Contact: Meredith Dickenson
or Ellen SternerSeptember 11, 2003
Don Carty Transcript:
September 11, 2003
1 P R O C E E D I N G S
2 MR. ATTANASIO: I'm sure everyone
3 remembers where they were two years ago on September
4 11th.
5 I was listening to a radio station, getting
6 ready for school, and a story came over saying that a
7 small plane had crashed into the World Trade Center.
8 And I was like, Gosh, that would be a horrible thing
9 even if a small plane crashed into the World Trade
10 Center.
11 And I turned on CNN. CNN was already on the
12 spot. And they thought it was a small plane that had
13 crashed into the World Trade Center. And there was a
14 thought of terrorism, but not much. And a few minutes
15 later, a large plane crashed into the other tower of the
16 World Trade Center, and the whole world changed.
17 So what I'd like to do, to begin, is if we
18 could pause for a few moments and remember those who
19 suffered tragedy that day, passed away that day, and
20 then we'll begin.
21 (Moment of silence.)
22 MR. ATTANASIO: Okay. It gives me great
23 pleasure to introduce our distinguished panel today.
24 Mr. William Coleman became the nation's fourth
25 Secretary of Transportation on March 17th, 1975, when he
2
1 was administered the oath of office in a ceremony
2 conducted by President Gerald Ford at the White House.
3 Secretary Coleman entered office following a
4 distinguished career in law, business, and public
5 service, that included advisory consultant -- that had
6 included advisory and consultant to six former
7 Presidents and the current president of the United
8 States.
9 At the time of his nomination, he was
10 practicing law as a senior partner. He was also
11 director of Pan American, World Airways, Penn Mutual
12 Life Insurance Company, First Pennsylvania Corporation,
13 Philadelphia Electric Company, and Western Saving Fund.
14 He was also a member of the Board of Governors of the
15 American Stock Exchange and a Trustee of both the Rand
16 Corporation and The Brookings Institute.
17 Secretary Coleman graduated magna cum laude in
18 1941 from the University of Pennsylvania. And in 1946,
19 he graduated magna cum laude from Harvard Law School,
20 where he was first in his class and a member of the
21 Board of Editors of the Harvard Law Review.
22 He was certainly an underachiever. It always
23 helps the rest of us to say something like that.
24 He clerked for a United States Supreme Court
25 Justice, Justice Frankfurter. In 1959, he was a member
3
1 of the 24th session of the United Nations General
2 Assembly. He's held any number of government jobs, but
3 since we want to get to this, I won't go through all
4 those.
5 He's an ardent defender of civil rights. He
6 was one of the authors of the legal brief that persuaded
7 the Supreme Court of the United States, in 1954, to
8 outlaw segregation of public schools, that would be
9 Brown versus Board of Education, of which we're about to
10 celebrate the 50th anniversary.
11 He served as a member of the National Legal
12 Committee, Director of the Executive Committee, and
13 President of the NAACP Legal Defense and Education Fund.
14 He's served on the Board of Directors of Chase
15 Manhattan Bank, IBM, Pan American, World Airways,
16 PepsiCo, the American Stock Exchange, among others.
17 He holds honorary degrees from Harvard and
18 from Yale, University of Pennsylvania, Howard, Tulane,
19 Georgetown, and Columbia, to name a few of them.
20 In 1979, the President of France nominated him
21 as officer of the National Order of Legion of Honor. In
22 1995, he received the Presidential Metal of Valor.
23 Please welcome William Coleman.
24 (Audience applauding.)
25 MR. ATTANASIO: Donald J. Carty is
4
1 retired Chairman and Chief Executive Officer of AMR
2 Corporation. He had served in that position since 1998.
3 He also held the role of President of AMR Corporation,
4 and prior to that, served as President of the AMR
5 Airline Group, American Airlines.
6 Between 1989 and 1995, Mr. Carty was Executive
7 Vice President for Finance and Planning for AMR and
8 American Airlines, overseeing a broad range of strategic
9 planning matters and a wide array of critical financial
10 activities.
11 Mr. Carty had been American's Senior Vice
12 President and Controller before leaving the airline in
13 March of '85 to become president and CEO and CP of Air
14 Canada.
15 In March of 1987, he returned to American and
16 was elected Senior Vice President -- Senior Vice
17 President for Airline Planning.
18 Before joining American, Mr. Carty spent seven
19 years in various management positions in Celanese
20 Canada, Air Canada, and the Canadian Pacific Railway.
21 Mr. Carty is a graduate of Queen's University
22 in Kingston, Canada, where he holds an honorary -- he
23 holds an Honorary Doctorate, and also from Harvard
24 Graduate School of Business Administration. He is
25 recipient, as I said, of an Honorary Doctorate from
5
1 Queens.
2 He serves on the Board of Directors of Dell
3 Corporation, Sears Roebuck & Company, as well as Big
4 Brothers Big Sisters of America, and a number of local
5 civic organizations.
6 He is a member of the Board of Trustees at
7 SMU -- he's playing hooky for lunch today, which is very
8 important. We thank President Turner for loaning him to
9 us for this session -- as well as the Harvard Business
10 School Visiting Committee, the Advisory Board of the
11 Kellogg Graduate School of Management at Northwestern
12 University, and the SMU Cox School of Business Executive
13 Board.
14 In September of 2002, he was appointed by
15 President Bush to the National Infrastructure Advisory
16 Committee. In January 2003, he was named an Officer of
17 The Order of Canada, that country's highest honor for
18 lifetime achievement.
19 Please welcome Mr. Donald Carty.
20 (Audience applauding.)
21 MR. ATTANASIO: John J. Nance is a
22 graduate of this law school. He is a licensed attorney
23 who received his bachelor's degree from SMU and his JD
24 from the SMU School of Law.
25 He is a decorated Air Force pilot, a veteran
6
1 of Vietnam and Operation Desert Storm/Desert Shield. He
2 is also Lieutenant Colonel in the United States Air
3 Force Reserve, well known for his involvement in Air
4 Force human factors flight safety education.
5 John has piloted many aircraft. He flies his
6 own aircraft and is a veteran Boeing 737 captain for a
7 major airline. He's flown 727s, 737s, 747s and C-147s
8 for the Air Force. He's logged over 13,000 hours in the
9 air.
10 He's an internationally recognized air safety
11 analyst and advocate, best known to North American
12 television audiences as aviation analyst for ABC
13 Television Network, and is aviation editor for Good
14 Morning America. As such, he was intimately involved in
15 the reporting of the events of September 11th.
16 John has had multiple appearances on Larry
17 King Live ... (inaudible) ... the Oprah Winfrey Show,
18 NPR, The Today Show, and many, many others. His
19 editorials have been published in newspapers nationwide,
20 including USA Today and New York Times.
21 He is a nationally known author of 13 major
22 books, including four non-fiction and eight fiction best
23 sellers, two of which, Pandora's Clock and Medusa's
24 Child, both aired as major successful two-part mini
25 series on television. You can do other things besides
7
1 practice law with a law degree.
