Sun, Sep 16, 2001 page11

• US airlines face a host of obstacles

  SHARE VALUES The American Stock Exchange Airline Index has already declined 31 percent this year, and when markets reopen it may get worse

  • BLOOMBERG
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  US airlines may fall when trading resumes tomorrow, following this week's decline in European carriers' stocks, after terrorist acts challenged the assumption that airlines can be both safe and profitable.

  Major US carriers including AMR Corp's American Airlines resumed some scheduled service amid unprecedented security rules.

  

  Smoke from the remains of New York's World Trade Center still billows out of lower Manhattan as a Northwest Airlines flight takes off from Newark Airport in Newark, New Jersey, on Friday after the airport resumed operations. The shares of US-based airlines may not take off when stock exchanges eventually reopen.

  PHOTO: REUTERS

  British Airways Plc and Deutsche Lufthansa AG canceled flights a fourth day as the US turned away many international carriers except for Air Canada and security leader El Al Israel Airlines.

  Executives and investors navigated through a week in which the cost to carriers reached an estimated US$10 billion. European airline shares fell 28 percent and lost 8.7 billion euros (US$8 billion) in value. Congress took up a US$15 billion airline aid package, Air France SA added guards to flights, and prospects of low travel demand ruffled even profitable Southwest Airlines Co.

  "If we don't generate some revenue between now and the end of the month, I think it is unlikely we could make money for the third quarter," said Gary Kelly, chief financial officer of Southwest, which was forecast to earn US$0.19 a share

  "There is no way to know what will happen in the fourth quarter.''

  The Federal Aviation Administration grounded all flights in the US Tuesday after terrorists hijacked four airplanes, crashing two into New York's World Trade Center, one into the Pentagon and the fourth into a Pennsylvania field. The agency reopened some airports yesterday after tightening security.

  The US aviation network was handling more than 4,000 flights at 6pm, about 70 percent of the normal level, FAA spokesman William Shumann. By midday the agency had cleared dozens of foreign carriers including British Airway and Lufthansa to enter the US.

  US airline stocks may fall more than 50 percent when trading resumes tomorrow, Credit Suisse First Boston analyst James Higgins said in a report. The American Stock Exchange Airline Index already had declined 31 percent this year through Monday.

  The shares of eight large European carriers including British Airways and Lufthansa have fallen 28 percent since Monday, based on the Bloomberg European Airline Index.

  "Tuesday's horrific string of events involving two US airlines has created a nearly worst-case scenario for the industry's stocks," Higgins wrote. "We expect all airline shares to open sharply lower when trading resumes."

  US carriers already were reeling from a loss of high-fare business travelers in the slowing economy and higher labor costs.

  Major US carriers, which had been expected to lose US$2.6 billion this year, may have a loss exceeding US$4.4 billion, analysts said.

  Prices of US airline bonds plunged. A UAL bond with a coupon of 9 3/4 due in 2021 was quoted at US$0.70 on the dollar yesterday, down from about US$0.95 on Monday, traders said.

  The attacks, while only against US targets and US airlines, forced changes throughout the world. The nation's aviation regulators barred most international carriers from landing at US airports until they assured safety regulators they were complying with new standards that included tight screening of passengers and baggage.

  "The world has changed -- it's made it clear what can happen if we aren't really diligent about safety," said Philip Roberts, chairman of Roberts, Roach & Associates, an airline consulting firm.

  British Airways said it received FAA clearance and planned to resume flights to the US late Friday. Lufthansa, which has had to cancel 100 North American flights and 55,000 passenger bookings, said it would resume US flights on Saturday.

  Air France SA, Europe's third-biggest carrier, said it will start assigning plain-clothes guards on some flights.

  El Al and Kuwaiti Airlines already station armed guards on all flights. In the US, four members of the House of Representatives said yesterday they plan legislation that would more than double to at least 1,000 the number of armed air marshals on US flights.

  Austrian Airlines Group said it might post a loss this year as it incurs costs of about US$664,000 a day from cancellations of North American flights after terrorist attacks prompted the US to close its airspace. US airlines hurt by this week's terrorist attacks would receive US$15 billion in assistance, along with possible tax breaks, under legislation introduced in the House today. The measure includes US$2.5 billion in direct aid and US$12.5 billion in loans, credits and loan guarantees.

  Carriers need the aid to survive a 90-day period when they may see their revenue reduced by half because of new public "fears of flying," Continental Airlines Inc Chairman and Chief Executive Gordon Bethune told CNBC.
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