The events of 11 September have had one unexpected outcome: public ownership of airlines is now firmly back on the agenda

In the 1980s, Ronald Reagan declared government was rarely the solution to economic ills; rather it was the problem. Reaganomics and its sister philosophy, the UK's Thatcherism, sparked a revolution in global thinking over the way economies should be run. Put simply, entrepreneurs were better at running large public sector concerns than governments and the less politicians meddled in the market the better. Instead of paying taxes to subsidise companies, citizens could use extra money in their pockets to buy shares in businesses they felt would make the best returns.

Sometimes enthusiastically, often reluctantly, and occasionally shambolically or corruptly, governments of all but the reddest hues have spent the past decade dismantling public sectors. From energy to telecoms, mining to railways, state-owned conglomerates have been broken up and offered to the highest bidder. There was, however, one area where politicians had been most reluctant to let go of the reins - airlines. But even there, the free market message had begun to seep through, and, slowly, the sold list of national airlines had been growing.

That was, until 11 September. Now the landscape has changed and the idea of governments bailing out or buying back privatised airlines is gaining credence. The collapse in passenger revenues as a result of hijack fears and the accelerating global economic downturn has pushed a host of struggling airlines close to or over the edge.

The most dramatic casualty is Swissair, which grounded its flights last week after running out of cash. It is currently being kept alive by a $277m "loan" from the government, a move which has met with concern from other European governments and airlines. Swissair's part-owned subsidiary Sabena is also being propped up by a bridging loan from the Belgian Government after it filed for protection from its creditors last Wednesday.

Swissair's collapse has rocked and shamed Switzerland, a country where - like its watches - companies don't break down and enterprises are expected to be run with the sort of stolid probity of its banks. To those unfamiliar with Swissair's problems since its ill-judged attempt to turn itself into a global airline group, the grounding of one of Europe's bluest-chip carriers must have come as a surprise. Already there have been voices calling for Berne to dip into the state coffers, nationalise the airline and salvage national pride.

New Zealand has already made that step. Last week, flag-carrier Air New Zealand was taken back into state control, 12 years after being freed. Wellington's reasoning is that a small, isolated country such as New Zealand, dependent on tourism and with a scattered population, needs a domestic air transport infrastructure and connections with the world. Ideally this would be provided by private enterprise, taking risks and reaping the rewards. But if the private sector will not offer this service, the state must move in.

There are a number of arguments for public ownership of airlines. In the circumstances, many seem convincing - the issue of jobs, for instance. No government wants to cope with a sudden surge in unemployment. Shutting an airline also hits a country's skill base, as thousands of pilots, engineers and ground staff leave the industry and often move abroad. There is also the infrastructure argument. A state airline, it is claimed, is not just there to make money for its shareholders; like highways, it is there to link business and population centres and allow the the economy to function. Thirdly, there are cultural factors. A flag carrier is a country's ambassador to the world: its livery, cabin crew and in-flight food are often a visitor's first experience of what that nation is about.

In the end, few of these hold water. As far as employment is concerned, the same plea could be made for loss-making shipyards or steelworks. The infrastructure issue, too, is dubious. Where demand for air travel exists, the private sector will fill any gap, so long as it is granted access to airports and rules restricting foreign ownership of airlines are swept away. Only in the case of providing air links to remote communities should governments write a cheque. Even the cultural argument collapses. Canny marketeers will always recognise the benefits of flying the flag - witness the example of the long-privatised British Airways (short-lived experiments with multi-coloured tailfins excepted).

Subsidising airlines - even with the best intentions - is throwing good money after bad. It may be painful in the short term, but Swissair and Sabena must pay for their bad business decisions and not be allowed to use the events of 11 September as an excuse.

Source: Flight International