2 John is well known in ... (inaudible) ...
3 resource management and expanded human performance
4 training, and is a dynamic professional speaker and
5 consultant. In fact, he's so dynamic, he's going to
6 have to leave here a little bit early because he has a
7 speaking engagement in Las Colinas. And so we're
8 delighted he came for this period of time.
9 He speaks to a wide variety of audiences,
10 including medical and pharmaceutical professionals, CEOs
11 of major business-oriented corporations, and
12 environmental, aviation, engineering, and travel
13 oriented groups.
14 He is a founding member of the Executive
15 Committee of the National Patient Safety Foundation, and
16 he is a member of the Executive Board of Dedman School
17 of Law.
18 Please join me in welcoming John Nance.
19 (Audience applauding.)
20 MR. ATTANASIO: Before turning the podium
21 on to John Nance, I need to thank a couple of people.
22 One is Brent Walsh of the Air Law Journal for sponsoring
23 this. Another is Al Casey, former CEO of American
24 Airlines and a number of other companies, former
25 Postmaster General.
8
1 Al, John Nance, and I did a conference a few
2 years ago on the events of September 11th with the Air
3 Law Journal, and this is a follow on to that conference.
4 So I want to thank Al and the Journal in particular.
5 (Audience applauding.)
6 MR. NANCE: Thank you very much, John.
7 It's a bit humbling to be here in the presence
8 of such talent here, not only our good Dean, but also,
9 of course, Mr. Coleman, with whom I have been familiar
10 for many, many years, and Don Carty the same thing.
11 Tremendous achievements on both people's behalf for so
12 long in aviation.
13 Let's start with this: 100 years ago, one
14 century ago, there was a powered flight. I mean, we all
15 know that. This year, in December, is the celebration
16 of the Wright brothers' first flight.
17 I made the statement not too many years ago
18 that arguably the greatest technological achievement of
19 mankind was aviation, and commercial aviation in
20 particular. I thought I was going to get shot at, but
21 nobody has taken me to test for it. Arguably, I say.
22 That's always a good lawyer thing to throw in.
23 What I want to do is focus on the future of
24 aviation, the next three to five years, as well as
25 further down the road today.
9
1 I know that I've got a lot of my fellow
2 journalists here in the room. And if you would, please,
3 when we get to the question-and-answer portion, we want
4 to confine it to the future. Now, anything that you
5 want to ask of Mr. Carty or Mr. Coleman later on is
6 between you and them. But in the meantime, in the
7 question-and-answer session, we want to stay focused on
8 the future, because we have something to focus on.
9 And I will have to excuse myself, and I do
10 apologize in advance. I will have to get out the door
11 here and turn it over to John at a certain point.
12 But let me start this way: Before we can
13 truly discuss the effects of the free market, terrorism,
14 change in customer habits, expenses led by new security
15 measures, rising fuel costs, and the need to grabble
16 with all the other things the airline industry has been
17 faced with since 9/11, I think we need to focus on a
18 couple of questions. I'm going to lay them out here and
19 then go on and pose them to the panelists first. These
20 questions are these. I'd like everybody to think about
21 this:
22 How important is the airline industry to the
23 people of the United States as a stable and predictable
24 entity? That's something we take for granted, but we
25 really need to focus on that, because it's a predicate
10
1 for everything else that we're going to discuss. How
2 important is the industry? Secondly, how important is
3 the airline industry to the economy of the United
4 States?
5 Two years ago, one of the questions that we
6 grabbled with was, What's going to happen if the airline
7 industry does not recover? And we're still limping
8 along in many different respects. So if you'd use that
9 as a predicate, gentlemen.
10 Let me start, if I could, with former
11 Secretary Coleman and say -- well, the first question
12 that I would like you to grabble with is this one: If
13 you were giving a state-of-the-industry speech today on
14 the airline industry, what would your summary outline
15 say?
16 MR. COLEMAN: Well, I probably would go
17 and first ask you to write it.
18 I think that the American people should
19 recognize that the airline industry is a very, very
20 extremely important industry. In fact, I think that at
21 least 3 million people get their jobs directly or
22 indirectly from the airline industry. Not only do you
23 have those on the airline, but you have those in the
24 aerospace industry, you have the federal screeners, you
25 have the food shops at the airport.
11
1 In fact, I've seen documents that would say
2 somewhere between 12 and 13 percent of the American
3 economy depends directly or indirectly upon the airline
4 industry, including the aerospace part of it.
5 Secondly -- and there's an argument both ways,
6 and I've heard it both ways, that either the airline
7 industry is, in part, subsidizing defense industry in
8 connection with building new aircraft, or vice versa,
9 the defense industry is subsidizing the airline
10 industry. Now, I've heard that argument both ways, but
11 either way it shows it's a plus.
12 Having said that, I think the airline industry
13 today faces about eight basic problems. And if they can
14 recognize those, then I think they will have a solution
15 to having profitability that they should have.
16 I take it I should stop here and hope somebody
17 will ask me, first, what are the eight basic points;
18 secondly, how do you get out of the box? And therefore,
19 I turn it over to you, sir.
20 MR. NANCE: Thank you.
21 John Carty, let me ask you the same question.
22 If you were giving a state-of-the-industry speech, what
23 would it -- how would you assess it?
24 MR. CARTY: Well, you've got to agree
25 with Bill's conclusion. The airline business is
12
1 certainly fundamental to this country. And it is, after
2 all, our only form of inter-city transportation that's
3 worth speaking of, and is likely to be for some time.
4 It's just the nature of our geography and demographics
5 and those kinds of things. And it's going to be
6 increasingly important as other industry globalizes,
7 because, again, it's the only way of connecting places
8 around the world.
9 The state of the industry, however, is
10 obviously -- the entire industry is in pretty rough
11 shape. Even the relatively successful carriers are
12 struggling mightily.
13 Obviously, this is an industry that's
14 cyclical; there's a tendency for the business to be
15 cyclical, to be affected by another downturn.
16 But we have never seen the confluence of
17 events that have impacted the industry in the last few
18 years, ever in its history of a hundred years. Not only
19 have we had an economic downturn, we've had the events
20 of 9/11. Then the follow-up to all of that; which meant
21 increased cost of security; which meant the fear of
22 flying for many passengers; which meant concern about
23 the harassment of flying as a consequence of those
24 security measures; the resulting dramatic increase in
25 the cost of insurance for this industry; the subsequent
13
1 sky rocketing price of fuel as we anticipated the
2 situation in Iraq; a major accident by American
3 Airlines, that again, I think, shocked the confidence of
4 much of the traveling public, at least with respect to
5 one aircraft type. And if that weren't enough, we then
6 had Iraq; we had SARS; and in the case of American
7 Airlines, of course, we had a hailstorm out here at
8 Dallas Fort Worth that put a hundred airplanes out of
9 circulation.
10 So the industry is terribly damaged
11 financially. The balance sheets of these companies are
12 in the worst shape they've been in in many, many years.
