Airlines face $10 billion loss

By Bryan Corliss

Herald Writer

The world’s airlines may lose as much as $10 billion in the wake of Tuesday’s terrorist attacks, an international aerospace group said Thursday, and Standard &Poors warned investors about the creditworthiness of Air Canada, British Airways and all U.S. airlines.

Air travel is going to take an immediate dip, said Jim Smith, the New York-based editor of Jane’s Transport Finance report.

Airplane manufacturers likely won’t feel the pain immediately, Smith said. But it’s not good news for Boeing, Airbus, Bombardier or Embraer, he added.

"The airlines have suffered through a terrible year so far. The guys teetering on the edge of bankruptcy are going to go over."

At this point, "We’re waiting with everyone else to see what comes out of this," said Boeing Commercial Airplanes spokesman Tom Ryan. "That’s all we can do at this point."

On Thursday, Boeing indicated it had sold another 10 737s to an unnamed customer during the past week. But the world’s airlines are suffering through one of their worst years ever, and that has held new plane sales down.

Last month, the International Air Transport Association forecast that U.S. carriers would lose a combined $3.5 billion for the year, said Martine Malka, a spokeswoman for the association in Montreal.

Non-U.S. carriers were looking at $2.5 billion in losses, for a $6 billion total worldwide, she said.

Then Tuesday’s attack grounded 4,000 of the world’s 12,000 commercial airlines and shut down all U.S. commercial air traffic for two days. The U.S. market is worth about $1 billion a day, according to figures from the association, which counts all the world’s major airlines as its members.

The association now believes airline losses worldwide could total a record $10 billion this year, Malka said.

That could lead airlines to significantly restructure their fleets, she said. Airlines are likely to drop options on new planes, and they might be forced to cancel firm orders, she said.

"It’s hard to say," Malka said. "We don’t know how it’s going to affect the airline industry. … I don’t think they’ve had a chance to consider."

Standard &Poors placed a negative credit watch on the main airlines serving North America Thursday. Smith said that means the credit rating agency believes the airlines’ financial states are about to change for the worse.

Airline passenger loads are likely to fall following the attacks, S&P warned. Consumer confidence will be shaken, further weakening the U.S. economy, and fuel prices could rise as a result of concerns about a wider Mideast crisis.

Smith agreed. Business travel will continue, but leisure air travel is going to be "cut in half, immediately," he said.

And when air travel resumes, it’s likely going to be significantly more expensive, as airports and airlines pass on the costs of increased security.

"There’ll be no more of this $6-an-hour non-English speakers checking your bags and BS-ing with each other," he said. "Big numbers. It’s going to cost passengers."

Boeing likely won’t feel the hurt immediately, Smith said.

"Boeing has got production slots filled halfway through 2003," he said. "Even with postponements, it’s not going to hurt Boeing right away."

Boeing also has Asian-Pacific customers who won’t be affected as much by the U.S. upheaval.

But aircraft leasing companies such as GE Capital Aircraft Services and International Lease Finance Corp. already were postponing deliveries before this happened, Smith said. If airlines start trimming fleets, these key Boeing customers are going to be left with planes on their hands.

Boeing and Airbus have enough orders on their books now to weather the immediate storm, and if public confidence in air travel is quickly restored they may come through unscathed, Smith said.

But things already were bad for the whole industry before Tuesday, he said. "They don’t need this."

Perhaps the industry will rebound quickly, Malka said.

"It’s hard to say," she said. "Really, we’re at the beginning of the story."

You can call Herald Writer Bryan Corliss at 425-339-3454

or send e-mail to corliss@heraldnet.com.