Are all Bets off for the Airlines?

[T-Bird76]

With the price of jet fuel hitting $2.27 a gallon up from $1.91 before the hurricane hit are all bets off for who will survive? The rumors are flying and the analysts are predicting doom and gloom for some of the major players.

Both Northwest and Delta probably the to most vernable major carriers not already in Chap 11 have issued bankruptcy warnings which could be filed within weeks if not days. Northwest who is already suffering from a strike by its mechanics could dissolve the mechanics right to collective bargaining under Chap 11 hire full time replacement workers in order to achieve the cost savings it needs to survive. Currently Northwest is using management, non-employee replacement workers, and contract services to maintain their aircraft. A Chapter 11 filing will leave the hundreds of mechanics permanently out of work.

The key date for any bankruptcy filing will be Oct 17 when the bankruptcy laws change. The change will make it harder for companies to avoid paying back debt. The new laws also state a company must file a reorganization plan within 18 months of their filing or risk being liquidated by creditors. If this was the case more then two years ago UAL would have been long gone.

A brief look at the players risking a chapter 11 filing would most certainly include Fly I, Delta, Northwest, America West (possibly jeopardizing the buy out of U.S Airways), and Frontier. Spirit's finances are unknown since they are a private company but sources also report they to are struggling to make money. Morgan Stanley has reported that the only airlines they believe will survive September without filing for Chap 11 will be American, Southwest, and Continental. What will happen to carriers already in Chap 11 is uncertain but one thing is for sure, a U.S airline will go out of business within the next few months. All bets are off who it will be.

[PhilDernerJr]

It's a very scary situation. I had Northwest pegged for surviving this whole mess a few months back and they just crashed down into the danger zone.

Delta has had a rough time but I think they've handled it well so far. I'm hoping they will survive.

I think the plug needs to be pulled on United. I might be far off, but haven't they received the most government assistance form anyone and they still suck? I hear hardly any good stories about their service and their financial performance seems to be no better than it was when they first filed.

[mirrodie]

Its scary but at the same time, you gotta have faith that the economy is cyclic. I hate to sound morbid, but just as PanAm, Eastern, NYAir and others went by the wayside, and Recently Midway, Swiss, well, they'll fall but others will and are cropping up.

Not sure if NW will make it. Diverse fleet, constant labor relations issues and scabs crossing the lines. ****, they are having the employees that were about to strike to TRAIN the soon to be scabs!

I've always held the opinion though that AA and UA would make it simply b/c they were the 2 airlines attacked on 9/11. Call it rhetoric, but I've always felt they were targeted simply b/c both names together are in "United States of America" My gut still says they'll stay in the game, even with gov. support at some point.

Phil, Derek flies UA often as well as other airlines occasionally. Travels from LAX-SYD, LHR, JFK. He's pretty on top of UA performance and I'd love to hear his opinion.

[Alex T]

It certainly is something interesting to watch. The industry now is worse then it was after sept 11th, largely because of the fuel crisis. I hate to make guesses on "who will file first" because i made guesses awhile ago and looks whos still here, only airline gone is TWA. It will be an extremely interesting month. I am traveling on Southwest Airlines and Northwest Airlines this month, so I will be sure to report back and let you all know on what the airlines are saying.

Alex

[lijk604]

actually...the only Gov't assistance UA recieved was time. If you recall, the ATSB denied thier loan application and that is what threw them into bankruptcy...(well that and poor management.) The exit financing they have suppposedly arranged in coming from a few banks (Citigroup, being one). -IF- they emerge, the gov't will then grant them the loan they are looking for. Am I defending them, no, this process has been dragged out only to hurt the little guy at UA, it has cost many of the hard working people at UA jobs, while upper management has barely been trimmed. Let's not even begin to talk about the pensions.

John
Patchogue, NY
ex-UAL

[mirrodie]

So to put some life back into this topic, wit this mornings news that NW and DL with claim bankruptcy, any new thoughts on the matter?

[T-Bird76]

Well the interesting thing here Mario is Delta. Their Chap 11 filing indicated they have 21 billion in assets and 20 billion of debt, leaving them 1 billion of free and clear assets which once they receiving their DIP financing will leave them with less then a billion in free assets. DAL is in much worse shape then UAL ever was when they filed.

