Wednesday, June 29, 2005

The Lost Liberty Hotel

Freestar Media LLC, a group with strong libertarian ties, announced yesterday that it has initiated a request to have Supreme Court Justice David Souter's home condemned, so that a hotel can be built on the site. Justice Souter's vote in the recent "Kelo vs. City of New London" decision allows city governments to take land from one private owner and give it to another if the government will generate greater tax revenue or other economic benefits when the land is developed by the new owner.

Logan Clements, CEO of Freestar Media, points out that the City of Weare will certainly gain greater tax revenue and economic benefits with a hotel on 34 Cilley Hill Road than allowing Mr. Souter to own the land.

The proposed development, called "The Lost Liberty Hotel" will feature the "Just Desserts Café" and include a museum, open to the public, featuring a permanent exhibit on the loss of freedom in America. Instead of a Gideon's Bible each guest will receive a free copy of Ayn Rand's novel "Atlas Shrugged."

Clements indicated that the hotel must be built on this particular piece of land because it is a unique site being the home of someone largely responsible for destroying property rights for all Americans. "This is not a prank" said Clements, "The Towne of Weare has five people on the Board of Selectmen. If three of them vote to use the power of eminent domain to take this land from Mr. Souter we can begin our hotel development."

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Efficient health care

For the past 18 months, the federal Medicare bureaucracy has been testing a big new idea, and they've discovered something that a child could have told them: paying more for better health care is efficient.

Center for Medicare Services administrator, Dr. Mark McClellan, said Medicare's rules force the agency to pay for duplicative tests and services, and to cover readmissions that would not have been necessary if patients had received better care the first time.

Bills are currently pending the Senate Finance Committee and House Ways and Means Committee.

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Suck: ten years later

The Big Fish: Ten years later, the story of, the first great website.

For your edification, here are a couple classic Suck episodes:

"The Last Filler Ever!"

"Gone Fishin"

I still dream of the day Suck returns ("But think how good it will feel when you see the Sucksters again, tanned, rested and ready, with recharged batteries and can-do attitudes!"). In the meantime, be sure to enjoy RabbitBlog!

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Friday, June 24, 2005

A bad week for the First Amendment

The House of Representatives passed the "Flag Desecration Amendment" to outlaw burning of the US flag. While this is nothing new (this passes the House every year or two), this year it has a very real possibility of passing the Senate as well.

The Supreme Court ruled that private property can be condemned and seized by the government (using the principle of eminent domain) and then given to another private party. In other words, the county can seize your house to allow Wal-Mart to build a supercenter. The good news is that it was a narrow 5-4 decision allowing states to set law in this regard; ;individual states can outlaw this type of seizure (and several have).

A law taking effect this week requires pornographers to obtain (and maintain indefinitely) detailed records on all "performers". This one has obviously gotten less media coverage than the prior issues, but it is just as egregious. I have no objection to the initial data collection, but like any other business, pornographers should only be required to maintain the documentation for a limited time. The biggest problem with this law, however, is that it applies retroactively to "any book, magazine, periodical, film, videotape, or other matter which contains one or more visual depictions made after November 1, 1990 of actual sexually explicit conduct." In other words, it is retroactive 15 years!

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The Great Eye is ever watchful

A recent photograph by the Hubble Space Telescope looks eerily like Sauron's great eye!

The ring is composed of dust particles in orbit around Fomalhaut, a bright star located just 25 light years away in the constellation Pisces Austalis (the Southern Fish). The picture was taken using Hubble’s coronagraph, a device which blocks the glare of a star while gathering the faint reflected light from any surrounding ring.

Astronomers suspect the ring around Fomalhaut is the dusty trace of a belt of small comet-like bodies that surround the star, similar to the Kuiper Belt surrounding our solar system. Frequent collisions between these bodies generate enough dust to replenish the ring, which would otherwise be eroded by the star’s radiation in short order (on a galactic scale, that is!). Since the Kuiper Belt is a by-product of the creation of our solar system, the ring around Fomalhaut may be similarly linked to planet formation.

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Wednesday, June 22, 2005

"Higher Standards, Lower Prices" Wal-Mart?

After getting whallupped by Target for the last several months, it seems that Wal-Mart has learned something about shoppers.

People want cheap merchandise but they don't want to feel cheap.

