When Uncle Lends a Hand

Federal bailouts of near bankrupt companies were all but unheard of prior to 1970. Since then there have been several examples of last-minute largesse from Uncle Sam. Among the most spectacular cases:

Chrysler. The 1970s energy crisis left Detroit's third-largest automaker almost out of gas. The company was slow to convert to fuel-efficient small cars and faced increasingly tough opposition from both the Big Two and Japan; by mid-1979, Chrysler had accumulated nearly $500 million in losses, as well as the industry's largest backlog of unsold vehicles. Chairman Lee Iacocca, hired shortly after being fired as president of Ford, went to Washington with pleas for aid that in December 1979 netted Chrysler $1.5 billion in loan guarantees. The controversial bailout proved to be a good investment. Three weeks ago, Chrysler reported a record $802.9 million in profits for the second quarter of 1984, more than it had previously earned in any full year. Last summer the company paid back the remaining $813 million that it had borrowed with the aid of the guarantees, beating the scheduled repayment deadline by seven years. The Federal Government actually made a profit on the bailout. Eleven months ago, Chrysler bought back 14.4 million stock warrants that it had given the Government in order to secure the loan guarantees. Profit to the U.S. Treasury: $311 million.

Lockheed. The big defense contractor flew into trouble as the 1970s began because of development outlays for its Tri-Star jumbojet, which never made money and is now out of production, and vast cost overruns on the giant C-5A military cargo carrier. In 1971 the Senate, by a one-vote majority, approved $250 million in now expired loan guarantees. Last year Chairman Roy Anderson was able to report that booming military business had helped Lockheed achieve record profits of $263 million.

Penn Central. The 1968 merger of the Pennsylvania and New York Central railroads was the largest corporate consolidation up to that time. But management squabbles and a crushing debt load derailed Penn Central in June 1970, three days after the Nixon Administration rejected a company plea for $200 million in loan guarantees. Bankruptcy, however, turned out to be only an intermediate stop. To keep the railroad running, the following year Washington provided up to $125 million in guarantees and later absorbed the company's rail operations into Conrail, the Government-run railroad. Now a diversified manufacturer (1983 sales: $2.5 billion) with operations ranging from energy exploration to the production of missile systems--but not the railroad business--the reorganized Penn Central earned $19.7 million last year.

Not every supplicant, however, has gone to Washington and come away with bundles of cash. The Government turned down Pan American World Airways in 1974 when the carrier said it needed about $10 million a month in subsidies to stay aloft. Instead, the Civil Aeronautics Board allowed Pan Am to take rescue measures, such as sharing markets with TWA.

While some of the bailouts have been successful, many businessmen and politicians charge that they are unfair to competitors, potentially costly for taxpayers and thwart the working of the market economy. Says Stuart Eizenstat, the top domestic policy adviser to President Jimmy Carter and an architect of the Chrysler rescue: "In the few bailouts that we've done, the benefits have outweighed the disadvantages.

But that's precisely because we've done so few."