Bankruptcy would be no panacea for US majors

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It will be different. Indeed, it’s the fire next time. No, not the end of the world, quite, but if US majors go back into bankruptcy in this crisis, they may not come out. That is the view of Phil Baggaley, a leading analyst with Standard & Poor’s, which downgraded the debt of AMR, the parent of American, UAL, parent of United, and NWAC, parent of Northwest. On Friday afternoon, Baggaley held a teleconference to explain his thinking and had some every interesting thoughts. “Really, there is less left to fix in the case of some of these airlines that have gone through bankruptcy or even that have not,” Phil said. The easy fixes – unsecured debt, pension fixes, and the like – are gone. The really big change is in the industry’s fleet: “In a perverse way, the strength of the aircraft market runs against, in some ways, the ability to reorganize. If you have an airline going into bankruptcy and it has a fleet of mostly new aircraft, if there’s a very strong aircraft market, creditors may be more inclined to say, ‘Hand over the keys. We’ll just take them back, no matter what happens to you’,” he says.


 

And you can’t go back to the workers. “Obviously, labor has already given quite a bit and was hoping just a year or two ago for big pay increases. I think it would be harder to make the sort of labor costs reductions in bankruptcy that were done before,” he says. Of course, things could change. A federal helping hand could be extended, though the odds are that it won’t. And, as Baggaley points out, “On the other hand, if the current slowdown ripples more seriously into the rest of the market, that might give the airlines more wiggle room.”

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And you can’t go back to the workers for more cuts. “Obviously, labor has already given quite a bit and was hoping just a year or two ago for big pay increases. I think it would be harder to make the sort of labor costs reductions in bankruptcy that were done before,” he says. Of course, things could change. A federal helping hand could be extended, though the odds are that it won’t. And, as Baggaley points out, “On the other hand, if the current slowdown ripples more seriously into the rest of the market, that might give the airlines more wiggle room.”

 

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