KMart had so much trouble with this concept that they went bankrupt. Wal-Mart's sales have been down lately, but they have years to go before bankruptcy might be an issue.

Here are the numbers: Target's same store sales (a key industry indicator, measuring sales at stores open at least a year) increased 5.1%, lead by strong women's clothing sales. Wal-Mart's were just 2.5%, below company forcasts for the second consecutive month.

Currently, Wal-Mart attracts more low-income customers than Target, with nearly a third of Wal-Mart shoppers earning less than $25,000 a year. The world's biggest retailer is now trying to accelerate growth by appealing to a broader, and well-heeled, group of shoppers.

In a bid to appeal to high-income shoppers, Wal-Mart's upping the fashion and quality quotient on apparel, home goods and other items. The goal is to let customers know Wal-Mart is a destination for trendy and fashionable items at a good value, said spokeswoman Karen Burk.

Part of me hopes Wal-Mart is successful (the part of me that owns their stock!), but the "upscale discount" market is more crowded and more demanding than "low price at any cost". In addition to Target, Meijer has done quite well lately with the slogan: "Higher Standards, Lower Prices" (and a clever supporting advertisement for their produce selection).

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Pension audits

The Aircraft Mechanics Fraternal Association, a union representing 16,000 airline ground workers, has requested an investigation into possible mismanagment of United Airlines' pension fund. On Monday the association sent a letter to Secretary of Labor Elaine Chao and Bradley Belt, the executive director of the Pension Benefit Guarantee Corporation (PBGC). The PBGC has never conducted such a forensic audit of any plan it has taken over.

"The PBGC and its plan termination insurance are increasingly called upon to protect and pay the pension obligations promised by large, troubled corporations," O.V. Delle-Femine, the union's national director, said in the letter. "The PBGC and responsible plan fiduciaries should, as a matter of course, undertake forensic audits of any distressed plans in order to determine whether any of the parties providing financial services to the plans may have contributed to their demise...Unfortunately, at this time, forensic audits of pensions virtually never are undertaken and wrongdoing related to pension failures has gone undetected."

Legislative liaison Maryanne DeMarco said the union was not aware of specific wrongdoing in the management of United's pension funds, but noted that a US Securities and Exchange Commission (SEC) report released last month indicated widespread conflicts of interest exist among pension consultants and money managers that may cause significant financial damage to pension funds.

United used Russell Investment Group as its chief pension consultant. Russell is also listed as investing money for United via alliances with other money managers. Russell's wide-ranging operations appear to be of the sort the SEC has called on plan overseers to investigate carefully.

"They are a huge broker, a money manager and supposedly provided objective advice to the largest pension failure in history," said Edward Siedle of Benchmark Financial Services, a firm that investigates possible wrongdoing among money managers and was consulted by United's union. "If that doesn't merit an investigation, I don't know what does."

After the savings and loan crisis in the 1980s the Resolution Trust Corporation (RTC) conducted forensic audits and barred firms found to have misbehaved from further work. But lawyers for the Labor Department and PBGC have stated that they have not conducted forensic audits in the past and do not have such capabilities in-house.

Given that United's bailout is probably the beginning of a chain reaction by the end of which the entire airline industry (and likely the auto industry as well) will dump their pension obligations on taxpayers, it is critical that the PBGC follows the lead of the RTC. Otherwise we will find ourselves subsidizing the enrichment of a few shareholders.

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Monday, June 20, 2005

The de-Carly-ization plan

Carleton S. "Carly" Fiorina's successor CEO at Hewlett-Packard, Mark V. Hurd, has recently made some big announcements about the direction in which he hopes to take the company.

On June 13, HP announced it would separate its printer and PC divisions. In part, this increased separation may make other PC manufacturers more willing to bundle HP printers with their machines. Hurd seems to have opted for product focus rather than synergy, a strategy that is also apparent in HP's sales force.

Hurd has announced a sweeping reorganization in HP's sales force; a move that will undo a major element of Fiorina's strategy. Fiorina attempted to create an integrated sales force selling bundles of HP products to corporate customers. Hurd intends to return to a more product-specific focus. The change could lower HP's selling costs, since less central coordination would be required. More important, HP would no longer be sending generalist account reps up against the focused salespeople from the likes of Dell and Lexmark.