13 A number of the major carriers are bankrupt, and others
14 are teetering on the brink.
15 And even, as I say, the successful new
16 business model carriers, like Southwest, are having as
17 much of a financial struggle as they've had in their
18 30-year history. So it's a tough time.
19 MR. NANCE: Let me follow up on that and
20 ask you this: When we have this kind of challenge --
21 two years ago, after 9/11, you had gone, and so many of
22 the other chairman, were almost instantly on Capitol
23 Hill, just like the head of Boeing was, saying that
24 something's got to be done, got to be done fast. We're
25 leaking money at an incredible rate. This industry is
14
1 too important for the Congress and the United States to
2 ignore.
3 This is predicated, it seems to me, on a
4 consideration, not only of a national interest in the
5 airline industry and a continuation of that and the jobs
6 and the economic impact, but also it brings forth a
7 question of just exactly what should be done by the
8 public and what should be done by the payors.
9 There is an increasing, in my view, stampede
10 towards the idea of fee for service on everything. So
11 that if we got it down to ludicrous extreme, in
12 governmental units we would have a toll booth at the
13 beginning of every residential street, because I don't
14 want to pay for your street, and I certainly don't want
15 to pay for his bridge. And we have this idea of
16 privatization of various things, including air traffic
17 control, coming up.
18 Within that context, considering that these
19 are businesses, even though vital, and even though we've
20 somewhat discarded the definition of public utility in
21 dealing with deregulation, what should we do, as a
22 people? How should we handle this?
23 Let me start with you, Bill.
24 MR. COLEMAN: Well, I think that the
25 airlines, in my judgment, acted rapidly, and Congress
15
1 responded rapidly, and I don't think that they really
2 came to grips with the real problem. And I also think
3 that's a problem that did come with it in that the
4 airlines haven't taken advantage of it correctly.
5 The Congress did pass the Transportation
6 Safety System Stabilization Act. They committed
7 $10 billion. The purpose of that bill really was to
8 induce the airlines to reorganize. They haven't really
9 done that.
10 Instead, those that have gotten the guarantee
11 under that $10 billion are not the airlines, with all
12 due respect, that are going to make the difference in
13 the long run. And whereas, with respect to United and
14 U.S. Airways, they haven't been able to convince the
15 government that they should get it. I think that
16 before -- part of government stepping in, they first
17 have to face up to the labor problem.
18 Now, having never run for public office, I'm
19 not qualified to tell a Congressman or Senator as to
20 what you should do, because obviously the unions excise
21 great pressure, but just look at it.
22 I think the airline industry is the worst
23 industry in the world with respect to the theory of how
24 you carry out a labor dispute. When they walk off,
25 that's the end of the service.
16
1 If you have a strike in the automobile
2 industry, people can say, Well, I'll just put off buying
3 the car until General Motors or Ford starts up again.
4 But in the airline industry, once you lose that
5 passenger who's going from Fort Worth to Washington
6 today or tomorrow, that passenger is gone forever.
7 I think that you're going to have to
8 reorganize that industry. And the best precedent I know
9 with respect to the labor negotiation is what they've
10 done in the baseball league. You finally negotiated --
11 you finally have two offers, and a mediator steps in and
12 determines which is the fair offer, and that's it.
13 That's the first problem.
14 Everybody that says we are going to reorganize
15 the airlines, you've got to control the course. When
16 you control the course, in part the labor movement, by
17 having a labor compensation which makes sense based upon
18 the amount of money you're making. Secondly -- you have
19 the other problem, so I think that's the one thing that
20 they have to do before they can do it.
21 Secondly, I think it's a tragedy -- I saw the
22 other day in the New York Times where the money they put
23 up in New York for the people that were adversely
24 affected by the incident of 9/11, it turns out that most
25 of that money has been paid to members of law firms or
17
1 investment banking firms, because they could demonstrate
2 for two or three days they couldn't sit at a computer
3 and make a buck.
4 I mean, that is no way that public money
5 should've been spent. And those people that really
6 suffered have not gotten much of that money.
7 And I think that if you go back and examine
8 what the airlines actually got, I don't think they got
9 the money for things which would make a difference in
10 the long run.
11 MR. CARTY: I have to say this: I mean,
12 I think the government did act quickly, as quickly as
13 they've ever acted, and they did so even though a number
14 of them initially were skeptical.
15 When they understood the magnitude of the
16 problem that this breach of national security had
17 caused, and the magnitude of the financial cost that had
18 been posed on the airlines as a consequence of the new
19 security requirements and new insurance requirements,
20 all were convinced and that bill moved very quickly
21 through both the House and the Senate, as fast as any
22 bill has ever moved through. And I think those in the
23 airline industry were grateful for that.
24 But I think I agree with Bill in this sense:
25 It's time that the government sat back and re-examined,
18
1 from a public policy, what their role needs to be and
2 what the airlines need to do.
3 I'm not a great believer in the government
4 intruding into the day-to-day commercial aspects of the
5 business. I don't think that's necessary. I think a
6 vibrant and competitive market has worked well for the
7 consumers in this country since deregulation. And I
8 think once these businesses manage to transform
9 themselves as they need to for the future, it will be
10 good for the airlines as well.
11 What the government does have to do, I think,
12 however, is they do have to take responsibility for
13 national security. That isn't an airline -- your
14 question of, should you be paying for your neighbor's
15 street. It seems to me it's really clear that the
16 government has a responsibility for national security to
17 all of us.
18 At one time, aviation security was about
19 aviation. When airplanes started flying into the World
20 Trade Center, it's not about aviation anymore, it's
21 about a much bigger issue than just airlines. And I
22 think the government shouldn't necessarily impose that
23 on either the airlines or the passengers uniquely. I
24 think it's part of government's role.
25 I think -- I think Bill raises another
19
1 interesting question, and that is the question -- and
2 I've commented on this in the past -- of whether or not
3 the existing labor laws are working in the airline
4 industry in the employees' interest, in the consumers'
5 interest, or the shareholders' interest.
6 And I -- I wouldn't -- after -- after the 50
7 or so years that bill has been in place, it probably is
8 ripe for re-examination and re-formulation.
9 But I would say this: That I think too often
10 airline management, particularly the airline -- the
11 management that manage these traditional airlines that
12 grew up in a regulated environment, have used the cost
13 of labor as an excuse for not transforming parts of the
14 business that management can control.
15 I think one of the great things about what has
16 happened, at least in a number of carriers -- and I'm
17 very proud of what's happened at American, because
18 there's been a really fundamental transformation of many
19 of the aspects of doing business there -- the management
20 team out there putting those in place, which will have a
21 radical impact on the cost structure and the
22 competitiveness of this airline with or without the
23 labor savings. Now, initially, they obviously needed
24 labor savings. But airline management can't constantly
25 be saying this is uniquely a labor problem. A new form
20
1 of business model entered this business, and management
2 has to be responsible.
3 MR. NANCE: Well, there was, I believe, a
4 quote by Don King: There is no right to strike against
5 public interest anytime, anywhere, by anyone.
