US Treasury Defers Tax For Struggling Airlines

by Mike Godfrey, Tax-News.com, Washington

16 November 2001

The US Treasury announced on Wednesday that it has decided to bow to the demands of the country's stricken airlines, and will be allowing them to defer an estimated $4 billion in tax payments until January 15th 2002.

Eligible carriers had already received a two month deferral immediately following the September 11th attacks, but following lobbying from industry groups, the Treasury decided to extend the November 15th deadline by two months.

The US airline industry recently wrote to the Treasury Secretary Paul O'Neill, explaining that their situation was not improving, and pleading for some financial breathing space: 'The industry continues to be significantly impacted by the tragic events of September 11 and many travellers continue to stay at home. Revenues are still down and costs will continue to increase,' they argued.

Wednesday's decision will have been a welcome one, but according to industry experts, the airlines may not be out of trouble yet, especially since the more recent plane crash in Queens which has shaken consumer and investor confidence still further.

'By the middle of January, (the industry) is not out of the seasonal cash burn woods,' Jim Higgins, a CSFB analyst explained to the Financial Times on Thursday. According to Mr Higgins, even in a relatively normal year, the industry's liquidity position usually declines from the end of the third quarter, and picks up again at the start of the following financial year.

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