Hurd is also prepping the company for big layoffs, expected to total 15,000 people, intended to match the efficiency of rivals such as Dell. According to one insider, "The board replaced Carly because it wanted to focus on execution. Mark is doing just that."

This is obviously just the beginning, as Hurd has only been on the job for 2 1/2 months. But these seem to be steps in the right direction.

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Friday, June 17, 2005

Restrictive ballot access = Jim Crowe?

Speaking Wednesday night at a fund-raiser to retire the debt from his 2004 presidential campaign, Nader complained that Democratic Party powerbrokers had kept him off the ballot in such Southern states as Georgia and Virginia - which reminded him of the oppressive Jim Crow laws that denied African-Americans equal rights. "I felt like a [n-word]," remarked the 70-year-old white multimillionaire graduate of Princeton University and Harvard Law School.

Maybe that explains the harsh reception Nader has gotten from Supreme Court Justices Rehnquist and Thomas.

Yesterday, Nader said he was using the word in the same spirit as the Black Panthers of the 1960s: "as a word of defiance." But few were buying that explanation.

According to Al Sharpton, "If Ed Koch had said what Ralph Nader said, we'd be marching. This doesn't rise to the level of a march. It rises to the level of a wrist slap...Nader is not a racist by any stretch of the imagination."

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Have you heard of the Downing Street Memo?

In the USA, if you listen to or watch mainstream news or read mainstream newspapers, you probably have not! (Another reason to support public broadcasting.)

The "Downing Street Memo" contains meeting minutes transcribed during British Prime Minister Tony Blair's meeting on July 23, 2002—a full eight months prior to the invasion of Iraq on March 20, 2003.

The minutes detail how our government did not believe Iraq was a greater threat than other nations; how intelligence was fixed to sell the case for war to the American public; and how the Bush Administration’s public assurances of "war as a last resort" were at odds with their privately stated intentions. When asked, British officials did not dispute the document's authenticity and a senior American official has described it as "absolutely accurate." Yet the Bush administration continues to simultaneously sidestep the issue while attempting to cast doubt on the memo’s authenticity.

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Thought for the day

"...but plagiarize, plagiarize, plagiarize,
only be sure to always call it please -- research"

"Lobachevsky", by Tom Lehrer

Banks v. Realtors

"Why Would Consumers Want Big Banking Conglomerates to Take Over Local Real Estate?" read the full-page Washington Post advertisement on Wednesday. The ad listed several newspaper clippings highlighting stories of banks' past bilking of their mutual fund clients and their more recent epidemic of fumbling customers' confidential account information. This ad was just the most recent in a series of full-page print ads from the National Association of Realtors (NAR) to further its ongoing turf war with the American Bankers Association (ABA).

Speaking to the House Financial Services Committee, ABA Chairman and Executive Vice President of Wachovia Betsy Duke made the obvious point in favor of allowing banks to compete with real estate agents in the lucrative business of selling houses: letting them compete will increase competition. Hard to argue with that one.

NAR President Al Mansell (the CEO of Coldwell Banker Residential Brokerage, a subsidiary of Cendant) took a swipe, accusing bankers of irresponsible lending practices and failure to protect customer account information. He also implied that bankers might subjugate the best interests of consumers to the pursuit of profits.

The question is how the banks differ in that regard from the real estate cartel's aim. Real estate agents continue to charge 6% commissions for the sale of homes in a market where homes don't just sell themselves, but often do so for more than the asking price. Meanwhile, the NAR is fighting an insurgency by online and discount real estate brokers who charge less than the 6%. "Full-price" agents deny discount agents access to databases of houses for sale, refuse to show properties being handled by discounters, and more.

Are banks really going to be worse for consumers than Realtors already are?

Why off-beat product names appeal

A recent Wharton School study examined off-beat (and irrelevant) product names.
In an initial experiment testing flavor names, 100 undergraduates were asked to complete an unrelated questionnaire on a computer. After finishing the questionnaire at the computer, the students were told they could take some jellybeans. The jellybeans were in six cups each with a sign attached listing the flavor. Half the subjects saw jellybean names that were common descriptives: blueberry blue, cherry red, chocolate brown, marshmallow white, tangerine orange and watermelon green. The other half saw flavors with ambiguous names: Moody blue, Florida red, Mississippi brown, white Ireland, Passion orange and Monster green. Researchers observed that the less common names were more popular.