6 And I personally have lived under two binding
7 arbitration contracts, one for Braniff International,
8 the long-gone, fondly remembered local airline, and
9 Alaska Airlines, from which I just early retired. And
10 I'm proud of those. I'm proud of the fact that I never
11 ended up in a strike situation. That's just a personal
12 comment.
13 But it does seem to me that we've got to move
14 in a direction boldly to eliminate the possibility of
15 this kind of labor strike, especially with the
16 reorganization we're facing, because the market simply
17 will not take the level of rates that are being paid out
18 there. Any fundamental disagreement with that?
19 MR. COLEMAN: No. I also agree that
20 there has to be a fundamental decision made as to what
21 the government should do with respect to safety issues
22 and what should be the burden on the airline. And I
23 think that someone has to study that issue.
24 You know, the threat that around the airport
25 somebody could have a rifle on his arm and be able to
21
1 shoot down an airline, if that is a valid threat, I
2 think that you have to sit down and say, Is that a
3 function that the airline should take care of, by either
4 raising its fare or having an additional ticket tax by
5 the passengers, or is that just another normal defense
6 function that should be borne by the general public?
7 But I think that the airlines have to get
8 together, and not trying to grab too much, but make an
9 absolute decision on that and come in and try to
10 convince Congress with respect to that.
11 But I also think that it's important that the
12 airlines are going -- I don't think that when
13 deregulation was done, those that supported it felt that
14 you would end up with two distinct types of carriers,
15 one so-called network carrier, and the other one, the
16 low-cost carrier, and then the low-cost carrier gets big
17 enough to be able to snatch off the best routes of the
18 other network carrier.
19 And now you have the threat of Europe. You
20 know, you've got a whole Eastern Europe developing. It
21 is highly possible that they will be bright enough to
22 abandon the idea that every nation has to have its own
23 aircraft and put together one or two major aircraft
24 companies. And that would be a completely different
25 threat to the United States than you have today.
22
1 And those are the types of issues which I
2 think management has to sit down -- I said I have eight
3 of them, and I'd love to be able to lay them out.
4 MR. CARTY: I'd kind of like to hear the
5 eight.
6 MR. COLEMAN: Well...
7 MR. NANCE: Go ahead, Bill.
8 MR. COLEMAN: The airline is in a
9 business which is basically fungible. It's the same
10 airplane, they take off about the same time, they land
11 at the same airport, and therefore that's their
12 business, and therefore it's very hard to compete
13 saying, I'm doing something different than the other
14 one.
15 Next, I talked about the strike situation. I
16 know of no other industry where the employee can have
17 such a tremendous control over the negotiations.
18 Then you have this whole problem with low-cost
19 carrier against the network carriers. And I think that
20 there is an answer but I don't think anybody has ever
21 sat down and said, What should be the answer?
22 After that, you have what I mentioned, the
23 international problem, where you have Eastern Europe
24 developing in such a way, indeed all of Europe is
25 developing in a way, and if they got together and had
23
1 fewer airlines, I think they would pose a greater
2 competitive threat on the American airlines.
3 Then you have, in the federal statutes, a
4 provision that no foreigner can own more than 25 percent
5 of an American airline. The administration, and I think
6 the previous administration, have tried to increase that
7 to 49 percent, but Congress so far hasn't gone along. I
8 think that it should go up to 49, perhaps it should go
9 even higher.
10 And one of the difficulties by having these
11 percentages is that those lawyers trained at SMU and
12 other good law schools somehow know to get around them.
13 And you get around them in such a way where you're not
14 quite as efficient as you would be if you didn't have
15 to. I'll maybe describe the transaction to you where
16 you've been able to get around them.
17 Then you next are facing today, because Judge
18 Calisty (phonetic) cited, believe it or not, that the
19 families of the people in here -- in September 11 had
20 sued the airline, because the airlines should have the
21 vision that this would happen and be able to take care
22 of it. I think that that will cause difficulty.
23 Now, I think there's something in the statute
24 which says the maximum liability is 6 billion. Frankly,
25 I haven't read the statute closely enough, or if I had,
24
1 I don't remember, whether that's 6 billion per airline
2 or 6 billion over the whole industry. But either way,
3 6 billion is not that much money today when you start
4 getting involved in class actions.
5 The difficulty, as I see it, with the
6 Transportation Safety System Stabilization Act is at
7 least twofold:
8 One is that I don't think that to just lend
9 the money or give a guarantee so the airline can get
10 back in business makes sense. They were supposed to
11 reorganize. I don't think those that have asked for the
12 money have been doing that.
13 But secondly, can you imagine a governmental
14 official, if two airlines come to him asking -- or her,
15 thank God, today -- come to him asking for a new route
16 or new landing rights, and he or she knows that one
17 airline has a guarantee from the federal government of
18 2 billion, which they have to pay back, and the other
19 one doesn't, now -- and if you make the argument, Well,
20 if you give me this advantage, I'll be able to pay you
21 back your $2 billion. In other words, you put those
22 airlines at an advantage, which I think is really
23 unfair.
24 Then you have the whole co-sharing problem.
25 And those -- you also have the question of taxes, as to
25
1 whether some of the taxes, which have been levied over
2 the years on the airline and the passengers, should be
3 reconsidered. Then you have the whole question of where
4 you locate the new airports.
5 Now, once you master those eight problems --
6 and I hope my arithmetic is right -- then I think you
7 can sit down and advise the airlines what they should do
8 to be able to have the proper service that they deserve
9 and ought to have the American people really think they
10 should have.
11 MR. CARTY: I have a couple of
12 observations about a couple of points Bill made. First
13 issue is low-cost versus traditional network carriers.
14 I think if we talk about the future, if you
15 look out four or five years, network carriers will only
16 survive if they have transformed themselves in a way
17 that recognizes the existence of the new business model.
18 Now, that doesn't mean they have to be
19 Southwest, or they don't have to be Jet Blue, but they
20 have to be cognizant that most of their markets, there
21 is going to be a marketing presence characterized by
22 very low-cost competition and very low prices. And if
23 they can engineer their organization to be cognizant of
24 that and still be profitable, they will be -- they will
25 thrive.
26
1 There is no single business model that endures
2 forever. The problem with the traditional network
3 carriers is a lot of the transformation that they've
4 achieved since deregulation has been focused
5 competitively on each other.
6 And now the low-cost carriers are so
7 pervasive, cover so many markets, that they need to be
8 further re-engineered to be cognizant of that
9 competitive fact as well.
10 I think that is going on. I think sometimes
11 it takes a real hard time to make it happen, but I think
12 it's now going on. I think it's well underway at
13 American, and I think it's well underway at a number of
14 other carriers. If that isn't achieved at carriers,
15 they won't -- they won't exist.
16 Remember, we had -- we had 11 major carriers
17 at the time of deregulation, and every one of them,
18 except for Delta and American, have filed for bankruptcy
19 or are reorganizing in bankruptcy. So there's been a
20 radical change in the industry by traditional carriers
21 not managing to transform themselves.