Northwest on the other hand can emerge from Chap 11 within the year. NW's big issue is labor cost combined with fuel costs. They have about 1.5 billion in cash on hand but will have to lay out almost 5 billion in fuel and labor costs, and with their continued loses they simply couldn't sustain. If they dump their employee's pension plan which I'm sure they will and get wage concessions by the unions they can come out of Chap 11 rather quickly. The problem I see with NW is the use of heavy handed tactics like what they're doing with the mechanics right now. If they go ahead and dissolve the union contracts I can see the workers striking and sinking NW like what happened at Eastern.

[i_mizrahi]

It's a very scary situation. I had Northwest pegged for surviving this whole mess a few months back and they just crashed down into the danger zone.

Delta has had a rough time but I think they've handled it well so far. I'm hoping they will survive.

I think the plug needs to be pulled on United. I might be far off, but haven't they received the most government assistance form anyone and they still suck? I hear hardly any good stories about their service and their financial performance seems to be no better than it was when they first filed.

I agree that United will probably be the first to go. But some of the real questions still remains:
1. What are rhe basic problems with U.S. carriers, and why are so many of them in such troubles? Oil prices, as you may know, are rising all over the world.
2. Are AA and CO really in good shape, or is it possible that their problems are just better hidden?
3. Is the evaporation of one or two carriers will get the industry balanced, or there is going to be a rerun in a few months?

[T-Bird76]

1. What are rhe basic problems with U.S. carriers, and why are so many of them in such troubles? Oil prices, as you may know, are rising all over the world.
2. Are AA and CO really in good shape, or is it possible that their problems are just better hidden?
3. Is the evaporation of one or two carriers will get the industry balanced, or there is going to be a rerun in a few months?

1. The basic problem is a 30-year-old business model that has the philosophy that states in a nutshell mean, "We don't need to change with the times"

2. No, AA and CO are public companies and cannot hide any financial facts, both have stated they will come in with a full year loss despite having some profitable quarters.

3. The U.S market has way too much capacity right now but as long as banks and investors still throw money at the airlines they'll keep flying. Yes if one or two do go away you'll see more balance.

[Matt Molnar]

A great op-ed by George Will printed across the country yesterday:


Union solidarity sure isn't what it used to be in U.S.

By GEORGE WILL

When the union's inspiration through the workers' blood shall run,

There can be no power greater anywhere beneath the sun.

Yet what force on earth is weaker than the feeble strength of one?

But the union makes us strong.

WASHINGTON - That is the rousing first verse of the labor anthem "Solidarity Forever," written in 1915 and sung to the tune of "The Battle Hymn of the Republic." Ninety years later, "forever" has expired.

Pilots, flight attendants and other members of different unions are crossing the picket lines manned by members of the Aircraft Mechanics Fraternal Association. The only solidarity in evidence is in the planning Northwest Airlines did in anticipation of the strike that the union called on Aug. 20.

Northwest is like the other "legacy" carriers -- the older airlines with labor costs that cannot continue. The costs will be cut through negotiated cutbacks of benefits won by unions in palmier economic days, and when it was believed that airlines could not risk a strike. Or the benefits will be cut unilaterally, now that Northwest has entered bankruptcy protection, joining Delta as the third and fourth of the seven largest carriers currently using bankruptcy as a management tool.

The fact that Northwest's operations have been minimally disrupted by the mechanics' strike is a function of foresight. Northwest had it; the leader of AMFA's 4,430 striking mechanics, O.V. Delle-Femine, did not.

He has forfeited the support of other unions by poaching some of their members and disdaining other workers with lesser skills. The AMFA has no strike fund or medical coverage for its members, whose coverage from the airline has ended. Northwest wants $203 million worth of concessions from the union - a demand toughened by 15 percent from $176 million since the strike began - as part of the $1.4 billion it is seeking from all its unions.

Northwest is using cheaper replacement mechanics, many of whom it trained for months - and not at all secretly - in Arizona.

Northwest, which has offered permanent employment to some of the replacement workers, seemed to have studied the playbook that Caterpillar used against the United Auto Workers' strike of 1995. The strike failed after 17 months because of replacement workers and picket lines porous even to some union members.

Northwest might also have learned a lesson from Margaret Thatcher's victory over the National Union of Mineworkers. Her government stockpiled coal near power plants and steel mills, and warned other users to prepare for a showdown. Nevertheless, the miners struck. Independent truckers prospered by distributing coal from mines that were still operating.

After almost a year, the strikers capitulated. The mines were reformed and, although the number of miners was reduced by 40 percent, they produced 85 percent as much coal as the larger workforce had produced.

