Edit post

Edit your reply below.

Post Body
Enter your post below.
[quote user="Sawtooth500"]Well look at the airline business - that's another business that does NOT make money (and I used to be an airline pilot). The only way airlines stay afloat is through shedding debt in bankruptcy and getting idiots to invest in them. Personally I love to fly but would never want to own an airline. An airline is happy when it makes $25 mil in a quarter, oh, but nevermind the BILLION we lost last year... The fact is us americans like cheap travel. You could say airlines are subsidized by bankruptcy... rails by the government.[/quote] In 2007 the major U.S. airlines (operating revenues of more than $20 million per year) had operating profits of $7.4 billion and net income of $4.6 billion.  Although two of the largest carriers had a net income loss, the others had taxable net income and a net return of 11.33 cents per passenger mile.  In 2007 there were 23 carriers with operating revenues of more than $20 million. In 2008, which was a very bad year for the airlines, due mainly to the run-up in fuel prices and the on-coming recession, the major carriers had an operating loss of $4.2 billion and a net income loss of $14.7 billion.  However, eight of the 15 surviving carriers had an operating profit and five of them had taxable net income.  The losses for the big trunk carriers (American, Delta, United, etc.) dragged the industry down.  Earnings improved in 2009, although the industry was still in the red.  The operating loss was $1.1 billion, and the net income loss was $5.9 billion.  Ten of the fifteen carriers reported positive operating income, and six had taxable net income.  The preliminary results for the first quarter of 2010 show the carriers are on a path towards a profitable year. Net income consists of cash and non-cash items.  Although a carrier may have had a net income loss for the year, it may have had positive cash flows.  Cash flow is the key to continuing operations.  A business can have net income losses for a long period, but it cannot sustain negative cash flows for an extended period of time.  In a bankruptcy proceeding, as a rule, the shareholders lose their investment.  The bondholders usually have their debt holdings restructured and come out of the proceedings with a portion of their debt.  Frequently, all or a portion of their debt is converted into shares of the emerging entity.  Assuming that the entity turns the corner; they can be made whole over time if the entity (airline) is profitable. Some employees may lose their jobs as a result of the bankruptcy.  Moreover, all the employees may lose part of their retirement benefits if the bankruptcy court allows the airline to assign its pension plan to the Pension Benefit Guarantee Corporation.  The PBGC is a government agency that insures private pension plans.  The sponsor of the plan pays a premium (insurance) for the guarantee.  Any entity with a qualifying plan is a candidate for PBGC coverage.  The PBGC payout may be less than the anticipated payout from the airline's defined benefit plan.    The cost of a bankruptcy is worn by investors, creditors, employees, and suppliers.  It is not worn by the taxpayers and, therefore, is not a taxpayer subsidy in the sense that Amtrak receives direct federal and state subsidies to sustain its operations. Corporations emerging from bankruptcy may or may not have large tax loss carry forwards.  If an individual or business has no income or a loss on certain investments, he or she has no tax liability.  If the loss is great enough, they will have a tax loss carrry forward.  If one wants to argue that the tax law is a subsidy, he or she should keep in mind that Amtrak pays no income taxes.  Moreover, it is exempt from all state and local taxes.  In otherwords, it gets a free ride on the backs of the federal, state, and local taxpayers.  Having said all of this, however, Professor Milenkovic is correct.  What ever the airlines do or don't do has nothing to do with how passenger rail fits into the national transport scheme.
Tags (Optional)
Tags are keywords that get attached to your post. They are used to categorize your submission and make it easier to search for. To add tags to your post type a tag into the box below and click the "Add Tag" button.
Add Tag