22 And it's not uniquely an American phenomenon.
23 You're starting to see the same thing in Europe. You're
24 certainly seeing it in Canada with the Canadian carrier
25 bankrupt.
27
1 So one way or another these companies are
2 either going to go away, they're going to reorganize in
3 bankruptcy, or they're going to transform themselves
4 consensually, as American has been trying to do, and as
5 Delta's been trying to do. And there really is no other
6 option.
7 With respect to Bill's comment of foreign
8 ownership. I couldn't agree more. The long run of this
9 industry -- I think as we all sit here 20 years from
10 now, it's hard to believe there will be something called
11 flag airlines. We don't have flag chemical companies,
12 we don't have flag shoe companies, why would we have
13 flag airlines? And I think the foreign ownership rules
14 will go away.
15 I think now is the time to engage in that
16 debate aggressively and show some American leadership in
17 changing it. Because I think the American carriers, if
18 they transform themselves into much competitive
19 entities, will be able to play a significant role on the
20 world stage.
21 And I think the problem with co-sharing, as
22 Bill talked about, will go away when foreign ownership
23 goes away. Co-sharing is simply a way of globalizing
24 under the constraints of not being able to grow
25 internationally.
28
1 And I think all this is going to take some
2 time, but I have an easier time, John, answering the
3 question, what does the industry look like 20 years from
4 now, than what does it look three years from now.
5 Because this period of transformation has a
6 lot of uncertainty associated with it, uncertainty about
7 whether -- which and what airlines will do the right
8 things, which will do the wrong things, and how long
9 will it take to go from the government to get policy
10 written.
11 MR. NANCE: I must leave you, but I'm
12 going to pose a question in front of both -- in front of
13 all of you that's very, I think, apropos in regard to
14 all the changes we've talked about.
15 There is a tidal wave, if you will, of
16 vicarious transportation methodologies coming down the
17 pike, in the form of communications, and we've already
18 seen impact of this from September 11th.
19 So as I turn this over to John, and thank you
20 all very much, maybe I can put that in front of you
21 first, Don.
22 MR. CARTY: It's a very good question,
23 John, and it sort of runs to the earlier comments.
24 With the change in technology and
25 telecommunications, will airlines and transportation
29
1 remain as important an element of the economic
2 infrastructure as it did for a long time? Afterall, do
3 we really need to go there, or do we need to communicate
4 as effectively as we can?
5 Thus far in the industry, I think what we've
6 seen in commerce is the advance in telecommunication and
7 technology have accelerated the pace of globalization.
8 And ironically, instead of that hurting the airline
9 business, it's helped it. Because ultimately you do
10 have one-to-one contact with people you do business with
11 around the world.
12 It's put a lot more pressure on us being more
13 sophisticated in developing better networks
14 internationally than we had 20 years ago, but it's been
15 a net plus.
16 As we go forward, however, I do think the
17 advances in telecommunication and technology are going
18 to reduce the demand, or certainly slow the growth of
19 demand for business transportation.
20 But while that's happening, of course, we have
21 always known there's in insatiable demand for liesure
22 travel, and all you need to do is adjust the price to
23 tap into that.
24 And again, I think that makes it so important
25 that a carrier that wishes to survive becomes a far more
30
1 efficient entity than many of these entities have been
2 for the last 20 years, so the price of that product can
3 reach the consumer that wants to consume it. Because
4 people love to go places, places they've never been.
5 So even if commercial aviation --
6 aviation-related economic activity between businesses
7 decreases, I think the industry has got a lot, a lot of
8 growth left in it, particularly some less developed
9 parts of the world.
10 MR. COLEMAN: Don, I had occasion to pull
11 the testimony of the Under Secretary of Transportation
12 to the Senate Committee on Commerce, Finance --
13 Commerce, Science and Transportation that he gave on
14 January 9 of this year.
15 And he said that the economy between the
16 lost-cost carrier and the Internet carrier is that the
17 Internet carrier appeals to the business people, and
18 that's where they expect to get the large part of their
19 business from.
20 Now, what used to be the case, that you have
21 the airplane, and you have the business people in first
22 class and in business, in the back of the airplane you
23 have the lower fares and you have the liesure travel.
24 But what's happened now, oftentime, the businessperson
25 has a private jet. And, secondly, oftentime, instead of
31
1 flying down to Dallas for a meeting with the client, you
2 have a conference call.
3 So I do think there's some threat to say that
4 if your business plan makes the assumption that you're
5 going to get the business traveler, and the liesure
6 travel is going to go to low-cost carrier, which I think
7 is happening.
8 And I think that if you're really going to
9 resolve this problem, you have to face up to the fact
10 that once you agree that it's essential that they be
11 large, profitable carriers, then how do you make the
12 rules so that that's the result you come up with?
13 I think to have a low-cost carrier, they come
14 into the industry later, they don't usually have the
15 same labor problems, in terms of the same amount. And
16 then, once they begin to develop, they then say, what
17 are the best routes, and they pick those off. And as a
18 result of that, the major carriers are losing some of
19 their business to the private jets, they're losing other
20 of it to the conference call.
21 And thirdly the low-cost carriers -- you know,
22 the same way when Willy Sutton says, Why do you rob a
23 bank? That's where the money is -- that they know where
24 the business is and therefore they will say I have
25 enough airplanes now that I can fly from Chicago to
32
1 Atlanta, Georgia, and I will take some of the business
2 people. And, in fact, a good corporate manager may say,
3 Look, you can fly on this route by half the fare it
4 takes to go on American, so that's what you have to do.
5 So I really think that this is a challenge
6 that you have to look at before you decide which is the
7 business plan that's going to work.
8 MR. ATTANASIO: Before I open it up to
9 the audience, I'd like to shift gears a little bit and
10 ask -- focus you both, because you both have such
11 expertise on this, on how much of an impact did the
12 airlines have on the economy.
13 Not so much you mentioned earlier, Secretary
14 Coleman, that how many people were employed directly or
15 indirectly, but what I'm after is what kind of
16 leveraging effect transportation provided.
17 You mentioned earlier, Mr. Carty, that the
18 airlines have an enormous impact, in terms of how many
19 people they fly. How much impact? How many passengers
20 are we talking about in a day? How much in the way of
21 goods moves? How many business passengers as against
22 how many liesure passengers? What are we talking about?
23 MR. CARTY: Obviously, we're talking
24 about hundreds and hundreds of millions of passengers a
25 year, seven or eight-hundred million passengers. Now,
33
1 it's shortened a little bit in the last economic
2 downturn, but it's that order of magnitude.
3 MR. ATTANASIO: And in what area? In the
4 United States or --
5 MR. CARTY: In the U.S.
6 MR. ATTANASIO: U.S. traffic.
7 MR. CARTY: And that's a huge number of
8 people moving every day. You know, all you've got to go
9 and do is go to one of the hub airports and watch the
10 activity.
