View Full Version : Congress Weighs $15 Billion Airline Bailout - Layoffs "A Virtual Certainty"

15th Sep 2001, 08:12
Only a few years ago some of these same carriers were opposing bailouts for BNF, EAL and PAA and got their assets at fire sale prices...


From The New York Times:

September 15, 2001

Congress Weighs $15 Billion Bailout for Airlines


Congress was considering a $15 billion bailout of the airline industry yesterday amid concern that mounting losses stemming from this week's terrorist attacks could force most of the country's major carriers into bankruptcy.

"This patient is dying very quickly," Gordon M. Bethune, the chairman and chief executive of Continental Airlines, the fifth largest carrier, said in a telephone interview, referring to the industry. "We all are going to be bankrupt before the end of the year. There is not an airline that I know of that has the excess cash to handle this."

House Republican and Democratic leaders agreed on $15 billion in relief for the industry as part of a $40 billion emergency benefits package that was scheduled to be debated in the House late yesterday.

Domestic airlines would receive $12.5 billion in loan guarantees and $2.5 billion in direct aid to cover the industry's losses, estimated at $100 million to $275 million a day since Tuesday, when the government grounded all flights for the first time ever.

The Senate would also have to approve any plan, and it could make changes in the package.

In current dollars, the aid package would be five times larger than the assistance extended to the Chrysler Corporation when Washington bailed it out in 1980. That package included only loan guarantees, not direct aid, and Chrysler did not ultimately require any government money.

Mr. Bethune and others said the proposed aid would help sustain airlines while they adjusted to new security requirements, got their planes back in the air and tried to lure back jittery travelers. But executives, industry analysts and consultants predicted that even with federal assistance, the industry would emerge much smaller than it was before Tuesday's attacks. Large layoffs are now a virtual certainty.

"It's a disaster," said David Treitel, the chairman of SH&E, a prominent aviation consulting firm in Manhattan. He predicted that this week's events would trim the industry's sales by $15 billion over the next 12 months. That represents 16 percent of ticket sales last year.

With high fixed costs to pay for airplanes, employee salaries and fuel, airlines can rack up losses quickly if demand drops. As the airlines struggled yesterday to resume operations, passengers were sparse.

Continental flew 40 percent of its schedule yesterday, for example, but only 40 percent of the seats on those flights were filled, the airline said. About 30 percent of passengers who booked tickets did not show up.

American Airlines, the world's largest carrier, said it planned to return to only 80 percent of the schedule it flew before the attacks.

Security precautions adopted in the wake of this week's terrorist attacks will cut into the airlines' business, too. They are now barred from carrying mail and cargo in the bellies of their passenger planes; that alone will cost the industry billions of dollars, experts said.

"What we are seeing is a huge shift in the marketplace," Mr. Bethune said. He projected that Continental's sales would fall by half in the next 90 days.

Mr. Bethune is widely known for his outspokenness, but even some of the industry's staunchest critics are expressing concern.

"We do have a crisis here," said Kevin P. Mitchell, the chairman of the Business Travel Coalition, which lobbies on behalf of the airlines' largest corporate customers. "I might question the number, but I don't question the sense of urgency. I have been worried about this all week."

A shrinking airline industry spells trouble for many other businesses. Hotels and vacation spots will suffer. Airlines are also likely to put off deliveries of new planes from Boeing and Airbus, or even cancel orders.

Mr. Bethune said he talked yesterday with Jeffrey Immelt, the new chairman of General Electric, which has a large aviation-related business. "They have huge problems," he said. "We have 100 new airplanes financed by G.E. G.E. is also the exclusive supplier of our engines and does our maintenance."

Beth Comstock, a spokeswoman for G.E., confirmed that the two executives had spoken and that G.E. was aware of the difficulties facing the airlines. But she called Mr. Bethune's claims about G.E. overstated. "We are working with our customers," Ms. Comstock said. "We will have to see where this goes."

Even before Tuesday's attacks, the airline industry was suffering from a severe downturn. A sharp decline in the number of high-paying business travelers, combined with high fuel prices and expensive new labor contracts, have sent most major carriers into the red.

The airline industry's last great crisis came in the early 1990's, when the Persian Gulf war depressed demand just as the industry increased capacity by adding scores of new jets. At the time, Robert L. Crandall, then head of American Airlines, said the airlines had lost more from 1990 to 1995 than they had made since the Wright brothers' first flight in 1903. Numerous carriers went into bankruptcy, including Continental.

President Bill Clinton, then early in his first term, appointed a blue- ribbon commission to find a way to revive the industry. No significant steps were taken, but demand picked up as the economy boomed, and the industry soon recovered. In 1996, the major airlines posted the first of a string of record annual profits, which ended only this year.

Yesterday some Democrats asked why a decision on aid for the airlines had to be made with such haste. But proponents said that the industry had never had to recover from being grounded three days, and that it had never faced the kind of public fear resulting from this week's crashes.

"We need to send a proper message to the markets," Representative Richard A. Gephardt of Missouri, the Democratic leader, said yesterday. "The industry was uniquely involved in this incident."

United Airlines and American face even greater difficulties, because they are likely to be sued by the thousands of victims of the attacks. That liability could cause their lines of credit to dry up. Many analysts expect the share prices of both airlines' parent companies, the UAL Corporation and the AMR Corporation, respectively, to plunge when the stock market opens.

The two airlines have been lobbying Congress for legislation that would limit their liability to the passengers and crew of the four hijacked planes that crashed in New York, Washington and Pennsylvania.

Mr. Bethune expressed frustration with Congress for not having acting already. "What I am seeing and what I don't think our government is seeing is that the airlines are driving the economy," he said. "We are right on the cusp of having a national catastrophe."

[ 15 September 2001: Message edited by: Airbubba ]

15th Sep 2001, 17:27
No dice for now...


September 15, 2001

House Refuses to $15B for Airlines

Filed at 6:21 a.m. ET

WASHINGTON (AP) -- Despite predictions the airline industry could collapse, the House refused to earmark more than $15 billion in government aid for U.S. carriers temporarily grounded by the terrorism attacks in New York and Washington.

Supporters tried to push the measure through late Friday but failed. They may try again next week.

"If it is so compelling, it will be as compelling in the bright light of day as it is with insults and threats at midnight,'' said Rep. Lloyd Doggett, D-Texas.

Even though the bill had no chance of becoming law before Monday -- the Senate had long gone home when the House first took up the bill -- supporters were looking to give the airline industry a public vote of confidence before the stock market reopens for trading.

"The airline industry is in some real difficulty and we've got to send a proper message to the markets,'' said House Democratic Leader Dick Gephardt of Missouri, who had been in discussions with Trans World Airlines in St. Louis.

One carrier, Midway Airlines, has already shut down, saying the attacks and subsequent fears about safety dashed any hope for a financial recovery.

Rep. Don Young, R-Alaska, chairman of the House Transportation Committee, said Tuesday's attacks could be "a death blow'' to other airlines as well. He said that without government assurance of help, airline stocks will drop when the market reopens and take other stocks with them.

Officials at airports across the country said it could be late next week before commercial service is fully restored.

Under the bill, airlines could get up at $2.5 billion to compensate them for direct losses. The legislation also would allow the Transportation Department to give the companies credit, guarantees or loans for as much as $12.5 billion.