[Marketing professor Barbara E.] Kahn says the use of odd names seems to work best in products that rely on the senses, such as food or fashion, and would probably not work in a high-stakes product category such as healthcare or financial services. And at some point, she says, the advantage of an odd or unexpected name will wear off. "Over time, people get used to it. I don't think people have this reaction to Gatorade Frost anymore," she says. "It isn't an effect that's going to last forever unless the company keeps coming up with new names."

The study examined when off-beat names work, and why consumers like them. The point of all this is to reduce marketing storytelling to just a name. But here's a though: if everone uses off-beat names, will they just become "normal"? At that point will consumers prefer informative names because they are uncommon?

Found at Seth's Blog.

New vaccines on the way

The World Heath Organization (WHO) announced Wednesday that they expect the number of vaccines available to prevent diseases to double over the next decade to about 40. The WHO's head of vaccine research, Dr Marie-Paule Kieny, was guardedly optimistic, saying "Experience has shown that the uptake of new vaccines is extremely slow. We urgently must find solutions to deliver these powerful and proven health tools to all people at risk."

New vaccines are being developed against a range of often deadly infectious diseases including meningitis, malaria, and cervical cancer, following recent scientific breakthroughs, however scientific, financial, technical, and regulatory issues continue to present substantial obstacles to delivering vaccines to people in need, she said.

Save the Corporation for Public Broadcasting!

Perhaps the House was just in a budget cutting mood yesterday.

The House Appropriations Committee approved a bill yesterday that would cut funding for the Corporation for Public Broadcasting by $100 million -- 25 percent -- starting this October.

The original bill, written by Ralph Regula (R-OH), would have eliminated funding for the Corporation for Public Broadcasting in 2008, but a Democratic amendment earmarked $400 million so that public broadcasting could use the money in the future.

The Corporation for Public Broadcasting provides federal funds to the Public Broadcasting Service (PBS) and National Public Radio (NPR). For those who have been stranded on a desert island for the last 30 years, PBS has brought Americans such shows as Mr. Rodgers, Sesame Street, and Reading Rainbow, as well as some high quality documentaries, and NPR offers radio listeners a thoughtful alternative to the shock jocks and political hacks filling up the rest of the radio spectrum.

Democrats and PBS representatives have said that the 25% cut would be "disastrous" for American public broadcasting. Smaller public television and radio stations rely more heavily on federal funds and so they would feel the cut most, despite covering areas with fewer broadcast alternatives. Children's programming would also feel the cut more heavily, because children tend not to participate in fund-raising drives.

This bill still must be passed by the full House and Senate. Commercial-free children's programming is worth it; write your Congressperson now!

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Already a lame duck

As I commented yesterday, President Bush is starting to be viewed as a lame duck president with three and a half years remaining in his term. As more evidence of this, yesterday the House Appropriations foreign aid subcommittee voted to cut funding for Bush's pet foreign aid program, the Millenium Challenge Account, by over 40%. While cutting back on the program, which provides aid to poor countries that make economic and democratic reforms, the bill increased funds to fight the AIDS pandemic.

This is clearly a slap in the president's face, and coming just one day after Paul Applegarth, chief executive officer of the Millennium Challenge Corporation charged with administering the program, told Bush he would resign.

It is increasingly obvious that President Bush must win a fight soon, to avoid complete marginalization.

Thursday, June 16, 2005

Haloscan commenting and trackback have been added to this blog.

Three cheers for the librarians!

Chalk one up for the American Library Association. They have been railing against clauses in the USA PATRIOT Act since its passage, and they appear to have won a big victory with the House's passage 238-187 yesterday of Bernie Sanders' (I-VT) amendment to the appropriations bill for the Justice Department. The amendment will bar the Justice Department from implementing Section 215 of the USA PATRIOT Act to search library and bookstore records.

"The simple truth is that the FBI could spy on a person because they don't like the books she reads, or because she wrote a letter to the editor critical of a governmental policy," Sanders said. "Parents want to know that just because their kid is researching the life of Osama bin Laden...that that fact should not place the student on a government list or make anyone think that he/she is sympathetic to terrorism."

