Analyst Says Airlines Profited from Iraq War


Aug 22, 2002
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Analyst sees mild improvement for airline industry

Staff report

A veteran Wall Street analyst sees a glimmer of improvement in the airline industry''s outlook -- in part because he believes it made money on the war in Iraq. The airlines got $2.5 billion worth of federal aid, prompted by the war''s impact on travel demand, says Samuel Buttrick of UBS Warburg in a report today. That more than offset the $2 billion in lost revenue and higher fuel costs related to the war, he added.

Congress passed the airline aid package -- the second since the 2001 terror attacks -- in April. Carriers this month got cash reimbursements for past security costs.

As carriers cash their welfare . . . er, security refund checks, it''s safe to do a little Monday morning quarterbacking on the economics of the more recent federal airline bailout, Buttrick said.

Essentially, a $2 billion war investment netted the industry $2.5 billion. As wars go, this was a good one for airline economics. Now if airlines could only run their core business as well, Buttrick said.

Atlanta-based Delta Air Lines got the biggest security reimbursement, $390 million, and has received about $1 billion from the two aid packages combined.

Buttrick is cutting his 2003 loss estimate for the industry to $7 billion from $7.8 billion, citing the federal aid, mildly improving revenue trends for the late spring and summer, and cost cutting labor deals at various companies.

Each of the four primary profit drivers -- capacity, oil, labor and demand -- is getting better . . . but it''s far from good, Buttrick said.

The veteran analyst said the industry should have positive cash flow in 2004 but that most big carriers will not regain profitibility until 2005. He also forsees no more airline bankruptcies, barring unexpected events that could create a new financial calamity.

Buttrick noted that airline stocks, which were the worst performing group early in the year, have rallied almost 80 percent from their March lows. Buttrick said that rebound makes stocks less attractive now than they were early in the year, but he still believes carriers'' stocks could more than double over the next 24 months.

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