Actually, I have one deal on deck. It's a lousy one for all parties involved; a real lemon:
Airlines Use N-Word to Get Attention
by Doron Levin
Southfield, Mich., March 20 (Bloomberg) -- The U.S. airline
industry is nearing an all-encompassing financial collapse, one so
devastating that it may have no choice but to submit to
nationalization.
That warning -- including explicit use of the ``N-word'' --was
sounded last week in a report by the Air Transport Association, the
industry's trade group. The document called on the government to
relieve financial obligations weighing on carriers, notably $4
billion in security measures imposed since Sept. 11, 2001.
With military action in Iraq now started, bookings are expected
to fall about 10 percent on international flights, according to the
International Air Transport Association. United Airlines said
bookings are down 40 percent this week, compared with a year ago. A
prolonged conflict could wreck several major airlines that already
are teetering on the brink.
Is it feasible that the nationalization of the U.S. passenger
rail business in the mid-1970s actually could play out once again,
this time for the airlines, as a result of the war on terrorism and
military conflict in Iraq?
Or is the trade group's warning merely a bid for the attention
of the U.S. Congress and President George W. Bush's administration,
to shock them so they'll give the industry financial relief?
`Pray We Never'
``Our position is that we pray we never, ever have to get to
that point,'' said James May, president of the Air Transport
Association on March 11. ``Now I don't know whether that would mean
taking over this entire industry - I pray it never would.''
So far, the federal government already has extended $5 billion
in cash and $10 billion in loan guarantees to airlines that were
hurt because of the terrorist attacks of Sept. 11 and the aftermath.
This week Norman Mineta, U.S. transportation secretary, said the
administration is ``carefully considering'' options to help the
airlines.
By suggesting a government takeover could become necessary, the
airlines are expressing their fear and desperation.
Two carriers, UAL Corp.'s United Airlines and US Airways Group
Inc. are operating under bankruptcy protection. AMR Corp.'s American
Airlines this week hired Harvey Miller, a high-profile bankruptcy
attorney who is now a managing partner at investment bank Greenhill
& Co., to help in case of a filing.
The industry's losses have grown to more than $19 billion in
the two-year period that started in 2001, when air travel began to
falter. Additional losses could grow to more than $10 billion in
2003. The ability to borrow has almost vanished for airlines, and
the industry's financial leverage has risen to 93 percent this year
from 69 percent in 1999. Leverage shows indebtedness, in excess of
cash and short-term investments, as a percentage of total capital.
Idle Planes & Lost Jobs
More than 98,000 employees have lost their jobs and almost 300
aircraft have been idled or taken out of fleets.
The cost of added insurance and security after Sept. 11,
meanwhile, has soared. Among the new expenses are increased
insurance premiums ($800 million), cockpit door fortifications ($310
million) and passenger screening fees paid to the government ($330
million).
Air carriers want the U.S. to shift some of the security costs
to the taxpayer. They have a point: society at large does benefit
from the air transportation system, not just air travelers. Even if
you don't fly, you benefit from the fact that business executives,
scientists and sports stars can move from place to place quickly.
An inconvenient fact for the large network carriers, however,
is that Southwest Airlines Co., JetBlue Airways Corp. and a few
others have managed to remain profitable, in part because they have
more productive workforces and lower unit labor costs.
Less Efficient
The network carriers are less efficient largely because of
bloated union contracts that were negotiated under the threat of
strikes, which airlines feared could sink them. Privately, airline
executives say they're eager to amend the federal Railway Labor Act,
which sets the terms under which airline employees may strike, and
introduce binding arbitration.
No consensus has emerged in Washington, though, for reforming
labor-management acrimony, despite a Republican majority and
Republican president.
Only market forces -- and more bankruptcies -- will solve the
airlines' ills, some economists say. ``The taxpayer is already
footing too much of the bill,'' said David Littmann, senior vice
president and chief economist of Comerica Inc. ``Giving the airlines
government relief is just short-circuiting the real problem --that
they haven't controlled costs adequately.''
Nationalizing Costs
By nationalizing airlines, Littmann said, the government would
simply be nationalizing costs. ``The only way you can keep a service
viable is to price it properly'' through competition, he said.
It's a stretch to think the rugged individualists who have run
airlines are truly so despondent they are prepared to surrender
their enterprises to the government. The railroads, after all, were
a fading mode of transportation when they threw in the towel.
Once the conflict in Iraq has been resolved, it's a good bet
travelers will return to the skies in droves. Nationalization can
only appear attractive to airlines lacking the imagination to see
the opportunities that will appear again for skillful operators.
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