More Bankruptcies Coming
 

The New Case For Airline Bankruptcies: $9 Billion Annual Loss

Posted: June 8, 2009 at 4:26 am

The International Air Transport Association has doubled its estimates for global airline industry losses compared to its figure of three months ago. That presages another round of carrier bankruptcies similar to these in the early part of the decade.

Reuters reports that the IATA expects the red ink at the world’s airlines to hit $9 billion this year. The main culprit is the same as it was last year–rising fuel costs. That is now married to a sharp drop in traffic.
Most of the Chapter 11 filings during the 2008 affected small airlines, at least in America. That could change this year if oil continues to climb toward $100 and the plunge in ticket sales gets worse. AMR (AMR) and United (UAUA), which have relatively weak balance sheets, are the most likely candidates to have to file for Chapter 11. They might be saved by mergers with stronger US carriers, or, if the government would allow it, flag carriers from Asia or Europe.

M&A may not save carriers like United. The problems in the industry are systemic. The savings of combining two airlines, with all of the risks of labor problems and customer service disruptions, may not be attractive enough to an airline with a strong balance sheet. The sector’s problems are so severe that airlines may decide that the distraction of acquisitions poses too great a risk in an economic environment that could force hundreds of millions of dollars of losses on each of the large carriers.
Now that the government has set the precedent of helping banks and auto companies, it may be tempted to try to keep the American airline industry from a series of corporate failures. The largest firms in the sector still employ tens of thousands of employees each. The chance to keep another US industry from a series of catastrophes may be too great for the Administration to resist.

The US airline industry will be restructured, whether it is in court, through M&A, or due to government intervention.

Douglas A. McIntyre

That was DAL's goal. Get a seat at the buyout table. We are too big to let fail!

Where have I heard talk like that before.........

Skygods: The Fall of Pan Am by Robert Gandt

I know. .

Glenn Tilton, CEO of UAL, has been clear from 2002 when he started at United. He wants cross border mergers.

Now that we have Democrats in full control of the federal government, we will see if they will continue to subsidize failing companies like they have with the banks and GM.

Questions:

If United becomes too weak to survive on its own, or American, for that matter will the federal government step in?

Who is left in the domestic market to buy them?

Will the federal government force some domestic mergers along with some subsidies.

Is the US Treasury too broke to subsidize failure any longer?

Will the federal government be forced to relax foreign ownership rules to keep the airline industry competitive?

Please note this is not the start of a political debate. It is a serious non-partisan discussion of macro economic and policy issues facing the industry.

IMHO, I think they would like to, but there will be no money to lend. They will not want the companies to fail. The last option is foreign ownership. I think that is what the companies are hoping for....

Remember that China is already nervous about their exposure to our debt. I am not sure they will be willing to buy more.

Just my .02

Right. Not only do the Chinese not want more US debt, word is that China is looking to dump some of its US Treasuries in exchange for some hard assets. Mostly mines, energy and hard commodities they can use to fuel their economy. Problem is, every door they knock on gets slammed in their face.

If we allow foreign ownership it seems like the likely candidates would be the dominant partner of each airlines respective code share alliance.

British airways or JAL in the case of American. Lufthansa in the case of United. In both of those cases neither foreign airline may really want to buy a failing US major airline but they may have no choice since they are integral to the alliance as a whole.

I know that DAL and AF would love to do more than a JV. Merging in to one huge company would make their goal complete.


As for China. They are buying up a ton of Copper and just storing it. Most say it could be to make a Copper standard instead of a gold standard.
All I know is they are pushing very hard to get some major changes.

I remember from a professor that we may be headed into worldwide airlines.

Instead of Skyteam, Oneworld, Star, etc...thats the name of the airline. We then become global pilots because no one company can stand alone. Except for Southwest, naturally.

Thoughts?

Global Wages
 

I suppose we will have global wages as well?

Skyhigh

That's fine as long as we can dump the RLA. Imagine if we could strike as a global airline!

$$$ Dr. Evil Laugh $$$

Yup. We will be paid in gold bullion. Assuming the rest of the world doesnt hord it by the time this happens.

To have global airlines, means a few things.

1) The RLA would not apply to foreign carriers therefore not to its US employees.

2) They would base the companies in countries where unions are illegal

3) They are way ahead of us in their line of thinking. Be very careful what you wish for.

Maybe I'll get paid in barrels of oil.

Not only that, but considering the sky hasn't fallen with the GM bankruptcy (Yet), I wouldn't be surprised if the government would let the chips fall as they may.

Rhetorcally speaking, if lets say if one of the giants such as DAL goes down in bankruptcy, what would the economic impact be? Would barriers such as price and availabilty go up effecting commerce and tourism? Not to mention job loss.

Of course it's political. Your obvious contempt of the other decisions of the current administration is quite out in the open.

How are those subsidies/assistance (whatever you want to call it) any different from the gov't sponsored sham bankruptcies that allowed massive cuts to employee pay and benefits under the guise of 'restructuring' while the upper managements laughed all the way to the bank?

Just sayin'....

Call it what it is at least. But it is political.

