Airlines plead case for aid as war looms
(the consequences and costs of this war will further erode the economy. Bush will plunder social security. Airlines will be nationalized, our borders will go unprotected from attacks and we will be on our own, ostracized from the rest of the world - a pariah IMO.)
By Dan Reed, Barbara DeLollis and Marilyn Adams, USA TODAY
The airline industry Tuesday sounded a panicked alarm as weakened carriers braced themselves for the financial shocks of a war.
A sobering forecast from the airlines' leading trade group said war could have consequences from which many airlines simply might not recover: an 8% overall falloff in air travel, 70,000 more layoffs, 2,200 flights eliminated, $11 billion in losses this year.
The Air Transport Association's forecast, delivered at a Washington press conference, was designed to build political support for congressional war aid — help with jet fuel costs, insurance coverage and the airlines' tax burden if the U.S. invades Iraq. But it comes amid growing evidence that the industry, which has never recovered from the Sept. 11 attacks, is tumbling toward a new cliff even before war is declared.
There are new signs a Chapter 11 filing at AMR, parent of American Airlines, the world's biggest carrier, could come in weeks. UAL, United Airlines' parent and the world's second biggest carrier, divulged Tuesday that it needs more time to develop a solid business plan for emerging from bankruptcy protection. And Delta Air Lines, considered one of the healthier big airlines, warned Monday that its cash flow will turn negative if the U.S. invades Iraq.
In the 2 1/2 years after the 1991 Persian Gulf War, 24 airlines entered bankruptcy court reorganization or were liquidated, including Eastern, Pan Am, TWA, Continental and America West.
If there's another war, the Air Transport Association (ATA) says, it could be even worse.
"This industry is literally struggling to survive," the report said.
Since the Sept. 11 attacks, major airlines have suffered profoundly from a sharp falloff in business travel, rising fuel and security costs, an abundance of cheap tickets and passenger jitters about airport security screening. Tens of thousands of jobs and salaries have been cut, hundreds of excess jets have been parked or retired, and flight schedules have been trimmed, in many cases by more than 20%.
The industry lost $18 billion in 2001 and 2002, and it is expected to lose more than $6 billion this year if there's no war.
Now Wall Street analysts, some of whom only recently dismissed the prospect of additional airline bankruptcies this year, say a second Persian Gulf War could be far more devastating for airlines, their employees, investors and the customers and cities that airlines serve.
"It is obvious that the major network carriers cannot go on sustaining losses of (the current) magnitude," Blaylock & Partners analyst Ray Neidl says.
If, as most industry analysts expect, war both drives up fuel prices and drives away passengers, Neidl suggests that "most of the remaining major network carriers could end up in bankruptcy before midyear."
The only positive note is that fares would likely fall more. The ATA's forecast calls for a 4% drop in fares if there's a war and 9% if there's a war and a terrorist attack.
Airline shares fell Tuesday following news that AMR is lining up financing to operate while in bankruptcy reorganization. Shares of AMR, the parent of American Airlines, dropped 34% to $1.59, while Delta's shares fell 22% to $6.75. Shares of United parent UAL dipped to 97 cents, down 2 cents.
In its defense, the industry has mobilized an intense lobbying campaign.
Several airline CEOs, including Delta CEO Leo Mullin and Southwest Airlines Chairman Herb Kelleher, converged on the White House last Thursday to press the Bush administration for aid, but apparently came away with no promises. Today, American Airlines pilots, flight attendants and other employees are scheduled to picket at Dallas/Fort Worth, Chicago O'Hare and Miami airports, calling for government help. An AMR bankruptcy filing could bring thousands of new layoffs.
"We can't get relief fast enough," Bob Ames, vice president of American's pilots union, said Tuesday.
So far, the reception from Congress has been lukewarm. Rep. John Mica, R-Fla., chairman of the House aviation subcommittee, said in an interview Tuesday the government won't consider helping unless and until a war begins.
"I don't want to throw cold water on their proposal, but it's going to be very difficult for Congress to pre-emptively exempt any costs of any of the airlines," he said.
