David D’Alessandro’s review of the MBTA’s finances came to a stark conclusion: “A private sector firm faced with this mountain of red ink would likely fold or seek bankruptcy.” That red ink is thanks to a systemic operating deficit; yet as a provider of a key public service, the MBTA was also “too big to fail” and therefore cannot simply cease operations. Likewise, though municipalities and public authorities can declare bankruptcy, they seldom do.

However, there are examples of transportation operators declaring bankruptcy in the face of systemic deficits: airlines. Comparing for-profit airlines to subsidized urban transit might seem like a stretch, but consider the similarities:

• Both provide a transportation service
• Both require capital-intensive operations
• Both are historically a low-margin business; transit has been largely subsidized for generations in the US; historic profitability for airlines is slim-to-nonexistant.
• Labor is a significant cost for both; both featured highly unionized workforces.
• Both are sensitive to swings in energy prices
• Both include a high level of coordination with the government (regulations, funding for facilities, etc)

Reform proposals for the MBTA set goals for reducing operating costs, but didn’t necessarily give the MBTA the tools to reach that goal. Compare that to the major airline reform – the Airline Deregulation Act of 1978. Prior to deregulation, all air routes needed approval from the Civil Aeronautics Board (CAB). Matt Yglesias explains:

Passenger aviation clearly needs some regulation for the sake of passenger safety, pollution control, and the community impacts of airports. But in the early decades of the industry, CAB went far beyond that to regulate what fares airlines were allowed to offer and which routes they were allowed to fly. This became a classic case of regulatory capture. Airlines cared a lot about the actions of CAB while ordinary voters had bigger fish to fry. As a consequence, the board ended up creating a cozy cartel where airlines didn’t compete much and certainly didn’t compete on price. With price competition off the table, airlines invested lavishly in offering a high level of service. Labor unions got in on the act, using their clout to force managers and owners to share with workers some of the excess profits generated by CAB.

Removing regulatory approval for new routes unleashed new competition, dramatically lowering airfares for consumers. Airlines explored new route network concepts, eventually leading to the dominance of today’s hub-and-spoke system. Existing airlines still had to work within their cost structure, based on the old regulated business model. Soon, many airlines also faced a sea of red ink. Faced with the same choice David D’Alessandro saw for the MBTA, many airlines either ceased operations or entered bankruptcy.

Today, airlines use bankruptcy as a tool to lower labor costs by renegotiating contracts. Yglesias, writing about the 2011 bankruptcy of American Airlines, notes “the real aim of the filing, in the words of S&P 500 analyst Philip Baggaley is to ’emerge as a somewhat smaller airline with more competitive labor costs.’ ”

While the MBTA Forward Funding plan set goals to reduce operating costs, it did not include the tools to make those cost reductions happen. Using bankruptcy as a tool to reduce structural costs, as airlines have done, might technically be available to a public authority like the MBTA, political pressure often prevents this course of action.

In a look at sustainable transit funding, Ralph Buehler and John Pucher study the fiscal sustainability of German public transport systems. The abstract:

Over the past two decades, Germany has improved the quality of its public transport services and attracted more passengers while increasing productivity, reducing costs, and cutting subsidies. Public transport systems reduced their costs through organizational restructuring and outsourcing to newly founded subsidiaries; cutting employee benefits and freezing salaries; increasing work hours, using part-time employees, expanding job tasks, and encouraging retirement of older employees; cooperation with other agencies to share employees, vehicles, and facilities; cutting underutilized routes and services; and buying new vehicles with lower maintenance costs and greater passenger capacity per driver. Revenues were increased through fare hikes for single tickets while maintaining deep discounts for monthly, semester, and annual tickets; and raising passenger volumes by improved quality of service, and full regional coordination of timetables, fares, and services. Those efforts by public transport agencies were enhanced by the increasing costs and restrictions on car use in German cities. Although the financial performance of German public transport has greatly improved, there are concerns of inequitable burdens on labor, since many of the cost reduction measures involved reducing wages or benefits of workers.

The outcomes aren’t all that different than those achieved by airlines utilizing bankruptcy. Unlike either US airline deregulation or the MBTA’s Big Dig deal on transit expansion as mitigation for a massive increase in urban highway capacity, German reforms also included policies aimed to shift the market in favor of public transportation. Fares and schedules are coordinated though a verkehrsverbund, or transport association.

Setting fares, coordinating routes and timetables sounds awfully similar to the Civil Aeronautics Board. However, because air transport is expected to operate profitably and urban mass transit is not. The middle ground is a structure that can combine the best elements of a for-profit corporation (“run it like a business”) with the public purpose of a government agency or public authority. Writing at Citylab, David Levinson makes the case for governing transit as a regulated public utility, operating as a business and billing the public for the full cost of services:

Like any other enterprise, transit should be successful and cover its costs. This is entirely feasible if we change the model of transit finance from a branch of government to a regulated public utility, as is done in much of Europe and Asia. A public utility provides a service, and in exchange, it is compensated for that service. The compensation comes from consumers (e.g. users, riders), and from the public for any unprofitable services that it wishes to maintain for other (e.g. political) reasons.

Just as the public sector pays the electric utility for street lights, it should pay the transit utility for services that the government insists on but that the transit provider cannot charge users enough for.

The public utility model provides a more realistic model for mass transit than airlines do. The lack of an inherent profit motive makes the direct comparison for airline governance a mis-match; yet there are elements of the private corporation that would inherently benefit public transit, thanks to the similiar roles for airlines and transit agencies.