11 You know, at DFW in a big day, 50,000 plus
12 passengers come in through DFW is not an uncommon event.
13 The same thing would be true of Delta's hub in Atlanta
14 and Both United and American's hub in Chicago and
15 Northwest hubs in Detroit. Huge numbers of people
16 traveling.
17 Now, historically, that's kind of split evenly
18 50/50 between business and liesure. In economic
19 downturn, you get the effect that Bill talked about,
20 that liesure becomes a greater percentage of it. It
21 become a greater percentage partialy because the
22 business traveler can't be stimulated, he's not going to
23 travel unless there's an opportunity, the liesure
24 passenger can be.
25 As the economy turns down, the airlines
34
1 average price weekend -- as the business travelers goes
2 away, he gets replaced by the lowest possible fare,
3 because you push the fare down a little bit to capture
4 more passengers. And that's why it's such a cyclical
5 business. You lose the best of your business and you
6 stimulate the worst of your business. Now, when I say
7 "worst," I mean in terms of price.
8 But I haven't seen recent months' data, but in
9 the summer of an economic downturn, which is what we've
10 just been through, I would be surprised if it wasn't 70
11 or 80 percent.
12 MR. COLEMAN: And you're also -- and I
13 guess most people are too young to remember what -- if
14 you can get a picture of what Dulles looked like before
15 it opened in Washington, and then you thought it was way
16 out in the wilderness, nothing was around it, if you
17 land at Dulles now you'll see nothing but major
18 buildings and advertisements of all types of companies
19 that have their businesses around there. And I think
20 that's true throughout the country.
21 I think, for example, in Pittsburgh, where
22 U.S. Airways has a hub, they have shopping centers.
23 It's the biggest mall in Pittsburgh. And it's a dynamic
24 business. I really think that you have to recognize
25 that, just when you go through the airport and see all
35
1 the different type of people.
2 And then you have the whole question of
3 liesure travel. People do travel, they want to travel.
4 And I thought that the original concept, when Boeing
5 built the 747, was that you -- those people who travel
6 in the back of the bus, but those people who travel back
7 three seats to a row, they pay a much lower fare, and
8 they'd get there the same time, and that, I thought, was
9 the way that it was supposed to work.
10 When I was Secretary and we were faced with
11 the question of deregulation, and we did not pass it in
12 the airline business, I was told that the moment you had
13 this, you're going to have 79 airlines, and they're
14 going to compete with each other, and therefore they're
15 going to take care of the prices, you'll have no
16 problem.
17 It hasn't worked out that way. The major
18 airlines are going down, as John said. Some of them
19 have disappeared. And now you have the small ones that
20 started going, serving small cities, but now they will
21 run from someplace in California very convenient to
22 someplace in Washington. And they obviously have to be
23 taking business from United and from American Airlines
24 and the other airlines that would run that route. And
25 whether you go out of L.A. or go out of Santa Barbara,
36
1 it really doesn't make that much difference.
2 And that's what's happening in the business,
3 and I do think the businessmen and businesswomen have to
4 face up to that and decide, how do you go about managing
5 a very, very valuable, necessary asset, but do it in
6 such a way that you make money on it. Because in a
7 capitalist society, if you don't make money on it, then
8 it has to deteriorate in quality and it just doesn't
9 work.
10 MR. CARTY: It's a fundamental part of
11 our economy, John. But the challenge of business
12 transformation is not unique to this industry.
13 If we had said to ourself at a conference 20
14 years ago and said, My goodness, if Wal-Mart drives
15 Montgomery Ward out of business, we'll be in terrible
16 shape. But that wasn't true. Montgomery Ward is gone
17 and Wal-Mart is five times bigger than what was then the
18 biggest retailer in the country.
19 What happens if IBM goes out of the PC
20 business? Well, they're not out of the PC business, but
21 their marketshare, compared to a Dell or anybody else,
22 is inconsequential.
23 I think the market takes care of itself. But
24 the challenge for existing airlines is to recognize that
25 and transform themselves. And if they can't transform
37
1 themselves, they'll be the Montgomery Wards of the
2 future.
3 And they're faced with enormous challenges,
4 because the change that gave rise to this new
5 competitive set was a change in regulation. And we had
6 adopted ourselves for a regulated environment with a
7 certain set of rules.
8 So the challenge of the CEO -- with all due
9 respect to my good friend Herb Calliher, the challenge
10 of Jerald Arpy at American Airlines versus Herb
11 Calliher -- if Herb Callaher runs a great airlines, he
12 does; if Jerald Arpy is to run a great airlines and he
13 doesn't, he's got to change the tires when he's going
14 down the highway at a hundred miles an hour.
15 But that's the challenge. If they don't
16 transform themselves, they won't be successful. And so
17 many companies and so many airlines and so many
18 industries have.
19 We will have an airline industry. What it
20 will look like, and who are the players in it, is going
21 to depend on the innovative and creative new start-ups,
22 and the creativity and management's and leadership's
23 skills to transform the existing companies.
24 MR. COLEMAN: John, may I ask you a
25 question?
38
1 MR. CARTY: You bet.
2 MR. COLEMAN: Suppose you were Secretary
3 of Transportation. The President of the United States
4 called you and said, Look, John, this industry lost
5 $10 billion last year. The major carriers seem to be
6 failing. What should I do and what should be the
7 policy?
8 I want to scrape everything we're doing, but I
9 want you to come up with a policy for the government,
10 which will get us back to where you have airlines
11 profitable, serving the people, and to the extent that
12 we have competition from abroad, we can manage that in
13 such a way that it's not a great disadvantage. Now, how
14 would you redo the airline?
15 MR. CARTY: I would very much focus on
16 what both you and I talked about: Taking responsibility
17 for security and safety oversight and enforcing those
18 rules and freeing up the market as much as I could. And
19 that would include not only the domestic market, it
20 would include the international markets.
21 Because American ingenuity in business has
22 been successful. Where we've had failure, we've had
23 tremendous success, tremendous re-invention.
24 Again, I will be go back to PC example. Five
25 years ago, ten years ago, there were a lot of people
39
1 saying the Japanese were going to take over the PC
2 business. Well, no one told Michael Dell. And now the
3 Japanese are a pale shadow of Michael Dell.
4 I think we need a marketplace that enables
5 Americans to use their creativity. Great challenge to
6 traditional guys. We may lose and see the bankruptcy of
7 more of them. It will be unfortunate.
8 But I think the best thing the government can
9 do is take responsibility for government things, safety,
10 security, the airspace. I think there's a lot of work
11 the government needs to do on the airspace to really
12 free up the airspace in the competitive environment,
13 provide the technology that's available to us. And I
14 think those are the things the Secretary of
15 Transportation should impose.
16 MR. ATTANASIO: One last question before
17 I open it up to the audience.
18 How much has terrorism impacted business?
19 MR. CARTY: Well, it's impacted in a
20 number of ways, John. In the first instance, of course,
21 it scared people off. And I think we've largely
22 recovered from that.
