TAZ MAN
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US Airways will probably fail in 2005
February 1, 2005
US Airways will probably fail in 2005, one casualty of a year that may also see a Delta Air Lines bankruptcy, a research analyst said on Tuesday.
"The 2005 outlook for our airline industry is dismal," Roger King, a debt analyst at CreditSights specializing in airlines, said in a conference call with analysts, portfolio managers, traders and journalists.
"High fuel costs and declining yields in particular should push US Airways into liquidation," King said.
Declining yields, or average revenues per passenger, are hammering major carriers along with high fuel costs, overcapacity, union battles and problems with underfunded pensions and a lack of access to capital, he said.
Bankrupt US Airways, widely seen by analysts as the weakest of a struggling industry, is particularly vulnerable because of its focus on the competitive northeastern market. But few have forecast that the carrier would fail this year.
Told of King's comments on the conference call, US Airways spokesman David Castelveter said: "We have worked hard to overcome obstacles that many thought were insurmountable, yet like the industry, we still face a number of challenges."
"We are taking the next steps to build an airline that can be successful in a low-fare environment," Castelveter added.
US Airways said last year it was in danger of liquidating before it secured USD$1 billion in labor concessions.
The airline has said it has operating cash until June, when it hopes to exit bankruptcy, though it will need to find USD$250 million in equity to do so.
Delta secured USD$1.1 billion in financing from units of General Electric and American Express, helping it to avert filing for bankruptcy protection. No similar rescues are likely this year, King said.
"Delta's own guidance indicates it will not achieve a positive operating margin in 2005, setting up a second liquidity event this fall," King said, adding that the airline's pension and debt loads make it particularly vulnerable.
"Manna will not fall from heaven 2 years in a row," he added. "Look for a bankruptcy this fall."
King said current industry turmoil would likely bolster low-cost carrier Southwest Airlines, already the industry's most valuable airline.
The strength of the Dallas-based airline and other low-cost carriers like JetBlue is bad news for the sector's traditional carriers, which still have higher cost structures even after aggressive efforts to cut expenses, King said.
"They can just keep the pressure on the legacy carriers from the yield standpoint and force cash outflows that inherently destabilize the balance sheets," he said.
February 1, 2005
US Airways will probably fail in 2005, one casualty of a year that may also see a Delta Air Lines bankruptcy, a research analyst said on Tuesday.
"The 2005 outlook for our airline industry is dismal," Roger King, a debt analyst at CreditSights specializing in airlines, said in a conference call with analysts, portfolio managers, traders and journalists.
"High fuel costs and declining yields in particular should push US Airways into liquidation," King said.
Declining yields, or average revenues per passenger, are hammering major carriers along with high fuel costs, overcapacity, union battles and problems with underfunded pensions and a lack of access to capital, he said.
Bankrupt US Airways, widely seen by analysts as the weakest of a struggling industry, is particularly vulnerable because of its focus on the competitive northeastern market. But few have forecast that the carrier would fail this year.
Told of King's comments on the conference call, US Airways spokesman David Castelveter said: "We have worked hard to overcome obstacles that many thought were insurmountable, yet like the industry, we still face a number of challenges."
"We are taking the next steps to build an airline that can be successful in a low-fare environment," Castelveter added.
US Airways said last year it was in danger of liquidating before it secured USD$1 billion in labor concessions.
The airline has said it has operating cash until June, when it hopes to exit bankruptcy, though it will need to find USD$250 million in equity to do so.
Delta secured USD$1.1 billion in financing from units of General Electric and American Express, helping it to avert filing for bankruptcy protection. No similar rescues are likely this year, King said.
"Delta's own guidance indicates it will not achieve a positive operating margin in 2005, setting up a second liquidity event this fall," King said, adding that the airline's pension and debt loads make it particularly vulnerable.
"Manna will not fall from heaven 2 years in a row," he added. "Look for a bankruptcy this fall."
King said current industry turmoil would likely bolster low-cost carrier Southwest Airlines, already the industry's most valuable airline.
The strength of the Dallas-based airline and other low-cost carriers like JetBlue is bad news for the sector's traditional carriers, which still have higher cost structures even after aggressive efforts to cut expenses, King said.
"They can just keep the pressure on the legacy carriers from the yield standpoint and force cash outflows that inherently destabilize the balance sheets," he said.
