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More Airline Bankruptcies in 2010?

Posted By admin || 30-Aug-2009

According to an article in the Star-Telegram, we may be see more airlines filing bankruptcy in 2010.  Already nine of the nation's largest airlines have lost $600 million in the 2nd quarter of this year and more losses are expected as revenue drops in the fall and winter. The article said:
"The nation's airlines have been in a defensive crouch for two years. They've cut flights and fired workers - first to absorb rising fuel prices, then to ride out the recession. But revenue is down one-fifth or more from a year ago at the four largest carriers...Airlines need enough cash to pay employees, buy fuel and pay other bills, including payments on the money they've borrowed. If cash falls too low, they can be pushed into bankruptcy protection, as happened earlier this decade with Delta, United, Northwest and US Airways."
Although the airlines usually pile up cash during the summer months to help them through the lean fall and winter, many airlines such as United, US Airways and American are in a precarious situation financially because they rely on business travelers to pay for 1st class tickets. Unfortunately for the airlines, many business flyers are avoiding air travel or opting to save money by flying coach.  For those carriers who filed bankruptcy in 2004 and 2005, they will be in a better position financially because they've shed debt and lowered labor and pension costs. On the other hand, United and US Airways, who filed for bankruptcy during the period of 2001 through 2005, might not benefit from filing bankruptcy again if they burn through their cash this fall and winter according to some analysts. The article continued:
"Standard & Poor's analyst Philip Baggaley says, however, that the two have little to gain by doing it again and would face "more risk that if they go into bankruptcy they might not come out." That's because they might not find the financing they would need in the current tight credit."
If that is the case, a bankruptcy filing may end in liquidation which means job losses and stranded travelers.

Source: Star-Telegram

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