- The Washington Times - Wednesday, March 12, 2003

War with Iraq is likely to devastate the airline industry at a time when it is only beginning to recover from the worst losses in its history, the trade association for major airlines said yesterday.
The most likely scenario in a war includes industry losses of $10.7 billion in 2003 $4 billion more than a no-war situation. It also includes losses of 70,000 airline jobs and 2,200 daily flights, many to small and mid-sized cities underserved by air carriers, a report from the Air Transport Association said.
"The nation's air carriers will continue to do all we can, but we fear that the consequences of this war will be severe," association President James May said.
United Airlines, the nation's second-largest carrier, would be liquidated in the event of war, Darryl Jenkins, director of George Washington University's Aviation Institute, said yesterday.
The report said some airlines were likely to collapse, but it did not list which ones.
The Air Transport Association made a plea for more government assistance, including fuel tax cuts and assumption of security costs, saying serious problems for the nation's economy are unavoidable if war erupts.
The hospitality and tourism industries would suffer severely, the report says. The report dealt only with major airlines, not low-cost carriers that have fared better in recent years.
In an effort to lure travelers worried about war, five major airlines are waiving ticket change fees of as much as $100 for passengers in case of military action. American Airlines and US Airways said they also would waive the fees if the government issues a Code Red terrorism alert. Code Red indicates a severe threat of terrorist attack.
In a worst-case scenario, with war and a major terrorist attack, airlines could lose $13 billion, 3,800 daily flights and 98,000 jobs in 2003, the report said.
Airline analyst Ray Neidl of the Wall Street investment firm Blaylock & Partners said the dire warnings outlined in the report are real.
"These are potentially realistic scenarios," he said.
Several major airlines are suffering, and six of the seven biggest airlines are losing money. Southwest is the only one of the seven making a profit. Among the troubles for airlines:
United and Arlington-based US Airways are trying to emerge from bankruptcy protection. They have been devastated by a faltering economy and the drop in passengers after the September 11 attacks.
Mr. Jenkins said United would be forced out of business if war breaks out with Iraq. "Their clock is running out on them," he said.
Bankruptcy creditors have imposed strict requirements for the airline to cut costs and become profitable. War with Iraq would make meeting the requirements impossible, he said.
"If they fall below those, I think their creditors will pull the plug," Mr. Jenkins said.
Yesterday, United parent company UAL Corp. asked its bankruptcy judge for six more months to file a reorganization plan.
United said Mr. Jenkins had no proof the airline would fail.
"That's kind of speculation at this point," spokesman Jeff McAndrews said.
American Airlines, the world's largest carrier, is lining up financing in case it files for bankruptcy protection, according to reports. The leader of one of its unions said American Airlines is likely to file for bankruptcy protection "sooner rather than later."
Delta Air Lines, the nation's third-largest carrier, said on Monday that it expects negative cash flow from operations this quarter because of concern about war with Iraq. Delta lost nearly $1.3 billion last year.
The Air Transport Association said airlines lack the cash reserves they had during the 1991 Gulf war. In 1990, the industry earned profits of $3.9 billion.
Nevertheless, the number of customers dropped while fuel prices soared during the war that lasted less than 50 days. The airline industry lost $13 billion and 25,000 jobs. Seven airlines were forced into bankruptcy, and four liquidated.
The industry is in a much more precarious condition now, the Air Transport Association said.
The industry lost more than $10 billion last year. Without a war, airline officials were predicting $7 billion in losses this year. A doubling in the price of jet fuel to $1.30 per gallon in recent months is a major factor.
Fuel prices would increase again in another war with Iraq. In addition, the number of passengers would plummet because of fears of a terrorist attack, the association said.
The association's predictions are based partly on a 20 percent decline in advance bookings in February after the federal government raised the terrorism risk alert to orange, for high risk, at the beginning of the month
The airlines' plea for government assistance is likely to meet with a chillier reception in Congress than after the September 11 attacks, when airlines were given billions of dollars in loan guarantees.
"It would be extremely difficult to move through Congress," said Steve Hansen, spokesman for the House Transportation and Infrastructure Committee. "If this was presented again, many members of Congress would wonder how many times we have to address this issue for the same industry."
Sen. Kay Bailey Hutchison, Texas Republican, said any government response to another financial crisis for airlines should be "non-revenue" assistance.
"We need to look at some short-term measures to get the industry over the hump, as we did after 9/11, to make the carriers whole," Mrs. Hutchison said in a statement. "But as we consider how to help the airlines, we must not waver from our commitment to protect the taxpayers."
She said government assistance could include moving air marshals from first class to economy class to free up seats that earn more money, relaxing antitrust laws to allow airlines to share routes and granting them a "fuel tax holiday."
"If the airlines show they will do their part, Congress will be helpful," said Mrs. Hutchison, a member of the Senate Commerce, Science and Transportation aviation subcommittee.
The Air Transport Association says in its report that airlines are seeking government assistance but says they are not asking for handouts.

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