Originally created 09/17/97

Air South a bad bet

It all sounded so positive back in 1994 when then-South Carolina Gov. Carroll Campbell put state taxpayers on the hook for a $12 million federal loan guarantee to Air South to operate in Columbia.

The governor OK'd state borrowing of the money from the U.S. Department of Housing and Urban Development, then loaned it to Air South with the understanding that if the airline couldn't pay it back, state taxpayers would.

Campbell characterized the deal as "a good investment" that would boost air traffic in the state capital while creating new jobs and reaping other economic benefits. Not quite.

From day one the loan was a disaster. In the three years since it was negotiated, the state has paid back $5.5 million while the airline paid only $172,189 in interest.

Now Air South has gone into bankruptcy, and state taxpayers could be stuck with the balance -- which, with interest, would come to a total of nearly $17 million. This is a bitter pill for taxpayers to swallow.

As loan critic Sen. Ernie Passailaigue, D-Charleston, notes, "We would have been better off renting a plane and throwing dollar bills from it."

There is a lesson to be learned here, but it's not to toss money from airplanes. The loan, the way Campbell framed it, sounded so reasonable as to be almost irresistible. But smooth rhetoric is no substitute for hard research.

In 1993, even as it still is today, the airline industry was in a state of flux. Since deregulation in the late 1970s, the industry has been downsizing and consolidating. Air fare wars are mainly between main destinations -- such as New York and Atlanta, Miami and Los Angeles, etc.

Meanwhile prices are boosted in the smaller hub markets such as Columbia and Augusta to compensate for the fare wars in the main hubs. When smaller carriers move in to challenge the higher rates, rates will come down until the larger carrier drives out the upstart competitors and then raises fares again.

In such a climate, it was folly of Campbell to risk taxpayers' money on Air South. Hindsight is always 100 percent perfect, but if the governor's office had assessed the risk as hardheaded investors do, it would have likely had the foresight to conclude that Air South was a bad bet.


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