is the executive director for public affairs for General Motors, and a descendant of the Fisher brothers, who founded the company that became General Motors 100 years ago, Fox News said.

While Dingell’s spouse, Deborah Dingell, does not lobby Congress or the administration on GM’s behalf, “she makes the case for the company, the auto industry and the state of Michigan in public and in private,” a recent New York Times story says.

Source: Congressional Members Hold Stakes in the “Big Three”

The auto sector comes close, especially companies like GM, Ford, and Chrysler that depend heavily on truck sales. But at least auto companies can change their mix of vehicles to adapt to high gas prices. They may not be able to sidestep all the pain of high gas prices, but at least they have options.

So what options do the airlines have? They’ve already cut costs to the bone. And from the feedback I’ve received, it seems like they’ve royally pissed off passengers and employees alike.

IDE reader, Wayne said I shouldn’t be pointing the finger at unions or the costs of legacy benefits: “…most U.S. legacy carrier employees have had their incomes slashed by at least 40% and have either watched as their pensions were frozen or dissolved.  Along with the pay cuts, premiums on health care doubled, work rules returned to the dark ages, and even crew meals were eliminated.”

Sadly, Wayne is right. Employees have taken it on the chin.

But other readers say it’s the passengers who are taking it on the chin. Jean-Antoine, for one, resents how passengers are being treated. He says, “whilst we are being asked to pay (and it’s only normal) for our transportation costs, we are treated like rotten meat. Some one or two decades ago the airlines were going out of their way to make you feel happy to board an airplane. Nowadays you are being engulfed in huge airports where nobody can give you proper directions… where the personnel is overworked, most of the time disagreeable and often not concerned…”

Harsh words from Jean-Antoine but he wasn’t the only one who took this view. Can anybody disagree that there’s been a sharp deterioration of services? It’s pretty clear that customers don’t get the attention, food, and friendly service they used to get.

Just yesterday, United announced it’s going to ground 94 (64 in addition to the 30 previously stated) 737 jets, plus some of its bigger 747’s. What’s more, they’re expected to announce more employee reductions on top of the 500 they’ve already said they would cut.

Airlines have disaffected their two most important constituencies: employees and customers, and what do they have to show for it? Not much. Their collective backs are still up against the wall…

The question is: can they do anything now to avoid downsizing?

Hubs are expensive to maintain. Can they simply drop some of their money-losing hubs? Can they go further and adopt the low-cost carrier model?

The big problem with this line of thinking is that high fuel prices are sabotaging the profits of the low-cost carries too.

Whether legacy or low-cost, you can’t fill half or three quarters of a plane with people at 1988 prices, have it run on jet fuel that costs $161 a barrel, and make money.

The reality is that lots of low-cost airlines have also struggled. In the past six months, at least a dozen airlines have failed as oil rose. American companies ATA, Frontier, Skybus and Aloha Airlines have all filed for chapter 11 bankruptcy protection this year.

In all, about two dozen low-cost carriers and other non-legacy carriers have filed for bankruptcy or gone out of business since 2000.

But listen, retailers, restaurants, high tech and industrial manufacturers fail all the time. The airline industry has simply proved not to be the exception. And higher fuel prices are sure to increase the rate of failure (or bankruptcy) in this sector.

As Stephen Ridgeway, the chief executive of Virgin Atlantic Airways, recently said, “The good times are over.”

Let the downsizing begin. Only then can supply and demand rebalance and ticket prices start to rise. There’s no other cure.

Good Trading,
Andrew Gordon

P.S.  To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

Source: Airing It Out