tredding@swa
SWA F/O
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Fitch says US airlines face profound war risks
March 28, 2003 11:47:00 AM ET
By Jonathan Stempel
NEW YORK, March 28 (Reuters) - Among major U.S. carriers not under bankruptcy protection, American Airlines Inc. (AMR) and Continental Airlines Inc. (CAL) face the greatest risks from a prolonged Iraq war, Fitch Ratings said on Friday.
The credit rating agency said six of the seven largest carriers, discounter Southwest Airlines Inc. (LUV) excepted, are likely to see revenue plummet and liquidity strains rise, especially if air traffic remains depressed.
Any government assistance is likely to be insufficient to keep all of the carriers in the air, Fitch said. UAL Corp.'s (UAL) United Airlines Inc. and U.S. Airways Group Inc. (UAWGQ), the No. 2 and No. 7 carriers respectively, are already in bankruptcy, though the latter hopes to emerge on Monday.
There is "a new airline operating environment that appears to be pushing the industry inexorably toward restructuring and consolidation," wrote Fitch analyst Bill Warlick.
"In the absence of industry restructuring, perhaps precipitated by the liquidation of United, major network airlines are unlikely to return to profitability and strong cash flow without deep cuts in operating expenses," he said.
TRAFFIC DECLINE A BIG WORRY
Fitch said the greatest risk to carriers is declining bookings. Early estimates show that U.S. air passenger traffic will in the first four to six weeks of war fall at least 15 percent from a year ago, while international traffic will fall more than 30 percent, it said.
"A gradual recovery in demand in May and beyond is likely, but the timing of any rebound will be highly sensitive to the pace of the military campaign in Iraq and the appearance of any war-related terrorism," Warlick said. "Liquidity preservation is the single most importance financial objective in 2003."
Though several U.S. airlines have cut flights, Fitch said the seven largest will likely drain between $600 million and $700 million of cash in April alone. The potential for fuel price spikes will impede their ability to generate cash.
AMERICAN ON PRECIPICE
American, the No. 1 U.S. carrier, is trying to save $1.8 billion of annual labor costs. Though progress has been made, the carrier still needs final agreements with its flight attendants, mechanics, pilots and ramp workers.
"American appears to be working toward concluding all of these deals in the next few days," Warlick said. People familiar with the matter said American might seek Chapter 11 protection as soon as next week.
Continental, the No. 5 carrier, faces a deteriorating revenue outlook that might lead to a "liquidity squeeze" this year, Fitch said. The airline is unlikely to be able to sell more debt, and has no more assets it can pledge, Fitch said.
Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWAC), the No. 3 and No. 4 U.S. carriers respectively, are in relatively stronger shape, Fitch said.
Meanwhile, Southwest, the No. 6 carrier, has kept costs down and generated positive operating cash flow each quarter since the Sept. 11 attacks.
"While the pace of growth has been slowed by slack demand, Southwest remains well positioned to capitalize on the structural changes in the industry that have been accelerated by the war in Iraq," Fitch said.
REUTERS
March 28, 2003 11:47:00 AM ET
By Jonathan Stempel
NEW YORK, March 28 (Reuters) - Among major U.S. carriers not under bankruptcy protection, American Airlines Inc. (AMR) and Continental Airlines Inc. (CAL) face the greatest risks from a prolonged Iraq war, Fitch Ratings said on Friday.
The credit rating agency said six of the seven largest carriers, discounter Southwest Airlines Inc. (LUV) excepted, are likely to see revenue plummet and liquidity strains rise, especially if air traffic remains depressed.
Any government assistance is likely to be insufficient to keep all of the carriers in the air, Fitch said. UAL Corp.'s (UAL) United Airlines Inc. and U.S. Airways Group Inc. (UAWGQ), the No. 2 and No. 7 carriers respectively, are already in bankruptcy, though the latter hopes to emerge on Monday.
There is "a new airline operating environment that appears to be pushing the industry inexorably toward restructuring and consolidation," wrote Fitch analyst Bill Warlick.
"In the absence of industry restructuring, perhaps precipitated by the liquidation of United, major network airlines are unlikely to return to profitability and strong cash flow without deep cuts in operating expenses," he said.
TRAFFIC DECLINE A BIG WORRY
Fitch said the greatest risk to carriers is declining bookings. Early estimates show that U.S. air passenger traffic will in the first four to six weeks of war fall at least 15 percent from a year ago, while international traffic will fall more than 30 percent, it said.
"A gradual recovery in demand in May and beyond is likely, but the timing of any rebound will be highly sensitive to the pace of the military campaign in Iraq and the appearance of any war-related terrorism," Warlick said. "Liquidity preservation is the single most importance financial objective in 2003."
Though several U.S. airlines have cut flights, Fitch said the seven largest will likely drain between $600 million and $700 million of cash in April alone. The potential for fuel price spikes will impede their ability to generate cash.
AMERICAN ON PRECIPICE
American, the No. 1 U.S. carrier, is trying to save $1.8 billion of annual labor costs. Though progress has been made, the carrier still needs final agreements with its flight attendants, mechanics, pilots and ramp workers.
"American appears to be working toward concluding all of these deals in the next few days," Warlick said. People familiar with the matter said American might seek Chapter 11 protection as soon as next week.
Continental, the No. 5 carrier, faces a deteriorating revenue outlook that might lead to a "liquidity squeeze" this year, Fitch said. The airline is unlikely to be able to sell more debt, and has no more assets it can pledge, Fitch said.
Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWAC), the No. 3 and No. 4 U.S. carriers respectively, are in relatively stronger shape, Fitch said.
Meanwhile, Southwest, the No. 6 carrier, has kept costs down and generated positive operating cash flow each quarter since the Sept. 11 attacks.
"While the pace of growth has been slowed by slack demand, Southwest remains well positioned to capitalize on the structural changes in the industry that have been accelerated by the war in Iraq," Fitch said.
REUTERS
