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News > Companies
Air execs see bankruptcies
September 19, 2001: 2:54 p.m. ET

America West, two other major carriers could file for bankruptcy without help
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NEW YORK (CNNfn) - Several major airlines are on the brink financially without federal assistance, industry executives warned Congress Wednesday, and even with help layoffs of 100,000 employees still are likely.

"At least three of our major members are on the brink in respect to their financial situations," said Leo Mullin, CEO of Delta Air Lines (DAL: up $0.73 to $23.66, Research, Estimates), in testimony before the House Transportation and Infrastructure committee on the industry's request for $17.5 billion in federal assistance.

Mullin said the industry lost an estimated $1.4 billion from Tuesday through Friday last week, and expect to lose another $3.4 billion through the end of the month. Help is needed by the end of the week for some carriers to survive, he said.

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Although Mullin did not identify the carriers most at risk, Douglas Parker, CEO of America West Airlines Holdings (AWA: down $0.30 to $3.00, Research, Estimates), said his is one of the airlines on the brink.

"Several airlines are anxiously watching these proceedings," Parker said. "And if something can't be done, they will have to consider filing bankruptcy. America West is one of those airlines."

Seek liability shield

Mullin, Parker and other executives said that airlines' access to capital markets has virtually disappeared since four hijacked passenger jets were used in last week's terrorist attack. They said that some are facing staggering increases in insurance costs due to insurers' concerns that the airlines could be held liable for destruction on the ground in the wake of a terrorist attack. Liability limits are part of the package being sought by the airline industry.

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AMR Corp. (AMR: unchanged at $20.00, Research, Estimates), the world's largest airline company and owner of American Airlines and Trans World Airlines, said in a Securities and Exchange Commission filing Wednesday that if it does not get protection from liability for death and destruction on the ground, that liability could exceed its resources.

One of American's jets was crashed into the World Trade Center in last week's terrorist attack, and another crashed into the Pentagon. United Airlines also lost two jets in the attack, one that hit the World Trade Center and another that crashed in Pennsylvania with relatively little damage on the ground.

More ratings downgrades

Moody's credit rating agency Wednesday cut its debt rating for the nation's three largest carriers Delta, UAL Corp. (UAL: down $0.23 to $18.76, Research, Estimates) unit United Airlines, and American Airlines. That move follow earlier downgrades Moody's downgrades of Continental Airlines (CAL: down $0.26 to $17.46, Research, Estimates), US Airways (U: down $0.16 to $5.65, Research, Estimates) and America West Airlines Holdings (AWA: down $0.30 to $3.00, Research, Estimates).

The other major rating agency, Standard & Poor's, has put the industry on a credit watch, suggesting lower ratings are coming. But the only S&P downgrade so far is a reduction in Continental's debt when it announced it would not make a scheduled $70 million payment on some certificates that had been due Monday.

Mullin said that confirmed layoffs in the industry already have reached 51,000, and he believes that number could double as other airlines, including his own, cut staff to deal with the cut in their schedules. Delta has announced it will fly only 80 percent of its normal schedule for the foreseeable future.

"We will fly airplanes in response to demand," said Mullin, adding it sold only about 29 percent of its seats Tuesday. "Most of us are stopping there (at 80 percent) to look around and see what demand is there. We're very much interested in flying more than that. If demand isn't there, it won't make any sense to do that. And there will have to be proportionate change in the work force."

Questions raised about bailout

Almost every member of the House committee expressed support Wednesday for some level of assistance, though some said they didn't want to give the industry a blank check. The airlines already had dropped a request for $7.8 billion in tax relief that the industry requested of administration and congressional officials in talks Tuesday.

While there seemed broad support for $5 billion assistance to deal with the airlines' immediate losses, some said they are reluctant to enter into a program of $12.5 billion in loan guarantees. Ellen Tauscher, D-Calif., said she was uncomfortable with the government making loans to various airlines no matter their prospects for recovery.

"We can't get into your books fast enough to say who the winners and losers would be," she said.

Some committee members said they wanted to see a passenger's bill of rights that airlines had thwarted in the past. Others spoke of the need to give assistance to the airline employees who are likely to lose their jobs as part of the package. Rep. Peter DeFazio, D-Ore, suggested airlines should have to cancel their orders from overseas aircraft manufacturers, such as Airbus Industrie, before they cut orders for U.S. aircraft maker Boeing Co.

Boeing announced Wednesday it will cut between 20,000 and 30,000 jobs by the end of next year due to an expected drop in orders for new commercial jets.

Security a separate issue

Wednesday's hearing was about financial relief, not new security measures, which are being considered by other committees and government agencies. Both airline and committee members said that improved security is needed if airlines are to get back on their feet financially, but the executives and their supporters on the committee said the financial assistance must come first.

"If we elevate security without addressing the industry's liquidity, there will be no aircraft for the public to board," said James Oberstar, D-Minn., the ranking Democrat on the committee.

Click here for a look at airline stocks

Mullin said the cost of any new security measures is not included in the industry's request for financial assistance. John Kelly, chairman of Alaska Air Group Inc. (ALK: down $0.54 to $20.66, Research, Estimates) argued that the industry believes that those costs should be born by the federal government, rather than by airlines, airports or passengers through a surcharge. He said argued that even a $2 or $3 security surcharge on each ticket could discourage some people from flying, prompting harsh criticism from DeFazio.

"We're going to be tapping into Social Security trust fund for what you're asking for today," DeFazio said. "Let's have support for a modest security surcharge. How many people are going to turn down a ticket at $303 rather than $300? This is the same thing I've been hearing for 15 years."

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Elsewhere in the industry's financial crisis Wednesday, US Airways Chairman Stephen Wolfe said his carrier has only $1.2 billion cash available to weather the current crisis.

"The company is going through cash at an alarming rate," Wolf said at the company's shareholder meeting. "We have got to get our costs down dramatically if we are going to be here tomorrow." graphic


-- Reuters contributed to this report

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