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?

 

I suppose we will have global wages as well?

Skyhigh