Friday, June 4, 2004

Airlines: We're still in trouble


Committee says no more bailouts

By Brad Foss
The Associated Press

WASHINGTON - Airline executives said Thursday that rising fuel costs have undermined a budding industrywide recovery and that carriers cannot afford to pay an additional $435 million in security-related fees sought by the Bush administration.

DELTA CLOSER TO CHAPTER 11?
In other bad news, a key airline analyst Thursday predicted that Delta Air Lines could declare Chapter 11 by the end of the year.

"Given stubborn industry fundamentals, we doubt (Delta) will choose to endure the seasonally-weak winter period while watching its cash balance erode further," Jamie Baker, analyst for JP Morgan Chase, wrote in a report Thursday.

Baker also wrote that that major concessions from the carrier's pilots may not be enough to stave off Chapter 11.

Delta, the nation's third-largest carrier, operates its second-largest hub at the Cincinnati/Northern Kentucky International Airport.

James Pilcher

Members of a House Transportation and Infrastructure subcommittee signaled a willingness to extend war-risk insurance coverage. But they criticized executives for the way they have handled higher fuel costs and said Congress would not support another industry bailout.

Since the Sept. 11 attacks, the government has made available $18 billion in cash, security-fee reimbursements and loan guarantees to the struggling industry, which has lost nearly $25 billion since the start of 2001.

"While Congress may assist the airlines with mandated security costs and war risk insurance, let me make it clear that Congress is not going to underwrite losing airline operations," Rep. John L. Mica, chairman of the aviation subcommittee, told the executives.

"The airlines now in trouble must be prepared to fend for themselves," said Mica, R-Fla. He noted that several low-cost airlines have managed to report profits, even under the industry's difficult circumstances.

Rep. James L. Oberstar, D-Minn., said more airlines should have put in place fuel-price hedging strategies before the war in Iraq started. Other lawmakers said the carriers need to try harder now to pass along the rising costs of jet fuel to their customers.

Several executives said attempts to raise fares have failed because their competitors did not follow suit.

"None of us wants to find out what will happen to load factors and yield," said United Airlines chief executive Glenn Tilton, using the industry terms to describe the percentage of seats filled and profit margins.

Gordon Bethune, chief executive of Continental Airlines, described the industry's financial condition as "perilous, and the skies are only getting darker."

"... Unless fuel prices abate, or the revenue environment improves, we will have to furlough employees and seek wage and benefit concessions," Bethune said. "We may also have to reduce our pension funding."

Security costs also are weighing heavily on airlines.

As part of the law that federalized passenger screening, Congress ordered airlines to reimburse the government the amount they spent on screening in 2000. The government say it is owed $750 million; airlines put the figure at $315 million - a difference of $435 million.




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