White House spokespersons had previously indicated that President Bush would veto any bill that weakens the USA PATRIOT Act. On the other hand, Bush has been so ineffective in his second term that he is already being referred to as a lame duck, with three and a half years remaining in his term; does he really have the power to take on librarians?

Wal-Mart ethics code overturned

Good citizen Wal-Mart recently had their ethics code overturned by a German labor court. The code banned relationships between Wal-Mart employees and created a hotline for co-workers to turn in offenders. Under German (and European Union) law, employee councils must sign off on a wide range of workplace conditions, from hiring and firing to the position of desks in an office.

Wal-Mart claims that the guidlines are intended to maintain a safe workplace.

Concorde flies again

CNN is reporting that the Society of Japanese Aerospace Companies (SJAC) and the French Aerospace Industries Association are making plans to revive the Concorde, starting fresh with a larger cabin to seat 300 passengers, lighter-weight components, and more modern power plants. None of which will make the Concorde economically viable.

The problem is the the Concorde begins with an already small potential market (people taking transcontinental flights) and then charges through the nose for saving several hours and providing a high-end experience. There are only so many people who will buy this; the problem will be plane utilization (the percent of time spent in the air vs. time spent on the ground).

I think the Concorde is one of the most elegant-looking planes ever built, but in the real world you have to turn a profit.

The new "Big Three"?

Just weeks after the US Supreme court reversed Arthur Anderson's conviction for obstruction of justice (too late; the company was also found guilty in the court of public opinion, from which there is no appeal), we now get news that KPMG is also facing a criminal indictment for obstruction of justice and the sale of abusive tax shelters. Shortly after Arthur Anderson's conviction, former Securities and Exchange Commission Chair Arthur Levitt said "I don't believe that Anderson is any worse than any of the other firms." Perhaps he was right, but not in the way he intended!

If KPMG falls, the Big Five accounting firms will be down to three: Deloitte, Ernst & Young, and Pricewaterhouse Coopers. Meanwhile demand for accounting and consulting services continues to rise in the wake of Sarbanes-Oxley. Will we see a new firm rise to join their ranks, or will America have a new "Big Three" now that Chrysler is foreign-owned?

Before and since the Enron collapse, Max Bazerman, George Loewenstein, and Kimberly Morgan have argued that this is a problem that will not go away until the US accounting system is fundamentally changed. They have suggested three key changes which would go a long way toward creating both the appearance and fact of auditor independance:

1. Auditing firms should only provide auditing services.
2. Auditing contracts should be of a fixed duration with fixed compensation, during which time the client cannot fire the auditor. At the end of the contract term, the auditor should not be rehired; rather, the major accounting firms should rotate clients.
3. Companies should be prohibited from hiring accountants who have worked on their audit engagement. (Sarbanes-Oxley established a one year "cooling off period" which is insufficient.)

Wednesday, June 15, 2005

Good is the enemy of great

Seth Godin posted this outstanding diatribe on the conflict between "good enough" and "great". He has an illustrative follow-up about Robertson screws, in which he talks about how "good enough" can defeat "great" in the marketplace. Read it!

Tuesday, June 14, 2005

GAO report on pensions

According to a recent report by the Government Accountability Office (GAO), the Pension Benefit Guarantee Corporation (PBGC) has gone from a $9.7 billion surplus at the end of 2000 to a $23.3 billion defecit at the end of 2004. That's a $33 billion swing to the negative!

The report discusses the many tricks corporations have used to avoid fully funding their pensions: credit balances, funding holidays, and smoothing mechanisms all mask chronic pension underfunding.

"Wal-Mart Honored for Corporate Citizenship": Not a typo, not a joke!

When I read the headline "Wal-Mart Honored for Corporate Citizenship" I expected one of two things:
1. Some overzealous reporter took The Onion seriously OR
2. An editor left out the word "worst".

But it appears to be a legitamate Wal-Mart press release. It looks like the honoring organization, the National Confectioners' Association, primarly considered volume of charitable giving.

Of course Wal-Mart makes so much money that its easy for the volume of their giving to be large. This obviously didn't take into account Wal-Mart's actions, and comparisons of communities to Nazis.

Friday, June 10, 2005

What is it about the pension funding crisis?

I don't know about you, but I find America's looming pension funding crisis fascinating - terrifying, but fascinating! It nicely pulls together several of my interests: politics, finance, and corporate strategy.

