(FORTUNE Magazine) – LAST YEAR was the worst ever for the world's airline industry, which lost some $2.7 billion. But the record may not stand for long: Officials of the International Air Transport Association predict that 1991 could turn out even worse when the airlines total up the damages from the Gulf war and the U.S. recession, which have already caused the industry plenty of misery. Nearly half the companies on this list posted losses, and some show a profit here only because their fiscal years ended before Saddam Hussein sent his troops into Kuwait. That invasion sent the price of jet fuel up and the number of passengers down -- a scissor effect that cut off airline profits in midflight. Then Desert Storm hit the airlines with hurricane force as prospective passengers worried about terrorism and stayed home. Even after the Gulf war ended, air carriers continued to suffer. The U.S. recession persuaded many Americans that flying was a luxury they could forgo; traffic declined within the U.S. and from the U.S. to Europe. Casualties included some of the most famous names aloft. Pan Am dived into bankruptcy and sold off pieces of itself -- Berlin routes to Lufthansa, London routes to United, and most of the rest to Delta -- leaving only a remnant flying out of a Miami hub to Latin America. Continental also filed under Chapter 11, blaming high fuel prices; it may merge with Northwest or reorganize. TWA sold its London routes to American and is preparing a prepackaged bankruptcy to cut its debt. Like most crises, this one has made the strong stronger. In the U.S., American, United, and Delta have become the undisputed Big Three. France's government-owned flag carrier has added the country's two largest privately owned lines (Air Inter and UTA) to the Air France Group, creating a fortress hub in Paris. Spain's Iberia, also government owned, took advantage of the Latin American privatization wave to buy controlling stakes in Venezuela's Viasa and Aerolineas Argentinas, gaining a dominant position on the Caribbean coast and the southern cone of South America. British Airways and KLM are trying to put together a new combination of their own. In the cold shadows of the giants, smaller carriers are huddling together. SAS, Swissair, and Austrian Airlines are coordinating flights into each other's hubs and plan to buy shares in one another to cement the alliance. USAir and Air Canada announced a relationship that could grow closer as the North American Free Trade Agreement unfolds. Northwest has scavenged assets of smaller lines, including Hawaiian, Eastern, and America West, while trying to take over the Trump shuttle or even Continental. Only the Pacific Rim airlines remain profitable as a group. Because nations in that part of the world were little involved in the Gulf war, most passengers kept right on flying. The U.S. recession didn't affect them much. And citizens of the Pac Rim's many island and peninsular nations have few alternatives to air travel for getting from spot to spot. Australia's airlines nonetheless suffered from a bitter strike by pilots that began in 1989, disrupting service and scaring away passengers. For airlines, as for many businesses, Eastern Europe is an important growth market. CSA Czechoslovakia, Malev Hungarian, and LOT Polish each report revenues of less than $300 million, but they are lining up to buy new planes from the West. Aeroflot reported that its international routes brought in revenues of more than $2 billion last year, most of that presumably hard currency. The domestic market could be even larger. If the ruble becomes convertible, as it may in a year or two, Aeroflot would then be eligible for this list -- and could land near the top.

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