23 The second thing it did is it imposed an
24 economic burden on the airlines and ultimately its
25 customers of the cost of the security we put in place to
40
1 try to diminish the threat of terrorism.
2 And initially we put in place a system that
3 not only cost a lot of money but imposed on our
4 passengers a tremendous harassment factor, if you like.
5 I think the government is making progress
6 there. This was all done in an enormously short amount
7 of time. And I think people now are focused on how do
8 we automate, how do we take advantage of technology,
9 doing all the things that -- in fact, my way of
10 thinking, the government has done a better job than I'd
11 thought they'd do a year and a half ago when they
12 started this. I think we've had some good leadership in
13 Washington on that.
14 But to say it hasn't effected us in terms of
15 cost and therefore price to the consumer would be very
16 naive.
17 And to think that it didn't accelerate the
18 bankruptcy of U.S. Air and United -- they probably
19 would've gone bankrupt anyway, but it clearly did
20 accelerate that. And it accelerated this terrible
21 economic spiral that the airlines are in.
22 But before September 11th, 2001, management at
23 American sat down around a table and said, We are moving
24 into an economic downturn. Economic downturns are
25 always tough on airlines. What do we need to do to take
41
1 the next step in restructuring this business?
2 We thought it would be an evolutionary
3 restructure over four or five years, and we woke up six
4 months later to find out it had to be accomplished in a
5 year or we would be out of money. And I think that's
6 the biggest short-term impact that this change had on
7 us.
8 MR. ATTANASIO: Secretary Coleman, do you
9 have any marks on that before we open it up?
10 MR. COLEMAN: No. I think -- I must say
11 that American does it better than the airline that I
12 flew to Jacksonville, Florida on Monday does, so -- I
13 won't identify which one that was, but I wasn't very
14 impressed with them.
15 MR. ATTANASIO: It's okay.
16 MR. COLEMAN: But I was very impressed
17 with American and the way they could move you through,
18 and it was much faster and just made more sense.
19 I think -- I think they -- you know, the
20 American people have responded to unthinkable challenge
21 much better than we give them credit for. You know, you
22 always thought that those two oceans really protected
23 you. We saw that it didn't.
24 And in six months thereafter, the Congress
25 instructed the Department of Transportation and other
42
1 parts of government to come up with a plan. And I think
2 in six months they did a tremendous job.
3 I also would say that I have great admiration
4 for Secretary Vanetta, that the moment he heard of the
5 crisis his first order was to get every one of those
6 commercial American airplanes down to the ground. And
7 that's the only reason why, I think, we picked up the
8 fact that one plane over Pennsylvania was headed for the
9 White House.
10 So I really think that -- we criticize
11 politicians, you know, on the night shows, but I really
12 think that he acted responsibly and correctly.
13 And I think the airlines have done a good job
14 in trying to meet what is really a threat but yet do it,
15 as far as possible, consistent with our right of privacy
16 and the fact that we don't like distinctions made based
17 upon things which we ... (inaudible)
18 MR. ATTANASIO: We've got a few minutes
19 of questions from the audience.
20 AUDIENCE MEMBER: My name is Pete
21 Shelton, second-year law student here at SMU.
22 But in the last four years, I've flown
23 probably 200,000 miles. I work for one of the big four
24 accounting firms, flew about every week. And being
25 based in Dallas, you can imagine what airline I flew 95
43
1 percent of the time.
2 MR. CARTY: Thank you.
3 AUDIENCE MEMBER: On top of that, you
4 know, you fly enough -- for people that don't fly --
5 you're a status on an airlines.
6 Before September 11th, it was a nice to go sit
7 up in first class. It was a pleasure to get in American
8 Airlines, say, I hope I get the upgrade and sit in first
9 class.
10 Well, this summer I was again traveling for
11 work, and I was flying American Airlines. And I know
12 after September 11th American Airlines and other
13 carriers cut a lot of their meals and a lot of their
14 services.
15 First class is not like it used to be, okay?
16 There's nothing special about it. It's almost like
17 flying in coach. So this summer I had an opportunity to
18 fly Jet Blue, which is one of the low-cost airlines in
19 New York City, and I actually -- I'm not to bashing a
20 particular airline -- I any had better service on Jet
21 Blue than I did on American Airlines.
22 So my question is this: That is your
23 competitive advantage. The network airlines have the
24 first classes, the low-cost carriers don't, because it
25 keeps their costs down.
44
1 American Airlines and the other carriers have
2 already stopped providing a lot of the services that
3 attract business travelers to first class.
4 How do you change business travelers', like
5 myself, mentalities, saying, hey, it's nice to be
6 pampered in first class, it's nice to spend $1200 versus
7 $400 for the same flight?
8 MR. ATTANASIO: You've destroyed the
9 image of the poor law student forever.
10 MR. CARTY: It's a very good question.
11 Obviously, what these traditional carriers are
12 trying to do is they're trying to find the balance, the
13 right economic balance across their product line between
14 various services customers want and various services
15 customers value.
16 And wanting things is easy, but what they're
17 trying to determine is, how can they have -- because the
18 nature of these operations is they're going to have
19 somewhat higher costs than other carriers anyway. You
20 can't fly to Tokyo on a 737, so you're going to need a
21 different airplane to do that.
22 The question is, what kind of revenue premium,
23 what kind of appeal can you make to the customer which
24 will create unique revenue pools that a low-cost
25 carriers can't get out, and what services does it take
45
1 to put those together, then how do you make sure that
2 the revenue pool that you achieve that gives you the
3 revenue doesn't exceed the cost premium? Because if it
4 does, you don't have a viable business model in today's
5 world.
6 Because the single thing that customers value
7 most is pricing. And that's not just leisure passengers
8 anymore, because so much business travel is bought on a
9 negotiated basis. So the notion that there's a $1200
10 fare out there, try to find someone to pay it. There is
11 no business that would pay $1200 anymore. They sit
12 down -- you know, if you're a member of the big four, I
13 can guarantee you PriceWaterhouse or Ernst & Young have
14 a contract with three or four major airlines, and they
15 don't pay list price.
16 So that's the reality of the marketplace. The
17 price and schedule are far more important than any of
18 these other services.
19 With that being said, we want to identify
20 those that have values and will help us create unique
21 revenue pools and unique revenue premiums, but they
22 can't create such unique cost premiums that you're out
23 of business.
24 That's the transformation I'm talking about.
25 It's partly that, and it's partly simply re-examining
46
1 your entire doing business and re-engineering it; in
2 fact, that's underway as well.
3 But have they got exactly the right answer
4 yet? The answer, obviously not. That will be a
5 constant juggling thing .
6 But it is clear the majority of the people
7 that don't want to sit in first or business class for
8 price and value reasons aren't prepared to pay you a
9 huge amount of money for food. They like it, they'd
10 like you to give them a meal, but they're not going to
11 pay anything for it.
12 They will ride a Southwest that won't give you
13 a meal if the price is different, which is their way of
14 saying, I'm not going to pay for a meal. That's
15 balancing act.
