Monday, January 14, 2008

Bankrupt Airlines

"If a private enterprise is a failure, it closes down - unless it can get a government subsidy to keep it going; if a government enterprise fails, it is expanded. I challenge you to find exceptions."
Dr. Milton Friedman
Let me encourage all my readers to complete this online political quiz -- -- so you have a better understanding of your political ideology. My personal results placed me on the grid along with free market economist, Dr. Milton Friedman, so the quote I opened this posting with really caught my attention.
Now Dr. Friedman mentions the word "subsidy" in this quote which I would widely define to include "court administered bankruptcy protection" used by companies like the legacy airlines in the USA.
A great example is Northwest Airlines (NWA) which emerged from bankruptcy recently. NWA is the subject of speculation that it will merge with Delta Airlines unless Delta pursues a merger with United Airlines. The merger speculation of course has fueled further speculation that a merger of 2 of these 3 airlines would trigger a second round of mergers such as American Airlines merging with one of the remaining companies.
Instead of being protected by the bankruptcy court and Minnesota's Metropolitan Airports Commission perhaps the economy should have simply let NWA close operations so that other airlines/entrepreneurs could buy up the assets (airport slots, airplanes, etc.) for better utilization.
Yes there is pain associated with economic change but sometimes the pain can be minimized but removing the handcuffs/restrictions on competitors that today we call "bankruptcy protection" so that the transition to new providers is shorter.
Have a good flight,

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