Look at it on a macro level. We have a several high profile, highly unionized industries (airlines and auto manufacturing) which have consistantly promised more to their employees than the companies can really afford. They were able to stave off bankruptcy several decades ago by negotiating lower wages in return for higher retirement benefits. ("We'll pay you in 20 years for the work you are doing now.") When the bill comes due, the companies say, "Whoops! I don't have that much...but the government will help." So they dump their pension plans on the Pension Benefit Guarantee Corporation. And when the PBGC also comes up short, it will be bailed out by the American taxpayers...after all, we don't want to rob these hard-working people of their earned retirement...or do we?

Who wins in this scenario? The companies involved were able to pay the workers less, enjoy the gains, and never pay the promised benefits. The workers involved still get a retirement - less than expected, but much more than most Americans.

Who loses? Competing companies that did the right thing and can deliver on their promises, because they still have to pay their retirement costs. The American taxpayers are big losers when they bail out the PBGC; this will absolutely dwarf the Savings and Loan (FSLIC) bail-out of the 1980s.

There is an important difference between the FSLIC bailout and the anticipated PBGC bailout. We can see this one coming. We know what is going to happen if we go down this road. If we stop now, we can avoid it.

The PBGC, like the FSLIC and most such government insurance groups, was not designed to cover entire failing industries, but just individual failed companies. To avoid a crisis, the PBGC cannot be allowed to bail out struggling industries like auto manufacturers and airlines. Bankruptcy judges should tell these companies, "You made your bed and now you'll have to sleep in it." It may lead to some of these companies going out of business entirely; their retirees will get a piece of the dissolving company just like other creditors. But when some companies go out of business, continued operation becomes easier for the survivors.

In hindsight, perhaps the PBGC was a bad idea, insomuch as it encourages struggling companies to default on their debts, offload their pensions, and gain a competitive advantage. A better solution might be to require companies offering pensions to obtain private insurance. The free market will set the price the companies pay, and it will remove the government, and hence taxpayers, from the equation.

In this situation, the Democrats are more on track than Republican leadership. Many Democrats are calling for a six-month moratorium on any PBGC assumption of additional pension obligations to allow Congress time to take action. Republicans seem to be supporting President Bush's proposal to raise premiums charged to employers. A premium hike at this point would be too late to really strengthen the PBGC's finances, and may even exacerbate the problem by encouraging companies to dump their obligations sooner.

Unfortunately, it appears that we will go down the bailout road again. The bankruptcy judge for United Airlines has decided to allow the company to dump its pension obligations on the PBGC. When UAL comes out of bankruptcy cleared of this huge liability - the fifth airline to do so - it will have a competitive advantage, and other struggling airlines (such as Delta and Northwest) will have no choice but to follow suit.

Wednesday, June 08, 2005

Those wacky airlines!

More news from the crazy dysfunctional US airline industry...

Senator Charles Grassley (R-Iowa), chair of the Senate Finance Committee, said yesterday that he was willing to let airlines stretch out pension payments, but airlines should freeze plans so no more benefits are promised that they cannot pay. Delta and Northwest (the third and fourth largest domestic carriers) are lobbying for legislation that would give airlines up to 25 years to repair pension underfunding, while American Airlines and its unions said in a letter to the committee that it is working hard to maintain its defined benefit pension plans and needs legislation that does not require it to freeze the plans. Will the Senate offer the same consideration to struggling US automakers?

Meanwhile, airlines are desperately seeking cost cuts and new revenue streams. Starting tommorrow Northwest will no longer offer passengers a free half-ounce bag of pretzels during flights. Passengers who want a snack will have to pay $1 for a three-ounce bag of almonds, cashews and raisins. According to spokesman Kurt Ebenhoch, the move will save Northwest about $2 million a year. Northwest is also pulling its 30 free magazines from its planes. The airline isn't eliminating its own Northwest in-flight magazine, but its complimentary copies of Business Week, Glamour and Harvard Business Review are history.

On the revenue side, Alaska Airlines and US Airways flight attendants are pushing VISA cards from Bank of America. America West now put advertisements on seat trays. And United Airlines has recieved FAA approval to offer Wi-Fi service on flights, a service for which Lufthansa charges $30 per flight or $10 per half hour.