16 AUDIENCE MEMBER: I'm Lisa Tolk.
17 And Secretary Coleman was discussing the
18 United States District Court Judge who went ahead and
19 ruled that it's okay for 9/11 victims to sue the
20 airlines.
21 Do you think this sets a dangerous precedent
22 for unreasonable and unforeseeable instance that occur
23 on the airlines, and what impact do you think that will
24 have in the future?
25 MR. CARTY: Well, you guys are the legal
47
1 minds, and I'm not. All I can say is it's the most
2 stupid thing I've heard in my life. And that isn't a
3 legal opinion, that's a personal opinion.
4 The fact of the matter is, the legislation
5 that the Secretary referred to, at the time that the
6 government passed this act, it did three things:
7 One, they simply gave a grant of money to the
8 airlines to pay for the downtime and lost traffic; then,
9 as Bill pointed out, they created a pool of money that
10 carriers could potentially borrow, and that was the
11 $10 billion pool; the third, which was enormously
12 important to American and United, because we saw this
13 coming was, to cap our liability at the limits of our
14 insurance, and, at the same time they did this, they
15 created a fund that they hoped most of the victims would
16 access.
17 Now, because there are lawyers out there, some
18 were convinced not to access that fund. And I think
19 we're going to have a series of -- we're obviously going
20 to have some litigation here, and how it will end up, I
21 don't know.
22 I do know the insurance company also
23 rigorously defend this one. The notion that they
24 should've participated the airplane being ceased and
25 flown into the building, to me, is just crazy.
48
1 MR. ATTANASIO: Counsel?
2 MR. COLEMAN: Well, I was -- I haven't
3 checked our new business. I don't know which side we're
4 on.
5 MR. ATTANASIO: Tell us what you really
6 think.
7 MR. COLEMAN: I say that -- I remember
8 one time I was in New York and Judge Rifkin, who is a
9 great judge, had just joined the firm.
10 So like every young associate, I said, Well, I
11 have to appear before this guy to impress him to maybe
12 next time he has a big case he ought to ask me to be one
13 of the associates.
14 So I had a problem I was working on. I
15 prepared it better than anything else I've ever done in
16 my life. And I asked to see the judge. I said, I have
17 a problem, I went in, and I laid out the problem the
18 best way, at the end of which he said, Well, I'm sorry,
19 Mr. Coleman, you haven't told me the most important
20 fact. Now, you can imagine my shagreen. I said what do
21 you mean, sir? You haven't told us who our client is.
22 So I have some caution to say. But I was
23 surprised and it scars me that part of the plaintiffs
24 are actually insurance companies, and it does raise an
25 issue.
49
1 But you knew it was coming because the funds
2 set up -- Mr. Fineberg, who I thought did a good job,
3 and had worked it out where people got somewhere between
4 350,000 to 6.1 million, reported the other day that only
5 30 percent of the possible applicants have made their
6 application yet, and you've got to make it by the 22nd
7 of December.
8 So it's clear that the -- part of the bar has
9 gotten a chance for a much better lawsuit, and that's
10 why you have this lawsuit.
11 And the question is, can the Congress now
12 amend the statute so as to limit the liability here?
13 But I think it's a serious threat to the industry that
14 this type of lawsuit will go on and probably go on for
15 the next five or six years.
16 MR. ATTANASIO: One more question.
17 AUDIENCE MEMBER: As you know, there's a
18 significant debate going on now about the Patriot Act
19 and its impact on civil liberties and what have you.
20 Can you tell us whether or not the Patriot Act
21 is having an impact on the airlines in terms of
22 requirements, and if so whether, it's good or bad?
23 MR. CARTY: I'm hesitating because I may
24 or may not be entirely current with all of it.
25 But it certainty -- it wasn't having an impact
50
1 on it when I left the company the spring of this year.
2 There were a lot of issues about privacy early on that
3 we juggled with with the Department and Homeland
4 Security folks day in and day out. But whether the --
5 whether there's direct impact from the Act, I can't tell
6 you the answer to that.
7 Do you know, Bill?
8 MR. COLEMAN: Well, one of the difficult
9 problems, and I don't know whether it's because of the
10 Patriot Act, is the whole question of, how you develop
11 the rules of the person that you will check as against
12 the person you let go through.
13 Now, you know, the assumption is that any
14 person 80 years of age, with white hair, and with a
15 crutch, is not one who's going to do something in an
16 airplane. On the other hand, someone who appears to be
17 from the Middle East, 21, that may be or maybe not, but
18 yet the whole question of profile has come up, and I
19 think that's one of the questions that has got to be
20 worked out.
21 I think another question that you've got to
22 face is that the constitutional law -- and I will be the
23 first one to say, to say something is constitutional is
24 the least good you can say about it. And oftentime the
25 government has to do much more.
51
1 But in reading the cases, other than a case of
2 Bevins versus the FBI, I don't think there's a case
3 which says that if a federal official stops you and
4 searches you and then lets you go, that that violates
5 the fourth amendments.
6 And I just put to you the question that if one
7 of those people going through security at Boston had
8 been stopped and searched, could he have a lawsuit
9 because they picked something on him? And I really
10 think that this whole issue has to be really looked at.
11 And I would be the first one to say that as you approach
12 these problems now they will be different for the way
13 you will look at them four years from now when we
14 make -- what's the name -- where right after you did
15 what you did on the west coast, but four years later in
16 you said you couldn't hold the same people in the middle
17 part of the country, because we were near to winning the
18 war.
19 And I just think that as you criticize what
20 the government is doing, that you've got to take a look
21 at history and see, over long run history, what people
22 have done.
23 MR. CARTY: We're compelled as airlines
24 to have our systems interface with the government
25 computer that has the profiling, but it isn't our
52
1 profiling algorithm. And we simply do what we're told.
2 The question I think that Bill makes is good,
3 but it's government debate so that what algorithm can
4 look like, what is appropriate, and what's not
5 appropriate. I think that's public policy.
6 MR. COLEMAN: You take, you know, the
7 instance where that person took his children in New
8 Hampshire, drove them across the country. Well, he was
9 picked up only because he used a credit card, and they
10 had the credit card and they sent out the word, and
11 that's how they picked them up.
12 And if you can make the argument that if the
13 government had been able to get every credit card and
14 found out that the 19 people were flying across the
15 country using credit cards, paying for their training
16 and pick that up, I think it's kind of hard to say,
17 well, gee, that's an invasion of privacy if that saved
18 3,000 lives.
19 So I really think this is a real, real debate,
20 but I really think, as you look at it, the everybody has
21 to really examine what the issues are and what -- you
22 know, what the result ought to be based upon this
23 recognizing as the threat changed.
24 MR. ATTANASIO: Well, as Mr. Carty has to
25 get to the Board of Trustees meeting, and I don't want
53
1 to get in trouble, we better conclude this at this
2 point.
3 I want to thank Al Casey for organizing this.
4 I want to thank our distinguished parties for being with
5 us today. Thank you.
-30-
