Airlines shoved to bankruptcy, experts say

By Martin J. Moylan
Knight Ridder News Service

One analyst predicts that, with a war in the Middle East, American Airlines most likely would enter bankruptcy in three months. Another expert says that if the war lasts longer than a month or is more intense than expected, chances are greater than 80 percent that American will enter bankruptcy. Advertiser library photo

Whether war drives one or more of these four traditional network carriers into bankruptcy will depend on the severity and length of the conflict — and, most importantly, if terrorists shoot down U.S. carriers' planes or once again hijack planes and use them as guided missiles.

American already is teetering on the verge of bankruptcy. Among the big network carriers, United and US Airways already are in Chapter 11 bankruptcy. United Airlines said this week that it may be forced to liquidate unless it cannot cut labor costs by May. US Airways, meanwhile, hopes to emerge from bankruptcy by the end of this month.

But, "If there is a terrorist attack involving an aircraft similar to Sept. 11, then just about the entire industry will find itself in bankruptcy," said JP Morgan analyst Mark Streeter. "The government would step in (to help). But it would be a question of timing and the magnitude of government support."

With a war in the Middle East, American most likely would enter bankruptcy in three months, forecasts Credit Suisse First Boston analyst James Higgins in a report this week. He gives Continental four months; America West, seven; Delta, 13; Northwest, 20; Alaska, 23.

If the war lasts longer than a month or is more intense than expected, chances are greater than 80 percent that American will enter bankruptcy, said Streeter. Assuming a more "normalized" war, he puts American's bankruptcy risk at 60 percent.

"Airlines and war don't mix," said UBS Warburg analyst Sam Buttrick in a report issued this month.

The bankruptcy forecast outlined by CSFB analyst Higgins assumes that airlines overall will suffer $4 billion in war-related losses this year. That's the "most likely" scenario, according to the Air Transport Association. If terrorists strike again in the United States, the airlines' war losses could top $5 billion and they may have to terminate nearly 100,000 more employees, the ATA predicts.

The nation's big airlines have lost more than $17 billion and cut some 75,000 employees in the past two years, as they've struggled to cope with the Sept. 11, 2001, terrorist attacks, a weak economy, soft ticket prices, a steep plunge in business travel and other woes.

UBS Warburg's Buttrick expects this war will hit airlines harder than the first Gulf War did.