Airlines plead case for aid as war looms By Dan Reed, Barbara DeLollis and Marilyn Adams, USA TODAY The airline industry Tuesday sounded a panicked alarm as weakened carriers= =20 braced themselves for the financial shocks of a war. A sobering forecast=20 from the airlines' leading trade group said war could have consequences=20 from which many airlines simply might not recover: an 8% overall falloff in= =20 air travel, 70,000 more layoffs, 2,200 flights eliminated, $11 billion in=20 losses this year. The Air Transport Association's forecast, delivered at a= =20 Washington press conference, was designed to build political support for=20 congressional war aid =97 help with jet fuel costs, insurance coverage and= =20 the airlines' tax burden if the U.S. invades Iraq. But it comes amid=20 growing evidence that the industry, which has never recovered from the=20 Sept. 11 attacks, is tumbling toward a new cliff even before war is=20 declared. There are new signs a Chapter 11 filing at AMR, parent of=20 American Airlines, the world's biggest carrier, could come in weeks. UAL,=20 United Airlines' parent and the world's second biggest carrier, divulged=20 Tuesday that it needs more time to develop a solid business plan for=20 emerging from bankruptcy protection. And Delta Air Lines, considered one of= =20 the healthier big airlines, warned Monday that its cash flow will turn=20 negative if the U.S. invades Iraq. In the 2 1/2 years after the 1991 Persian Gulf War, 24 airlines entered=20 bankruptcy court reorganization or were liquidated, including Eastern, Pan= =20 Am, TWA, Continental and America West. If there's another war, the Air=20 Transport Association (ATA) says, it could be even worse. "This industry is literally struggling to survive," the report said. Since= =20 the Sept. 11 attacks, major airlines have suffered profoundly from a sharp= =20 falloff in business travel, rising fuel and security costs, an abundance of= =20 cheap tickets and passenger jitters about airport security screening. Tens= =20 of thousands of jobs and salaries have been cut, hundreds of excess jets=20 have been parked or retired, and flight schedules have been trimmed, in=20 many cases by more than 20%. The industry lost $18 billion in 2001 and=20 2002, and it is expected to lose more than $6 billion this year if there's= =20 no war. Now Wall Street analysts, some of whom only recently dismissed the= =20 prospect of additional airline bankruptcies this year, say a second Persian= =20 Gulf War could be far more devastating for airlines, their employees,=20 investors and the customers and cities that airlines serve. "It is obvious= =20 that the major network carriers cannot go on sustaining losses of (the=20 current) magnitude," Blaylock & Partners analyst Ray Neidl says. If, as=20 most industry analysts expect, war both drives up fuel prices and drives=20 away passengers, Neidl suggests that "most of the remaining major network=20 carriers could end up in bankruptcy before midyear." The only positive note= =20 is that fares would likely fall more. The ATA's forecast calls for a 4%=20 drop in fares if there's a war and 9% if there's a war and a terrorist= attack. Airline shares fell Tuesday following news that AMR is lining up financing= =20 to operate while in bankruptcy reorganization. Shares of AMR, the parent of= =20 American Airlines, dropped 34% to $1.59, while Delta's shares fell 22% to=20 $6.75. Shares of United parent UAL dipped to 97 cents, down 2 cents. In its= =20 defense, the industry has mobilized an intense lobbying campaign. Several=20 airline CEOs, including Delta CEO Leo Mullin and Southwest Airlines=20 Chairman Herb Kelleher, converged on the White House last Thursday to press= =20 the Bush administration for aid, but apparently came away with no promises.= =20 Today, American Airlines pilots, flight attendants and other employees are= =20 scheduled to picket at Dallas/Fort Worth, Chicago O'Hare and Miami=20 airports, calling for government help. An AMR bankruptcy filing could bring= =20 thousands of new layoffs. "We can't get relief fast enough," Bob Ames, vice= =20 president of American's pilots union, said Tuesday. So far, the reception=20 from Congress has been lukewarm. Rep. John Mica, R-Fla., chairman of the=20 House aviation subcommittee, said in an interview Tuesday the government=20 won't consider helping unless and until a war begins. "I don't want to throw cold water on their proposal, but it's going to be=20 very difficult for Congress to pre-emptively exempt any costs of any of the= =20 airlines," he said. He said he's reluctant to give airlines relief from=20 fuel and security taxes but might be willing to extend war-risk insurance,= =20 which has become so costly on the private market that airlines would be=20 unable to afford it. Despite a few public calls for supporting the airlines from the industry's= =20 allies in Congress, there's little support to bail out an industry that won= =20 a post-Sept.