If the easy bankruptcy laws (which have since been change IIRC) had not existed, we would now probably be living in an airline world without United Airlines and US Airways. And maybe one or two others.

And anyway, distasteful as those bankruptcies were, many folks still have jobs because of them.

I also don't wish to make it political. This is not the place for that. But at the end of the day it can't really not be political. It's the nature of the beast when dealing with corporations worth billions of dollars and which employ tens of thousands of people, all of them voters.

I think that they need to. It is the political fallout that makes that a career killer for any politician!

Hah! We'll be paid in US dollars, which after the hyper-inflation hits, will save "Global Airlines" a ton. It will be like paying pilots in pesos.

I don't see the presently constituted US government allowing a major legacy carrier to fail. Get ready to compete with an airline that has the unlimited pockets of the US taxpayer at it's disposal.

Then why haven't we heard a peep about airline bailouts? I find it hard to believe mainline airlines have a much better financial position than GM etc. Either the airline lobby is very weak :rolleyes: or congress/the public doen't really care. More likely the government simply doen't want to risk "investing" in the airlines.

Oh so true.

Take one look at GM and just picture us there in a year or so.

I have an enormous amount of respect for the current administration. They have a very difficult job ahead of them. I apologize if my verbage implied something else.

The difference between airline bankruptcies and auto bankruptcies is the US government is providing tens of millions in DIP financing and ensuring organized labor gets significant ownership in the reorganized companies.

I wish the airlines were so lucky. Which was my point. Will the government largess continue if the airlines get in trouble again or was it a one time good deal for the auto companies and the UAW?

I was hoping for a non political discussion of the policy issues as they relate to the current macro environment. Perhaps, that is not possible given the very real emotions out there. Could we get a ruling from the moderator on this? Have we crossed the line? close to it? In lieu of a moderator ruling, I will avoid even any policy issues. I apologize for violating any TOS.

Greg

Peace. No sweat. My post probably contained a bit too much bile...

Sorry.

Anyway, as much as I have a love/hate/love relationship with this industry, I hope there are no bailouts. A helping hand is one thing. But a bailout is something else.

That said, seeing as sitting idly by as a company which employs (directly) as many as 50,000 workers can't be seen as good. But guess what? The world will still turn.

We have seen some trimming of fat at most companies and throughout the industry. Not only in the form of jobs, but some companies which no longer exist, thus lessening capacity.

We'll see what happens. I am not a crusader for SWA, but I have huge respect for how they are run as a company and I feel that any airline that doesn't use SWA as their model of efficiency (even if they try another business model) is in a losing battle.

There is so much fat and inefficiency in the industry as a whole and I'd hate to see my tax dollars going to support that. I hope it doesn't come to that.

Mod note:

I don't see any problem with TOS at this thread. When people start bashing one party or the other, that's where I draw the line.

I think the government should bailout the airlines.

The reason being that with the auto bailout the US took partial control. Airlines need that. The FAA can step in and a ground a whole fleet. Look at american and their MD80s. The gov't can reroute aircraft, close airports, change procedures or requirements. The other day I was flying into EWR and Joe Biden was flying in. All of new york space was shut down for over an hour. We went low enough on fuel we almost had to divert along with at least 10 others on our freq alone. No telling how many other aircraft out there were just burning money. I know I heard a Speedbird out there. Anyway wit the government able to simply alter an airlines operations it's no wonder they can't make money. The amount of fees the airlines pay is complete BS considering how many people they employ in the area. If the airlines get a giant boost from the public and the gov't takes ownership maybe that will be the one thing needed to have them re-regulated.

On the other hand I can only imagine that the airlines were hedging their butts off when oil was in the $30s. Not saying they don't need help in the long run but I'm willing to bet they'll make more money off their new hedges then they would off regular flights.

I am wary of China but not worried. China NEEDS the U.S. to be strong. If not their growth plunges and if that happens they are in enormous trouble. China has also managed to effectively destroy their natural resources over the past 30 years. If you take a "green GDP" figure for them (which is GDP growth minus the cost to clean up their environment) then they have hardly grown at all.

I am reading a book right now called "China Shakes the World." I HIGHLY reccomend it if you are looking to read up on the Chinese economy and how it affects us.

The auto industry leaders/executives were also portrayed as dinosaurs who sealed their companies fate in the last decade.

Last time I checked, the media has no negative portrayal of airline executives. Just a few months ago, one of the major networks was singing the praises of Arpey. Look at the recent press release of United + Aer Lingus....it was a positive spin by the media outlets that picked up on it.

If airlines are going to get bailed out, the executives who brought the airlines to where they are should be shown for what they are. Almost everyone discussion I have with non-aviation folks re veal they are under the impression that all pilots are bringing down 6 figures and only flying a few days a month. If airlines require bailouts, its going to be the pilots, mechanics and flight attendants portrayed as the reason it went down.

It'd be nice if airlines were forced to squeeze from a management (non-bargained for) perspective. From what I hear, all the mainline carriers are bloated with middle level management who seeks to build empires. "Whats that? We need a new website for X? Yes, I'll need 4 full-time headcounts please".

Absolutely...think this is a dead career pre-bailout? I'd hate to see it post...

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