Banking crisis makes airline failures more likely: IATA

The world banking crisis is making the risk of a major airline failure more likely because carriers will not be able to access funding for a rescue if they fall into trouble.

“Airlines are now in a very weak situation – they have debt of $170 billion so we are in a much worst position – we don’t have cash,” says Giovanni Bisignani, director general of IATA.

For Bisignani the most concerning issue is the risk of airlines going into Chapter 11 bankruptcy protection. After 9/11, IATA dealt with four major US carriers in Chapter 11. However these airlines were able to access financing to enable them to battle through their problems. “The banking system could help,” he says.

This time around the funds may not be available to finance a major carrier that goes into bankruptcy, he says, making the prospect of failure significantly greater.

“I fully agree the risk is there,” says Bisignani, in terms of the possibility of a major airline failure.

IATA was ready in the second half of 2008 to deal with a potential bankruptcy of a major carrier, which it anticipated could happen as fuel prices soared to nearly $150 a barrel. “We put in place an exceptional plan – we had all the picture ready.”

That did not happen as fuel prices fell. Now the issue is “not so much on what we can do, but what the banking system can do to support our airlines,” says Bisignani. “There are big, big problems.”

However, he does draw some comfort from government economic stimulus packages that are being announced. These should help the industry to recover faster than it otherwise would, he says.

Although IATA has suspended nearly 40 airlines from its financial settlement programme in the past15 months, these only represent about 1.5% of total world traffic.

Bisignani says he is surprised that there had not been a failure amongst larger carriers. But the deteriorating economic and industry situation is worrying, he says, and it is worst than after the terror attacks of September 2001.

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One Response to Banking crisis makes airline failures more likely: IATA

  1. sunil 30 October, 2009 at 9:03 pm #

    not sure how much banking has to do with the airline industry other than prolonging the obvious. the industry competes on price, a situation you don’t want to be in as any business. in any case, the consolidation, hence the decrease in carriers is inevitable in the next decade or so. we have already seen a few mergers/buy outs in the past 18 months….

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