American unions have long since lost their hold on the public's sympathy. Time was, labor's anthems could stir the blood. "Solidarity Forever" declared:

Is there aught we hold in common with the greedy parasite,

Who would lash us into serfdom and would crush us with his might?

Somehow those words seem, well, disproportionate to the labor strife that recently so stirred the blood of John Sweeney - head of the AFL-CIO, or what remains of it after the defection on Wednesday of a fourth large union - that he got himself arrested in a sit-in demonstration. The greedy, parasitic serfdom-lasher was New York University, which, it may be confidently said, is not a nest of reactionaries. The downtrodden serfs are graduate students.

They are teaching and research assistants who in 2000, the last year of the Clinton administration, won the National Labor Relations Board's approval to unionize. About 1,000 did, and associated with the UAW.

But by 2004 the composition of the NLRB had changed - presidential elections do matter - and it reversed its approval. Then NYU withdrew recognition of the union because it was breaking its promise to confine itself to economic issues and not inject itself into academic decision-making, such as the assignment of teachers to particular courses.

The graduate students say they will strike. And perhaps they will sing:

They have taken untold millions that they never toiled to earn,

But without our brain and muscle not a single wheel could turn.

But if Northwest can fly without the brains and muscles of unionized mechanics, how likely is it that NYU cannot function without graduate student assistants? A strike, to be effective, must withdraw skills that cannot be replaced, and there seem to be fewer of them than there once were.

Will's e-mail address is [email protected].

(c) 2005, Washington Post Writers Group

[i_mizrahi]

1. What are rhe basic problems with U.S. carriers, and why are so many of them in such troubles? Oil prices, as you may know, are rising all over the world.
2. Are AA and CO really in good shape, or is it possible that their problems are just better hidden?
3. Is the evaporation of one or two carriers will get the industry balanced, or there is going to be a rerun in a few months?

1. The basic problem is a 30-year-old business model that has the philosophy that states in a nutshell mean, "We don't need to change with the times"

2. No, AA and CO are public companies and cannot hide any financial facts, both have stated they will come in with a full year loss despite having some profitable quarters.

3. The U.S market has way too much capacity right now but as long as banks and investors still throw money at the airlines they'll keep flying. Yes if one or two do go away you'll see more balance.

While we're at it, a couple more questions:
1. Is this grim situation has anything to do with air safety?
2. Should we trust the FAA to monitor the safety level of the American carriers properly in our troubled times, especially after we have watched the usefullness of other federal organizations lately?

[Matt Molnar]

While we're at it, a couple more questions:
1. Is this grim situation has anything to do with air safety?
2. Should we trust the FAA to monitor the safety level of the American carriers properly in our troubled times, especially after we have watched the usefullness of other federal organizations lately?

I think it would take an extraordinary amount of ignorance for an airline to sacrifice safety at this point, or ever, as any mechanically-induced incident in which many lives were lost would mean near instant death for any US legacy carrier.

[i_mizrahi]

While we're at it, a couple more questions:
1. Is this grim situation has anything to do with air safety?
2. Should we trust the FAA to monitor the safety level of the American carriers properly in our troubled times, especially after we have watched the usefullness of other federal organizations lately?

I think it would take an extraordinary amount of ignorance for an airline to sacrifice safety at this point, or ever, as any mechanically-induced incident in which many lives were lost would mean near instant death for any US legacy carrier.

Of course, you're right, but do consider the following factor: when a corporation is in financial troubles, and many of its employees are a target to potential lay offs, it is not unthinkable that those employees will do their job with less accuracy and caring, including jobs which have safety implications. After all, we are all human.

[T-Bird76]

[quote="i_mizrahi":e22f3]
While we're at it, a couple more questions:
1. Is this grim situation has anything to do with air safety?
2. Should we trust the FAA to monitor the safety level of the American carriers properly in our troubled times, especially after we have watched the usefullness of other federal organizations lately?

I think it would take an extraordinary amount of ignorance for an airline to sacrifice safety at this point, or ever, as any mechanically-induced incident in which many lives were lost would mean near instant death for any US legacy carrier.

Of course, you're right, but do consider the following factor: when a corporation is in financial troubles, and many of its employees are a target to potential lay offs, it is not unthinkable that those employees will do their job with less accuracy and caring, including jobs which have safety implications. After all, we are all human.[/quote:e22f3]

There are to many checks and balances in the system to allow something like that to happen. Remember to the FAA performs inspections on civil aircraft as well. I wouldn't worry about safety at all.