Airlines have nowhere to go but up

Associated Press

NEW YORK — Imagine you’re an airline CEO. For months, you’ve labored to contain the damage from a deflating economy. Then, the Sept. 11 terrorist attacks turn a corporate crisis into a catastrophe, resulting in losses you couldn’t possibly have foreseen.

How do you continue to woo investors without getting swamped by the bad news on the bottom line?

That’s the quandary raised by a recent decision by accounting regulators regarding the impact of the terrorist attacks. The ruling will test companies’ abilities to tell their financial stories in coming weeks — and the skills of investors trying to discern meaning in those accounts.

"Let’s call it plain English," said Steven Lilien, who chairs the accounting department at New York’s Baruch College. "That’s where the effort should be concentrated.

"I’d hope they would lay it out in clear fashion that gives investors an opportunity to assess the impact and not give spin to it. I don’t think, necessarily, we’ll see that."

The decision last week by the Financial Accounting Standards Board has been much scrutinized and debated in business circles. The board ruled that the attacks should not be classified as "extraordinary," meaning that companies will not be allowed to list attack-related losses in a separate line on their financial statements.

That may sound arcane. But it is a big deal for airlines, insurance firms, companies displaced by the attacks and other businesses whose profits were affected drastically by the destruction and consumers’ reaction to it.

Those losses are real enough. The question for companies and regulators was whether the costs should be listed separately, as a one-time event beyond the control of management, or whether they should be reported as an integral part of firms’ performance.

With attack-related losses lumped in with other expenses, many companies’ profits will fall seriously short of expectations, possibly scaring off investors.

Regulators initially leaned toward separating such expenses, noting that the attacks were clearly extraordinary events.

The problem was trying to decide precisely which costs were extraordinary. With the economy shaky even before the attacks, a range of companies already had all sorts of problems. Where did those problems end and attack-specific losses begin?

"You really can’t call the whole economic downturn extraordinary, and we didn’t really know how to draw those lines," said Tim Lucas, chairman of a task force charged with figuring out the board’s solution.

For example, Lucas said, airlines lost money paid to lease planes when all flights were grounded for two days, clearly a symptom of the attacks. But what about the revenues lost due to a frightened public once the planes were back in the air? What about the cost of laying off thousands of workers? If those costs are extraordinary now, is that still the case if more layoffs are announced in a few months?

There really isn’t a perfect accounting solution, Lucas acknowledged.

Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

A closing sign hangs above the entrance of the Big Lots at Evergreen and Madison on Monday, July 22, 2024, in Everett, Washington. (Ryan Berry / The Herald)
Big Lots announces it will shutter Everett and Lynnwood stores

The Marysville store will remain open for now. The retailer reported declining sales in the first quarter of the year.

George Montemor poses for a photo in front of his office in Lynnwood, Washington on Tuesday, July 30, 2024.  (Annie Barker / The Herald)
Despite high mortgage rates, Snohomish County home market still competitive

Snohomish County homes priced from $550K to $850K are pulling in multiple offers and selling quickly.

Henry M. Jackson High School’s robotic team, Jack in the Bot, shake hands at the 2024 Indiana Robotics Invitational.(Henry M. Jackson High School)
Mill Creek robotics team — Jack in the Bot — wins big

Henry M. Jackson High School students took first place at the Indiana Robotic Invitational for the second year in a row.

The computer science and robotics and artificial intelligence department faculty includes (left to right) faculty department head Allison Obourn; Dean Carey Schroyer; Ishaani Priyadarshini; ROBAI department head Sirine Maalej and Charlene Lugli. PHOTO: Arutyun Sargsyan / Edmonds College.
Edmonds College to offer 2 new four-year degree programs

The college is accepting applications for bachelor programs in computer science as well as robotics and artificial intelligence.

FILE — Boeing 737 MAX8 airplanes on the assembly line at the Boeing plant in Renton, Wash., on March 27, 2019. Boeing said on Wednesday, Feb. 21, 2024, that it was shaking up the leadership in its commercial airplanes unit after a harrowing incident last month during which a piece fell off a 737 Max 9 jet in flight. (Ruth Fremson/The New York Times)
Federal judge rejects Boeing’s guilty plea related to 737 Max crashes

The plea agreement included a fine of up to $487 million and three years of probation.

Neetha Hsu practices a command with Marley, left, and Andie Holsten practices with Oshie, right, during a puppy training class at The Everett Zoom Room in Everett, Washington on Wednesday, July 3, 2024. (Annie Barker / The Herald)
Tricks of the trade: New Everett dog training gym is a people-pleaser

Everett Zoom Room offers training for puppies, dogs and their owners: “We don’t train dogs, we train the people who love them.”

Andy Bronson/ The Herald 

Everett mayor Ray Stephenson looks over the city on Tuesday, Jan. 5, 2015 in Everett, Wa. Stephanson sees  Utah’s “housing first” model – dealing with homelessness first before tackling related issues – is one Everett and Snohomish County should adopt.

Local:issuesStephanson

Shot on: 1/5/16
Economic Alliance taps former Everett mayor as CEO

Ray Stephanson will serve as the interim leader of the Snohomish County group.

Molbak's Garden + Home in Woodinville, Washington will close on Jan. 28. (Photo courtesy of Molbak's)
After tumultuous year, Molbak’s is being demolished in Woodinville

The beloved garden store closed in January. And a fundraising initiative to revitalize the space fell short.

Everett Mayor Cassie Franklin, Advanced Manufacturing Skills Center executive director Larry Cluphf, Boeing Director of manufacturing and safety Cameron Myers, Edmonds College President Amit Singh, U.S. Rep. Rick Larsen, and Snohomish County Executive Dave Somers participate in a ribbon-cutting ceremony on Tuesday, July 2 celebrating the opening of a new fuselage training lab at Paine Field. Credit: Arutyun Sargsyan / Edmonds College
‘Magic happens’: Paine Field aerospace center dedicates new hands-on lab

Last month, Edmonds College officials cut the ribbon on a new training lab — a section of a 12-ton Boeing 767 tanker.

Gov. Jay Inslee presents CEO Fredrik Hellstrom with the Swedish flag during a grand opening ceremony for Sweden-based Echandia on Tuesday, July 30, 2024, in Marysville, Washington. (Ryan Berry / The Herald)
Swedish battery maker opens first U.S. facility in Marysville

Echandia’s marine battery systems power everything from tug boats to passenger and car ferries.

Helion Energy CEO and co-founder David Kirtley talks to Governor Jay Inslee about Trenta, Helion’s 6th fusion prototype, during a tour of their facility on Tuesday, July 9, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
State grants Everett-based Helion a fusion energy license

The permit allows Helion to use radioactive materials to operate the company’s fusion generator.

People walk past the new J.sweets storefront in Alderwood Mall on Thursday, July 25, 2024, in Lynnwood, Washington. (Olivia Vanni / The Herald)
New Japanese-style sweets shop to open in Lynnwood

J. Sweets, offering traditional Japanese and western style treats opens, could open by early August at the Alderwood mall.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.