-11 bailout package that included $5 billion in direct grants=20 and $10 billion in available loan guarantees =97 although few airlines=20 qualified for the guarantees. The chill on Capitol Hill is making the=20 industry even more nervous. The ATA says a worst-case war scenario =97 a=20 three-month war coupled with a major terrorist event =97 could trigger a 12%= =20 drop in air traffic, 98,000 more layoffs and 3,800 fewer flights. The=20 industry in that case could lose $13 billion this year, which would lead to= =20 more bankruptcies, liquidations and possibly the nationalization of the=20 industry, says Jim May, the airline association's CEO. Nationalization=20 would help guarantee service to smaller communities, the most vulnerable if= =20 schedules were slashed. The ATA based its war forecasts on air-travel=20 patterns after the first Gulf War and current booking trends, which already= =20 reflect Americans' fear of traveling during a war. Hundreds of thousands of= =20 passengers were stranded Sept. 11 when the U.S. aviation fleet was grounded. There's some basis for the industry's fears. Continental Airlines last week= =20 warned that seats filled on its trans-Atlantic flights will be down at=20 least 15 percentage points in March, and probably about that much again in= =20 April. And while the nation was on "orange alert" in February, May says,=20 advance bookings on some airlines' international routes plummeted as much=20 as 20%. "If we were to go to code red or if a war occurs, you can expect to see=20 that response exaggerated," says Mark Gerchick, an industry consultant and= =20 former general counsel at the Department of Transportation, who recently=20 issued a report on potential war impact. "A lot of people are looking to=20 the 1991 experience and extrapolating from that. I think that's a very,=20 very conservative approach and may miss the mark by quite a bit." Fuel prices are a big part of the crisis. Last month jet fuel prices were=20 considered dangerously high at about 85 cents a gallon. Last week, jet fuel= =20 touched $1.30 a gallon on the spot market, more than double its price a=20 year ago. Some carriers, including discount giant Southwest Airlines, are=20 heavily "hedged," meaning they contracted for future delivery of jet fuel=20 at guaranteed prices. But some of the largest and most financially=20 endangered airlines, such as United and US Airways, lack enough cash to=20 hedge. American and Continental have not been able to afford much hedging.= =20 That means they must buy all or most of their fuel on the volatile and=20 expensive spot market. How much further passenger demand will fall, and how= =20 bad things get for the travel industry depend, in part, on what actually=20 happens in Iraq. Airlines are loath to talk publicly about their=20 contingency plans, but most have plans in place to immediately cut from 5%= =20 to 25% of their flights, depending on what happens in a war and how=20 consumers respond. In the best case, Iraq's Saddam Hussein would step down, Iraq would disarm= =20 rapidly, and war would be averted. Even then, airlines still would have to= =20 contend with the biggest and longest travel slump in their history and an=20 unsustainable cost structure. Over the past three years, sales of=20 expensive, unrestricted business fares have fallen by more than 50% because= =20 of a weak economy, corporate belt-tightening, increased competition from=20 low-fare carriers, easy access to cheap fares via the Internet and=20 increased security hassles. There is yet another Iraq scenario that could=20 be just as bad as the quick war =97 and it doesn't even involve an invasion.= =20 What if the United States and its allies hold off on war to put more=20 external pressure on Iraq to disarm? Several airline executives, including US Airways CEO David Siegel and=20 American CEO Don Carty, say that from a business point of view, the=20 expectation of war is almost as bad as the real thing. Carty recently suggested that if war is inevitable, it would be better for= =20 airlines to get it over with sooner than later. That, he said, would end=20 the uncertainty that is choking demand and blocking the recovery of the=20 economy and his industry. Siegel says a "short war, we think, will be good= =20 for the industry. It's going to eliminate the fear and that overhang the=20 economy is feeling." Resolving the Iraq question also would bring oil prices back down into=20 their normal range, saving airlines up to $2 billion annually. For now,=20 though, airline executives will be haunted by what the last Gulf War did to= =20 their business. Eastern Airlines, for example, was already in Chapter 11 by= =20 then. On Jan. 16, the U.S. started bombing Baghdad. 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