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Katrina impact may push more US airlines into bankruptcy

5-Sep-2005

WASHINGTON (XFNews) - Ailing US airlines are taking a hit from Hurricane Katrina, which has led to a new surge in jet fuel costs and other problems that could push more carriers into bankruptcy, analysts and industry officials said.

Even as fuel prices are spiking to unprecedented highs, airlines are pondering the financial impact as well as the possibility of shortages.

"Airlines are worrying about jet fuel," said Jack Evans of the Air Transport Association, a trade group representing US airlines.

"Right now we have airport supply to deal with the situation for the next two weeks, but beyond that there is some question what the situation will be."

The spike in fuel costs comes as Katrina shut down nine refineries in the southeast and pipelines in the region are operating at reduced capacity.

The Federal Aviation Administration said this week that despite "inaccurate speculation" about shortages, "the aviation industry will not face any immediate disruptions relating to the supply of jet fuel."

But if fuel is available, it will be at a steep price for an industry that has been in a tailspin since the attacks of Sept 11, 2001.

Northwest Airlines, which has been scrambling to avert a bankruptcy filing, said late Thursday that it will spend about 3.3 bln usd on jet fuel this year, up 50 pct from last year.

The fourth-largest US airline, which is operating despite a mechanics' strike, said it expects a third-quarter net loss of 350-400 mln usd, excluding unusual items, meaning it will need even more cost cuts from labor.

"Due to its worsening financial condition, in part the result of dramatically higher fuel prices, it is likely that the company will have to increase the 1.1 billion dollar labor cost savings target," Northwest said.

Delta Air Lines, which has also been on the brink of bankruptcy, also faces woes due to the energy crunch.
"Delta is already bleeding cash and at near-term risk of insolvency," Standard and Poor's said in a research note this week. "The added financial pressure may hasten an already likely bankruptcy filing, which will probably occur within weeks."

Airline shares were tumbling Friday. Delta shares fell briefly below 1 usd, a level below which companies could face delisting from the stock exchange, triggering even further liquidity problems.
S&P said FLYi, parent of Independence Air, a low-cost airline based in Washington, faces a "near-term risk of bankruptcy" adding that "higher fuel prices and some flight disruption could hasten a Chapter 11 filing for the company."

In addition to the higher fuel costs, the carriers face other disruptions, including the shutdown of Louis Armstrong International Airport in New Orleans, which may not reopen for a month.


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