Airlines in bankruptcy
Aloha -- Dec. 2004
ATA -- Oct. 2004
US Airways* -- Sept. 2004
Hawaiian -- March 2003
United -- Dec. 2002
* second time
What happens if a major U.S. airline dies?
Or two or three? At the moment, a multicarrier collapse seems
unlikely -- but, then again, so did oil prices per barrel remaining
in the high $40s or an airline losing $2.2 billion in a quarter or
$5.2 billion in a year, as Delta just reported.
analysts think United has too much value and investor interest to
die -- assuming it cuts pension costs by terminating its
defined-benefit plans -- and US Airways received a new lease on
life through at least June, thanks to the federal Air
Transportation Stabilization Board.
rarely if ever has the industry seen so many U.S. airlines in such
dire straits. Five carriers are in Chapter 11 and others are losing
hundreds of millions of dollars per year.
Many are shaky
enough that they may be one labor strike, economic downturn, major
oil-price spike or terrorist act away from financial collapse.
Their margin of error is slim.
It is precarious,
and something could snap, said aviation consultant Michael Boyd,
who considers a multicarrier liquidation highly unlikely, but
possible. Boyd is president of the Boyd Group in Evergreen, Col., a
consulting firm that just completed an analysis of the likely
impact of a US Airways failure.
Travel Coalition is concerned enough that it has urged the U.S.
government, so far to no apparent avail, to do some advance work to
consider its policy options in the event of an airline industry
liquidations, such as Eastern and Pan Am in the late 80s and early
90s, prove only partly instructive because the conditions now are
so different. Low-cost airlines were not the force they are today,
and most airlines dont have the money to acquire a dying airlines
International route rights
-- big prizes in previous liquidations such as Easterns in 1989,
when American acquired its South American routes -- arent what they
used to be.
Thats because the
U.S. has signed open-skies agreements with more than 60 countries
in the past decade. Those deals give every U.S. airline the right
to operate air service from any point in the U.S. to any point in
that country and beyond.
Robert Cohn, a
former regulatory counsel for Delta, remembers the bidding frenzy
that followed prior liquidations. But Cohn, aviation group chair
for the Shaw Pittman law firm in Washington, isnt leaning on the
lessons of history.
Past is not
prologue to the current state of events, he said.
So what are the
possible scenarios if one or more of the major airlines
up the pieces
arent what they used to be, but some still would be
For example, Jon
Ash, president of InterVistas-ga2 Consulting, believes at least a
half-dozen legacy and low-cost carriers, including AirTran and
JetBlue, would be interested in US Airways landing and takeoff
slots at Washingtons Reagan National and New Yorks LaGuardia and,
to a lesser extent, its gates in Boston.
might grab some US Airways Airbus and 737-300 aircraft. But one
asset once regarded as a prize -- the US Airways Shuttle -- has
lost much of its luster.
In fact, some
analysts consider shuttles money-losers. The Boyd Group concluded
the value in the US Airways Shuttle is its ability to raise brand
loyalty for its operator.
Experts said a
United liquidation would lead to a bigger scramble for assets,
particularly regarding international service to countries without
open-skies agreements. United not only has prized access to London
Heathrow but also Tokyo, including the right to carry local traffic
from Tokyo to other foreign destinations as part of continuous
service from the U.S.
Any discussion of
acquiring assets, however, also begs the question: Who can afford
it? There isnt a lot of cash lying around. Delta is more than $20
billion in debt. American lost $761 million last year; Northwest,
$878 million; Continental, $363 million.
difference [from previous liquidations] is its hard to see anybody
but Southwest that could easily step forward and pay a lot of money
for anything, said former Pan Am executive Richard Mathias, now a
partner at the law firm Zuckert Scoutt & Rasenberger. Its hard to see American and Delta, the
presumed survivors, coming up with a lot of financing.
find some creative way to finance an acquisition? Could a private
interest do it and lease the asset? Would foreign carriers buy
anything? No one really knows.
Its easy for
airlines and financial analysts to proclaim the benefits of
liquidation -- although some of their assumptions are being
challenged -- but there would be pain for employees and some of the
communities the airline served.
The most evident
effect would be on small communities that are served only by the
liquidating carrier and might have trouble finding a
Department spokesman said the DOT would fast-track any requests
under its Essential Air Service program, which subsidizes service
to small communities. But the impact would be felt in other ways,
For example, a US
Airways collapse would leave some communities, such as Erie, Pa.,
and Huntington, W. Va., without any reasonable access to Boston,
New York and Philadelphia, concluded the Boyd Group in an analysis.
The US Airways hubs at Charlotte, Pittsburgh and Philadelphia have
been major connecting gateways for such communities, which dont
generate enough demand to support nonstops.
Erie, which has
spread its service among several carriers, would continue to have
strong air service overall, the Boyd Group said, but when it comes
to access to the Northeast, it may end up having better
connectivity to Beijing than to Boston.
that service to most large cities would scarcely be affected beyond
the short-term because other airlines would rush in to fill the
Travel Coalition believes that, too, but worries what would happen
in the short run if two or three airlines failed in a short time
frame, leaving too many holes for other carriers to fill
It would create a
lot of havoc for corporations that need to move people, BTC
Chairman Kevin Mitchell said.
airline bailouts but said the government might have to figure out a
way to keep business routes open, even if it reduces leisure
What is more
important, he asked: Is it Kevin Mitchell going to Disney, or
DaimlerChrysler being able to move its people around the
markets could be affected for the longer term. At some hubs,
service might never return to previous levels.
I dont think
youll see anyone go to Charlotte to set up a new hub, Ash
already has expressed interest in Charlotte, might move in. But
Southwest doesnt do hubs, at least not in the traditional sense, so
it wouldnt fill the entire gap.
Ash said a hub at
least doubles the flight frequency a city could support on its own.
Even if Southwest moves in and other airlines add Charlotte
service, Ash said, Charlotte could see a third fewer frequencies
and seats for six months to three years, if not longer.
A United collapse
could not only lessen service but also create problems for
airports, particularly ones with high expenses such as San
Francisco, Boyd said. He speculated Denver Airport might be forced
to file for the equivalent of Chapter 11.
For airport and
community officials, the options are limited. They can aggressively
court carriers, as Pittsburgh did with Southwest. But the
experience at Dallas/Fort Worth, where Delta just eliminated its
hub and left it to American, could be telling.
DFW is offering a
sweetheart deal to entice airlines, but, faced with a dominant
incumbent, no one seems eager to grab it.
seem to be rooting for a major competitor or two to liquidate, on
the theory it will remove capacity from the system, leave
passengers chasing fewer seats and enable the survivors to raise
Continental CEO Gordon Bethune talked often about Continentals
strategy to prosper by being one of the survivors. A few analysts
say part of Deltas motive for simplifying fares is the hope it will
drive US Airways out of business.
should be careful what they wish for. Industry veterans note
airlines would be hard-pressed to provide an example where a
liquidation created the conditions, beyond a short term, for fare
increases by reducing capacity.
Thats not the way
the airlines behave when they see an opportunity to be somewhere
first, said Mathias.
Weve never seen
the liquidation of a large airline rationalize capacity, said
Darryl Jenkins, visiting professor at Embry Riddle Aeronautical
University. A liquidation would not bring pricing relief for any
more than a month or so.
reporter Andrew Compart, send e-mail to [email protected].
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