Self-interested angel: GE is propping up ailing airlines Scott Mccartney, Wall Street Journal December 20, 2004 TRAV1220 A D V E R T I S E M E N T It's a financial miracle that U.S. airlines have kept flying despite $25 billion in losses over the past four years. Gee? No, GE. General Electric Co. has been an important behind-the-scenes player in keeping airlines in the air. It isn't alone, but it has made some of the most significant moves, such as a recent deal with US Airways Group Inc. that gives the airline more hope for survival. For travelers, such help amounts to a subsidy of low fares. Instead of airlines going out of business, the financial aid has kept a lot of seats in the air, and airlines have slashed prices to fill them. Plenty of deep-pocketed entities have helped airlines through the crisis. From the government to aircraft-leasing companies to American Express Co., which sells tickets and has a business in frequent-flier miles, many parties have renegotiated debt and given carriers more cash on top of bad loans. The state of Indiana lent hometown carrier ATA Airlines $15.5 million to keep it flying, preserving -- at least temporarily -- local jobs and air service. Airline employees have made deep sacrifices to keep carriers flying. But no entity has done more than GE to keep the sickest airlines flying. GE said it has invested more than $7 billion in airlines around the world since the 9/11 attacks. GE helped prop up America West Airlines and helped finance Air Canada's reorganization. GE is the biggest creditor at bankrupt UAL Corp., the parent of United Airlines, with $1.6 billion at stake. Ditto for US Airways, where GE has nearly $3 billion at stake, according to financial filings. This fall, GE lent Delta Air Lines $630 million to help it avoid bankruptcy. And GE freed up an additional $140 million that US Airways owed it, taking a convertible loan instead of cash. That deal still is subject to bankruptcy-court approval and other conditions. For GE, the world's largest aircraft-leasing firm, pumping money into airlines is in part a way to avoid huge losses from an airline collapse. GE, which has 1,239 airplanes and $29 billion of airplane loans and leases, has an interest in keeping its leased planes in circulation. GE said it does deals only where it thinks it can profit -- and is plenty willing to take back airplanes from failing carriers and rent them someplace else. When it helps prop up airlines, it's "because we think we make a lot of money on it," said Henry Hubschman, president and CEO of GE Capital Aviation Services and the transportation-financing unit of GE Commercial Finance. "The time you do best is when they are most in need of money," he said. While airlines are losing billions, the commercial-aircraft unit, known as GECAS, still is making millions. The unit earned at least $450 million in both 2002 and 2003, even after write-downs of more than $200 million a year. GE expects similar results this year. Hubschman said GE is standing firm at some U.S. carriers and probably will pull planes out of failing airlines soon. GE has a still-unannounced deal to take 18 airplanes out of the United States and lease them abroad. GE also has taken back planes from foreign airlines. But if the airline can show a good business plan, GE is willing to help. It weighs that along with the likelihood it can find a new home for its planes and what it would cost to move planes. Propping up carriers after 9/11, proved to be a good strategy for lessors, avoiding a crush of grounded airplanes. The market for used planes has improved since then. Now, they can pick and choose whom to prop up and, if need be, judiciously redistribute their planes. Analysts bemoan the industry's inability to shed unprofitable capacity. If an airline or two went out of business, the finances of the survivors probably would brighten. But it's hard to get the airline industry to economic equilibrium because so many stakeholders are willing to pump in money and bet that better days are ahead. Roger EWROPS