Airlines losing cash cushion


POSTED: Thursday, August 27, 2009

DALLAS >> Airlines cut fares to get more passengers on planes and salvage the summer travel season, but now their job gets harder heading into the slower fall and winter months.

The nine largest U.S. carriers lost nearly $600 million in the second quarter of this year. Bigger losses are predicted in the third and fourth quarters, and some analysts have raised the possibility of another round of bankruptcies.

The nation's airlines have been in a defensive crouch for two years. They have cut flights and fired workers — first to absorb rising fuel prices, then to ride out the recession. But revenue is down one-fifth or more from a year ago at the four largest carriers.

Because they have cut costs, sold new stock and borrowed money, the airlines have plenty of cash for now. But even in good years, airlines build cash during the busy summer travel period, which ends around Labor Day, to get through the slower months.

Airlines need enough cash to pay employees, buy fuel and pay other bills, including payments on the money they've borrowed. If cash falls too low, they can be pushed into bankruptcy protection, as happened earlier this decade with Delta, United, Northwest and US Airways.

United, US Airways and American are often mentioned as the airlines in the most precarious financial positions. They rely on business travelers who pay hundreds of dollars per ticket to sit in first-class. Many of those people are grounded or flying in cheaper coach seats due to the recession. Meanwhile, fuel costs, although lower than last year's record levels, have been rising. The spot price of jet fuel has jumped about 70 percent since March.

One leading analyst, JPMorgan's Jamie Baker, estimates that by the fourth quarter, American Airlines parent AMR Corp. will burn more than $11 million a day, while United Airlines parent UAL Corp. will be going through $7 million a day.

As of June 30, AMR had about $2.8 billion in unrestricted cash and short-term investments, UAL had $2.6 billion, and US Airways had about $1.7 billion. If Baker is right about how much cash they'll burn this winter, all three will have a thinner cash cushion than did the carriers who filed for bankruptcy protection in 2004 and 2005.

United and US Airways were among several airlines that made Chapter 11 filings from 2001 through 2005. They used bankruptcy protection to shed debt and lower labor and pension costs.

In most airline bankruptcies, the carriers have kept flying and passengers hardly noticed any difference. In the worst case — liquidation — employees would lose their jobs, shareholders would lose their investments, and stranded travelers could be forced to ask their credit card company for ticket refunds.

More mergers are also a possibility. Delta and Northwest combined last year, three years after each went through bankruptcy court. The current US Airways is the product of a combination with America West. United and Continental talked but didn't reach a deal.





        Here are some key financial numbers:

» US Airways Group Inc., based in Tempe, Ariz.: 2008 results, $12.1 billion in revenue, net loss of $2.2 billion; unrestricted cash on June 30, $1.7 billion.


» United Airlines parent UAL Corp., based in Chicago: 2008 results, $20.2 billion in revenue, net loss of $5.3 billion; unrestricted cash on June 30, $2.6 billion.


» American Airlines parent AMR Corp.: 2008 results, $23.8 billion in revenue, net loss of $2.1 billion; unrestricted cash on June 30, $2.8 billion.





        Since 1999

» Delta Air Lines, September 2005


» Northwest Airlines, September 2005


» ATA Airlines, October 2004


» US Airways, September 2004


» United Airlines, December 2002


» US Airways, August 2002*


» Trans World Airlines, January 2001**





        Since 1999

» Hawaiian Airlines, 2003


» Aloha Airlines, 2004


» Aloha Airlines, 2008***


* This carrier later combined with America West Airlines to form US Airways Group Inc.


** While in bankruptcy protection, TWA was purchased by AMR and no longer operates as a separate carrier.


*** Ceased operations on March 31, 2008


Sources: Company regulatory filings, press releases