GRAHAM WARWICK / WASINGTON DC
Industry estimates four-day halt in operations cost US carriers $1.36 billion, with losses for September of $4.7 billion
With Congress expected to approve an $15 billion package of financial assistance for US airlines late last week, concern is turning to the longer-term health of the disaster-struck carriers.
The bail-out includes $5 billion in "direct and immediate" payments to airlines to compensate for losses incurred by the ground stop following the attack and the subsequent dramatic drop in traffic.
The rescue package agreed by the White House is designed to stabilise the airline industry and prevent further layoffs and bankruptcies, and includes $10 billion in loan guarantees to sustain carriers until traffic recovers. This falls short of the $12.5 billion in loan guarantees sought by airlines, which had already ready reduced their demands by $7.5 billion.
The Air Transport Association (ATA) estimates the four-day halt in operations cost the US major carriers $1.36 billion, while the expected loss in revenues to the end of September is $3.36 billion. Cargo and other carriers are estimated to have lost $300 million.
The package also includes authorisation to invoke the war risk insurance programme, under which the Department of Transportation will provide insurance for domestic and international operations by US carriers. Also included are "limited modifications to certain aspects of collateral liability". This will shield American and United Airlines from liability claims for non-passenger deaths and property damage in the World Trade Center and Pentagon attacks, and will "avert a near-term threat to the continued availability of insurance cover", says transportation secretary Norman Mineta.
The cash will be paid to all US carriers, including regional airlines and air taxi operators, "roughly in proportion to their size" in available seat or tonne kilometres, says Mineta. Distribution could be contentious, with cargo carriers led by FedEx Express pushing to receive 10% of the $5 billion.
A further $3 billion has been earmarked to cover the costs of additional airport security measures that would otherwise have to be carried by the airlines. This will come from the $40 billion in emergency spending already approved.
Analyst Philip Baggaley, at rating agency Standard & Poor's (S&P), says the $5 billion will help airlines get through the next few months, but no more. The loan guarantees are seen as critical to the airlines' longer term survival, as the calamitous drop in share prices has severely restricted their access to credit markets. In the first day of trading, 17 September, since the attack US airline stocks lost almost half their value, and by the time Flight International went to press the American Express Airline Index was still down 46%, compared with 13% for the overall Dow Jones Industrial Average. This was despite airlines moving quickly to stem their losses, meeting over the weekend before trading resumed and agreeing to cut capacity by 20%.
Analysts are concerned that further cuts will be required if traffic does not recover. According to Delta Air Lines chairman Leo Mullin, the request for financial assistance is based on estimates that traffic will grow from its current 40% of normal to 60% by year-end, 75% by the end of the first quarter next year and 85% by the end of the second quarter.
Instead of the aggregate cash balance of $8.5 billion expected by mid-2002, the industry now expects to be $15.5 billion in the red. "The events of 11 September are forecast to have a negative $24 billion impact on the industry's cash position," Mullin told Congress.
While the rescue package should avert the threat of immediate bankruptcies, US Airways is still seen as vulnerable because of the continued closure of Washington National airport.
Source: Flight International
