Airlines bankruptcy warning

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Friday, 14 September, 2001, 16:26 GMT 17:26 UK

Airlines bankruptcy warning

US airlines face tough new safety measures

Losses are mounting for airlines around the world, and the bankruptcy of some carriers is looking increasingly likely, following the terrorist attacks on the US. And the European Union said on Friday that it feared the attacks could have serious consequences for the air transport sector, adding that it will monitor events to avoid a crisis in the sector.

What has happened will almost certainly push us over the edge Professor Rigas Doganis Share prices of airlines have fallen sharply since the attacks as brokerages and credit agencies have cut their the financial outlook for the firms.

And carriers themselves have begun to issue initial statements of their expected losses.

The International Air Transport Association (IATA) has estimated that this week's flight cancellations will cost the air industry $10bn (£6.81m).

On top of the cost of at least a week of severe disruptions, airlines are likely to face a sharp decline in passenger numbers over the next months.

The air industry was already under financial pressure before the attacks, because of a slump in demand due to the economic downturn and high jet fuel prices.

'High instability'

"The airline industry is cyclical," Professor Rigas Doganis, former head of Olympic Airways, told the BBC Radio 4's Today programme.

The air industry in five years time will look very different Professor Doganis

"It seemed as though we were on the edge of a downturn. What has happened will almost certainly push us over the edge.

"Airlines have been losing money in the last few months and it now seems these losses will increase dramatically."

The short-term losses springing from the severe disruption and cancellations over the past week could eventually seem small in comparison with the losses from dwindling demand for tickets.

"We will see a period of high instability, a number of airlines will probably collapse, there will be a period of consolidation and the air industry in four to five years time will look very different to how it does today," Professor Doganis said.

Series of downgrades

The outlook for the US industry looked sufficiently bleak for credit agency Standard and Poor's to downgrade its ratings of the corporate credit and loans of all US airlines.

Higher security will add to airlines costs

The agency has also placed Air Canada and British Airways on credit watch because of these companies' substantial dependence on traffic to the US.

The price of British Airways shares has fallen by more than one third this week, sliding 15.8% on Friday alone.

EasyJet stock has lost 30% of its value over the week, while shares in Air France and Lufthansa both lost over 10% on Friday alone.

Schroder Salomon Smith Barney has downgraded the entire European airline sector, saying the terror attacks were likely to have a "catastrophic effect" on airline profitability.

US airlines are planning for falls in demand of 30-50% during the next six months, Chris Avery, aviation analyst at JP Morgan told the Financial Times.

And grounding aeroplanes, rather than flying empty seats around the world, may be one of the ways which airlines can try and save costs.

Asia hard hit

Asian airlines - which were already in financial difficulty and who fly a heavy proportion of transatlantic flights - are also expected to be hard hit.

Friday share losses for Asian airlines Korean Air down 6% Asiana down 11% China airlines down 7% Singapore Airlines down 6%

US routes account for as much as 25% of all business of many Asian carriers, and All Nippon Airways has said that it is losing 60m yen ($502,200) a day on the cancellations.

Korean Airlines said its immediate revenue loss stemming from attacks was 15bn won (£7.88m, $11.5m) while the country's second-ranked Asiana Airlines put its losses at about 5bn won (£2.63m, $3.86m).

Korean Air shares fell 6% at the close on Friday and Asiana dropped 11%.

Taiwan's largest carrier China Airlines, which derives 20% of its revenues from Taiwan-US routes, fell 7%.

And Asia's biggest listed airline, Singapore Airlines, shed nearly 6% of its value.

Security costs

Tighter security measure will hike costs for the airlines and deter passengers.

In the near term US airports will be near paralysed, because they will go overboard on security Peter Harbison Aviation analyst

The US has already introduced new measures including strict screening, a ban of checking in baggage outside the airport, and a total ban on knives and scissors.

And even tighter measures are likely to follow, with America's IATA saying it would like to see as many airlines as possible to introduce scanning systems which identify passengers by palm-prints or the iris of the eye.

Delays in processing passengers will slash terminal capacity, probably forcing the busiest airports to scale down their peak-hour operations, according to analysts.

Studies have shown that even a one-minute delay for the average passenger could significantly cut terminal capacity.

"I think in the near term you are going to see US airports will be near paralysed, because they will go overboard on security," said Peter Harbison, an analyst at the Centre for Asia Pacific Aviation.

'Blackest day'

One industry expert dubbed the attack "the blackest day aviation has had," with other catastrophes, such as the 1988 Lockerbie bomb, paling in comparison.

The attacks will affect both bookings to and from the US.

While there is expected to be a dramatic decline in passengers to the US, American tourists are expected to cut back on their international holidays.