He said he's reluctant to give airlines relief from fuel and security taxes but might be willing to extend war-risk insurance, which has become so costly on the private market that airlines would be unable to afford it.
Despite a few public calls for supporting the airlines from the industry's allies in Congress, there's little support to bail out an industry that won a post-Sept.-11 bailout package that included $5 billion in direct grants and $10 billion in available loan guarantees — although few airlines qualified for the guarantees.
The chill on Capitol Hill is making the industry even more nervous. The ATA says a worst-case war scenario — a three-month war coupled with a major terrorist event — could trigger a 12% drop in air traffic, 98,000 more layoffs and 3,800 fewer flights. The industry in that case could lose $13 billion this year, which would lead to more bankruptcies, liquidations and possibly the nationalization of the industry, says Jim May, the airline association's CEO. Nationalization would help guarantee service to smaller communities, the most vulnerable if schedules were slashed.
The ATA based its war forecasts on air-travel patterns after the first Gulf War and current booking trends, which already reflect Americans' fear of traveling during a war. Hundreds of thousands of passengers were stranded Sept. 11 when the U.S. aviation fleet was grounded.
There's some basis for the industry's fears. Continental Airlines last week warned that seats filled on its trans-Atlantic flights will be down at least 15 percentage points in March, and probably about that much again in April. And while the nation was on "orange alert" in February, May says, advance bookings on some airlines' international routes plummeted as much as 20%.
"If we were to go to code red or if a war occurs, you can expect to see that response exaggerated," says Mark Gerchick, an industry consultant and former general counsel at the Department of Transportation, who recently issued a report on potential war impact. "A lot of people are looking to the 1991 experience and extrapolating from that. I think that's a very, very conservative approach and may miss the mark by quite a bit."
Fuel prices are a big part of the crisis. Last month jet fuel prices were considered dangerously high at about 85 cents a gallon. Last week, jet fuel touched $1.30 a gallon on the spot market, more than double its price a year ago.
Some carriers, including discount giant Southwest Airlines, are heavily "hedged," meaning they contracted for future delivery of jet fuel at guaranteed prices. But some of the largest and most financially endangered airlines, such as United and US Airways, lack enough cash to hedge. American and Continental have not been able to afford much hedging. That means they must buy all or most of their fuel on the volatile and expensive spot market.
How much further passenger demand will fall, and how bad things get for the travel industry depend, in part, on what actually happens in Iraq.
Airlines are loath to talk publicly about their contingency plans, but most have plans in place to immediately cut from 5% to 25% of their flights, depending on what happens in a war and how consumers respond.
In the best case, Iraq's Saddam Hussein would step down, Iraq would disarm rapidly, and war would be averted. Even then, airlines still would have to contend with the biggest and longest travel slump in their history and an unsustainable cost structure. Over the past three years, sales of expensive, unrestricted business fares have fallen by more than 50% because of a weak economy, corporate belt-tightening, increased competition from low-fare carriers, easy access to cheap fares via the Internet and increased security hassles.
There is yet another Iraq scenario that could be just as bad as the quick war — and it doesn't even involve an invasion.
What if the United States and its allies hold off on war to put more external pressure on Iraq to disarm?
Several airline executives, including US Airways CEO David Siegel and American CEO Don Carty, say that from a business point of view, the expectation of war is almost as bad as the real thing.
Carty recently suggested that if war is inevitable, it would be better for airlines to get it over with sooner than later. That, he said, would end the uncertainty that is choking demand and blocking the recovery of the economy and his industry.
Siegel says a "short war, we think, will be good for the industry. It's going to eliminate the fear and that overhang the economy is feeling."
Resolving the Iraq question also would bring oil prices back down into their normal range, saving airlines up to $2 billion annually.
For now, though, airline executives will be haunted by what the last Gulf War did to their business. Eastern Airlines, for example, was already in Chapter 11 by then.
On Jan. 16, the U.S. started bombing Baghdad. At midnight Jan. 18, Eastern closed for good.
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