Airlines fight zero-sum game

C

chipmunn

Guest
[BR][FONT face=Times New Roman size=4][STRONG]Airlines fight zero-sum game[/STRONG][/FONT][BR][BR][FONT face=Times New Roman size=3]ATLANTA (theDeal.com) - As the aviation industry continues to struggle, fear has emerged on Wall Street that court-ordered restructuring by a few airlines could push other carriers into Chapter 11. [/FONT][BR][BR][FONT face=Times New Roman size=3]Latest industry projections call for U.S. airlines to lose up to $8 billion this year and billions more in 2003. The brunt of those losses have been borne by the largest carriers, whose expensive labor contracts and costly route structures make them more vulnerable to the drop-off in traffic. [/FONT][BR][BR][FONT face=Times New Roman size=3]Already US Airways Group Inc. has filed for bankruptcy and wrested about $1 billion in annual cost savings from its labor groups and creditors. UAL Corp., parent of United Airlines, is facing a November deadline to extract about $1.8 billion annually through voluntary concessions, and has warned it will end up in Chapter 11 should it fail to reach terms with workers. [/FONT][BR][BR][FONT face=Times New Roman size=3]As losses mount, even the ostensibly healthy players in the industry are struggling. [STRONG]Delta Air Lines Inc. warned in September that it is in violation of some of its financial covenants and exposed to pension fund liabilities.[/STRONG] Northwest Airlines Corp., meanwhile, said last week that it would cut 1,600 additional flight attendants due to weak demand. [/FONT][BR][BR][FONT face=Times New Roman size=3]A spokesman for Northwest's pilots union noted the carrier continues to slowly trim its ranks. [STRONG]In addition to the flight attendant cuts, Northwest furloughed 40 pilots this month and intends to furlough an additional 40 in October.[/STRONG] He predicted any additional large-scale reductions would prompt a fight. [/FONT][BR][BR][FONT face=Times New Roman size=3]It is hard to speak about what could happen, but I can speculate that it would not be welcomed, he said. [/FONT][BR][BR][FONT face=Times New Roman size=3]The specter of war in Iraq also is impeding the oft-delayed recovery, leaving the stocks of Delta, Northwest, American Airlines parent AMR Corp. and other carriers trading well below the lows that followed Sept. 11, 2001. [/FONT][BR][BR][FONT face=Times New Roman size=3]AMR's stock on Oct. 3 closed 75% below its September 2001 low. Continental Airlines Inc., Delta and Northwest shares are down 62%, 58% and 44%, respectively, since the terrorist attacks. Combined, the four supposedly healthy network carriers have just one-quarter of the market capitalization of smaller Southwest Airlines Co. [/FONT][BR][BR][FONT face=Times New Roman size=3]There is almost as much uncertainty now with the airlines as there was last Sept. 12, said one institutional investor. Shares of all of the majors have fallen so low, it would appear a lot of people believe the stock could be worthless before long. [/FONT][BR][BR][FONT face=Times New Roman size=3][STRONG]Much of the companies' debt also has nosedived[/STRONG], which the investor said is a further sign of the airlines' perceived market weakness. [/FONT][BR][BR][FONT face=Times New Roman size=3]Fueling concerns are indications by Congress that it has no plans to ride to the rescue. While the federal $10 billion loan guarantee program could be reopened should the U.S. go to war, lawmakers have voiced opposition to scaling back passenger taxes or providing other benefits to the beleaguered industry. [/FONT][BR][BR][FONT face=Times New Roman size=3]Though few believe Congress is willing to abandon airlines so that mass consolidation is necessary, [STRONG]US Air is proof that a reorganization is not the end of the world[/STRONG], one airline lobbyist said. [/FONT][BR][BR][FONT face=Times New Roman size=3]But without government assistance, some fear airlines might have little choice but to reorganize through the courts. [STRONG]If United and US Airways should emerge as leaner competitors, No amount of cash reserve is going to keep Delta and American as viable businesses, the investor said. [/STRONG][/FONT][BR][BR][FONT face=Times New Roman size=3]While financial markets are wary of more bankruptcies, most industry watchers say additional filings are unlikely. Ray Neidl, an analyst with Blaylock & Partners LLP in New York, said a United Airlines bankruptcy could actually help other carriers secure essential labor concessions outside the courts. [/FONT][BR][BR][FONT face=Times New Roman size=3][STRONG]We believe that any progress that UAL or US Airways can make in the cost area, particularly in the labor cost area, should take some of the pressure off the other major carriers in future contract negotiations[/STRONG], Neidl wrote in a recent report. [/FONT][BR][BR][FONT face=Times New Roman size=3]Philip Baggaley, transportation analyst with Standard & Poor's Inc., said that although a devastating war with Iraq could change the landscape, right now no company beyond United is in imminent danger. [/FONT][BR][BR][FONT face=Times New Roman size=3]Our rating outlook is already negative, and a military action could certainly move these companies onto credit watch, he said in a recent conference call. But the more likely outcome leaves airlines financially weak but outside of the bankruptcy courts. [/FONT][BR][BR][FONT face=Times New Roman size=3]In fact, not everyone interprets airlines' stock woes as an indication of possible bankruptcy. Jim Altschul, president of New York-based Aviation Advisory Service Inc., said the real culprit is the substantial drop off in airline revenue over the last year. [/FONT][BR][BR][FONT face=Times New Roman size=3]Even at the current levels, the valuations of these network carriers are not cheap, he said. The depressed stock prices reflect the very poor financial results of those companies. [/FONT][BR][BR][FONT face=Times New Roman size=3][BR][/FONT]
 
Aug 19, 2002
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737
The JFK
www.usaviation.com
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[BLOCKQUOTE][BR]----------------[BR]On 10/4/2002 10:30:14 PM chipmunn wrote:[BR][BR][BR][BR][BR][FONT face='Times' size=3 Roman" New]Philip Baggaley, transportation analyst with Standard & Poor's Inc., said that although a devastating war with Iraq could change the landscape, right now no company beyond United is in imminent danger. [/FONT][BR][BR][FONT face='Times' size=3 Roman" New]Our rating outlook is already negative, and a military action could certainly move these companies onto credit watch, he said in a recent conference call. But the more likely outcome leaves airlines financially weak but outside of the bankruptcy courts.[/FONT][BR][BR][FONT face='Times' size=3 Roman" New]In fact, not everyone interprets airlines' stock woes as an indication of possible bankruptcy. Jim Altschul, president of New York-based Aviation Advisory Service Inc., said the real culprit is the substantial drop off in airline revenue over the last year. [/FONT][BR][BR][FONT face='Times' size=3 Roman" New]Even at the current levels, the valuations of these network carriers are not cheap, he said. The depressed stock prices reflect the very poor financial results of those companies. [/FONT][BR][BR][FONT face='Times' size=3 Roman" New][BR][/FONT][BR][BR]----------------[BR][BR][FONT size=1]I highlighted some of the other relevant points that Chip omitted.[/FONT][/BLOCKQUOTE][BR][BR]