As seen during the Gulf War, US tourists are likely to be concerned about becoming targets of terrorists when travelling outside their home country.

http://news.bbc.co.uk/hi/english/business/newsid_1544000/1544050.stm



-- Martin Thompson (mthom1927@aol.com), September 14, 2001

Answers

BBC

Ansett workers show their anger at a rally in Melbourne Thousands of angry airline workers have held protests after the sudden collapse of Ansett, Australia's second biggest carrier.

After two days spent trying to put together an emergency rescue package, Ansett's administrators said the airline's huge debts meant it had to be shut down with immediate effect early on Friday morning.

About 16,000 jobs could go at Ansett, which is owned by Air New Zealand, and Australian politicians says a further 45,000 jobs are threatened in support industries.

The closure has stranded tens of thousands of passengers at airports in Australia and New Zealand, and grounded Ansett's four regional units, which offer the only flights to many domestic destinations.

'Industry in meltdown'

Ansett workers in Melbourne blockaded an Air NZ plane carrying New Zealand Prime Minister Helen Clark.

"Mass confusion is reigning, the civil aviation industry is in meltdown", said Martin Foley, vice president of the Australian Services Union (ASU) trade union in the state of Victoria.

Australian prime minister John Howard has rejected calls from the unions and the opposition Labour party for a rescue package.

Addressing fears about unpaid wages, holiday pay and other staff entitlements, Mr Howard said Air NZ had a "legal obligation" to meet these costs.

"There is no way that we can be expected as a government to bail out a company that got into difficulty through no fault of the government's," Mr Howard said after a Cabinet meeting.

Write off

Ansett has been hit hard by tough price competition, a weak currency and excessive costs fuelled by high energy prices.

"Unfortunately it (Ansett) could not be given away for a dollar," said Peter Hedge of PriceWaterhouseCoopers, the appointed administrator for Ansett during an Australian Broadcasting Corporation radio interview.

Air New Zealand (ANZ), which owns Ansett, had put the airline into voluntary administration on Wednesday after admitting it was losing A$1.3m (US$670,000; £460,000) a day.

ANZ has now written off all of its NZ$1.3bn (US$550m; £375m) investment in Ansett, which had 40% of Australia's A$10bn (US$5bn; £3.5bn) domestic air market.

Regulator holds inquiry

The meltdown is being investigated by the Australian Securities and Investments Commission, with a focus on possible breaches of duty by directors.

The commission said it was too early to say whether the airline had been trading while insolvent.

Ansett's old planes are in dire need of immediate maintenance, which would need to be followed up with a A$4bn (US$2bn, £1.42bn) cash injection to upgrade the fleet.

Stranded

The immediate effect of Ansett's closure, which took effect at 0200 local time (1600 GMT on Thursday), was to strand passengers as check-ins were closed.

About 45,000 passengers were thought to be stranded.

Ansett's larger rival, Qantas, offered free flights home for those caught en route, while newer budget competitor Virgin Blue offered discounts.

Both are expected to pick up parts of Ansett, probably at firesale prices.

Virgin Blue in particular is moving fast to try to pluck planes, crews and routes from Ansett's hulk.

Qantas earlier this week ditched plans to buy the airline, saying its financial troubles were too severe.

Another candidate is Singapore Airlines, which owns 25% of Ansett, although Australian authorities said Singapore was not showing much interest.

Sydney Airport on strike

With Ansett's 16,000 workers now facing redundancy, 4,000 union members at Sydney Airport in Australia called a wildcat strike, shutting down the airport for three hours.

"Qantas refuellers have stopped refuelling the planes, the baggage handlers are walking off the job as we speak, both international and domestic," said a Transport Workers' Union official.

"They are demanding that the prime minister protect 100% of entitlements."

In Melbourne, Ansett workers held a rally in the city centre and some protestors blockaded Ms Clark's plane at the airport.

Ms Clark had to resort to a police helicopter to get out of the airport.

"It is a great big plane with Air New Zealand plastered all over it, and that obviously caused some angst," said a spokesman for Ms Clark.

Air NZ suspended check-in for passengers flying to Australia as a result of the strike and the blockade.

Air NZ has applied for a court injunction to prevent any more blockades, the Australian Associated Press reported.

Passing the buck

The Australian government said the collapse of "an Australian icon" was nothing to do with their handling of the situation, but the fault of an incompetent Air NZ.

"Ansett's assets will now be put up for sale, but the company itself has been completely and comprehensively driven into the ground by its New Zealand owners," said the Australian deputy prime minister and transport minister, John Anderson.

"It is just mind-bogglingly bad and it just can not be resurrected in its current form."

-- Rachel Gibson (rgibson@hotmail.com), September 15, 2001.


It's not just the airlines, but tourism will be devastated, especially around the big cities. All those $300 a night hotels in New York City are really going to be hurtng for a while.

-- Wayward (wayward@webtv.net), September 15, 2001.

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