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Airlines Face Bankruptcy

(September 17, 2001)

Along with the calamitous drop in air travel following last week’s terrorist attacks, the additional spending needed to meet newly implemented airport security measures is leading to catastrophic losses for the airline industry. Enough so that more carriers may go out of business as did Midway Airlines last week. All this signals bad news for the traveler.

Airlines on the Edge

On Thursday (September 13), the International Air Transport Association, which counts 266 airlines as members, estimated the losses at about $10 billion this year. U.S. airlines are reacting quickly by cutting onboard service and flights, and by furloughing personnel. The only airline not reducing their schedule is Southwest.

America West Airlines announced on Saturday (September 15) that it will no longer serve meals in hopes of saving time and money caused by the newly mandated airport security measures. Continental announced it will layoff 12,000 employees and warned it could file bankruptcy.

Continental CEO Gordon Bethune warned that as many as 100,000 airline jobs could be lost after the terrorist attacks. He adds, "If you want to have an air transportation system in this country that can get the economic engine running again, then you are going to have to do something." Bethune's remarks were geared towards Washington's lawmakers to plead for assistance.

Feds to the Rescue?

Late Friday evening (on September 14) and into the hours of early Saturday morning, the House of Representatives considered the bill HR 2891 to assist the airlines, which would include direct aid, loans, and a bill that might limit their liability. The chairman of a House aviation subcommittee, Rep. John Mica (R-Florida), stated that the amount of aid being discussed is between $2.5 billion and $12 billion, some of which would go to insurance companies. Nevertheless, the House refused to allocate the funds at this time.

House Democratic Leader Dick Gephardt of Missouri promised to revisit the issue when congress returns to session next week. Gephardt stated that the money is needed because the collapse of the air travel industry could have a devastating ripple affect through the U.S economy. In the meantime, airline executives will be meeting with Transportation Secretary Norman Mineta on Monday (September 17).

How Long Do They Have?

Without government assistance, just how long can the major airlines operate? According to recent statistics on PlaneBusiness.com, not long. A recent chart shows last week's "burn rates" of various airlines' cash reserves. With an indefinite shutdown of the airline industry, it would take the average airline approximately 38 days to deplete their cash position.

So, how much did each airline lose per day when it was shut down?

  • Alaska: $5.55 million per day (cash reserves as of June 1: $371 million)
  • America West: $6.27 million per day (cash reserves as of June 1: $174 million)
  • American: $62.02 million per day (cash reserves as of June 1: $1.487 billion)
  • Continental: $23.65 million per day (cash reserves as of June 1: $1.008 billion)
  • Delta: $38.04 million per day (cash reserves as of June 1: $1.510 billion)
  • Northwest: $26.9 million per day (cash reserves as of June 1: $1.350 billion)
  • Southwest: $12.35 million per day (cash reserves as of June 1: $968 million)
  • United: $50.13 million per day (cash reserves as of June 1: $1.280 billion)
  • US Airways: $24.18 million per day (cash reserves as of June 1: $1.250 billion)
According to Bethune, “If there’s not an infusion of assistance by the government for the 10 airlines I’m aware of, they won’t be around by the end of the year.”

In the end, airline analysts warn that if multiple airlines go bankrupt or out of business, consumers will be facing fewer choices in air travel, which could inevitably lead to higher fares.

Related Sites:

PlaneBusiness.com
Air Transport Association
International Air Transport Association



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