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 NEW YORK, Oct. 27 /PRNewswire/ -- Airline alliances create international "mega-carriers" that promise flyers smoother travel and investors bigger profits, but what is the impact of a merger on the carriers' bottom line? It's not so easy to track when the bottom line comes up in a combination of dollars, pounds, peseta, guilders, and yen.
 Faced with different accounting rules in the countries where they fly, airlines are struggling to consolidate their financials. According to a survey of 25 of the world's leading airlines conducted jointly by the International Air Transport Association (IATA) and KPMG Peat Marwick, a majority of the airlines (78 percent) have not changed their accounting policies within the last three years, despite the dramatic changes occurring in the industry.
 Instead of one-off approaches to streamlining their accounting procedures, the industry is proposing a sweeping reform. The IATA/KPMG Peat Marwick survey revealed that the airlines have agreed to establish a task force to develop international accounting guidelines that will help them gain a clearer picture of their worldwide earnings and expenditures. In this way, the task force will promote the development of uniformity in accounting standards for the way airlines treat revenue, exchange differences, currency fluctuation, agent commissions, frequent flyer programs and other industry-specific issues.
 "At a time when airlines are coming under pressure to reduce costs and improve profitability, creating a more harmonized approach to internationally accepted accounting standards will certainly assist carriers in attracting financiers and investors to provide debt and equity financing. This is important if airlines want to finance large fleet replacement and market expansion," said Robert Fenimore, national director of the airline industry practice for KPMG Peat Marwick.
 "Several airlines told us that they were concerned that financial institutions consider them a 'risky business,' which in turn makes access to debt and equity markets difficult and expensive," continued Fenimore. One survey respondent commented that the reasons for this appear to be twofold: first, the cyclical profitability of the industry and the risk involved and; secondly, that banks have reassessed the risks of lending to airlines and have changed their basis for lending.
 Based on respondents' comments, Fenimore believes that with increased borrowings in the industry and continued demand for additional funds, financing costs continue to have a profound impact on the industry's profitability overall. Financing at lower levels, according to the survey respondents, can be a significant competitive advantage.
 Critical Issues Examined.
 Each of the 25 CFOs surveyed ranked the critical financial issues facing his or her company. Their responses indicate a strong need for the airline industry to improve its profitability through cost control and fare stability. Among the top eight critical issues impacting the industry: cost control (60 percent); access to capital markets (52 percent); foreign currency exposure (36 percent); fleet replacement and price of new aircraft (32 percent); industry losses and inconsistent profitability (28 percent); cost of funds (28 percent); productivity and labor reform (24 percent); and the world economy (24 percent).
 Survey participants also identified trends for the industry. Increasingly, the airlines plan to cut back staff and take steps to increase productivity by means of automation, introduction of more effective work methods and investment in training as a way to enhance efficiency. This is a major focus of financial managements' attention, according to the survey.
 "Airline management also told us that one of their principal challenges is to achieve direct labor participation in the financial results of the company," commented Fenimore. "This is crucial, because it is the responsibility of management to convince airline union leadership as well as the rank and file that their success is directly dependent on their contribution to productivity and efficiency, which ultimately determines survival."
 When assessing the adequacy of their financial and management information systems, 55 percent of the respondents feel that information technology is keeping pace with the needs of the industry. One area for improvement: Financial systems. The executives foresee developments in these areas:
 -- Yield management - there will be further use of artificial intelligence and relational database technology to link to customer databases on a ticket-by-ticket basis.
 -- Route profitability - increased automation to enhance timeliness and improve cost allocations.
 -- Revenue accounting - industry should work toward standardization with the assistance of the IATA to improve point-of-sale technology.
 -- Inventory and spares control - systems need to be more proactive and better integrated with purchasing and receipt systems.
 Airlines participating in the survey had revenues ranging from $145 million to $12 billion and fleet sizes from less than 10 to more than 600 aircraft. Participant airlines were divided geographically -- Asia, 3; Australasia, 3; Europe, 11; North America, 3; and others, 5. Half of them were 50 percent or more government-owned. Shares of 14 of the airlines are traded on stock exchanges, but only three on stock exchanges other than their domestic exchanges.
 Copies of the survey can be obtained by sending a request and check for $90 to the firm's national transportation practice, One Biscayne Tower, 2 South Biscayne Blvd., Miami, Fla. 33131-1806. For further information regarding the data contained in the survey, contact Robert Fenimore, national director of the airline industry practice for KPMG Peat Marwick, at 602-250-8135.
 Through a network of more than 800 offices around the world, KPMG Peat Marwick provides industry-specific accounting, taxation and consulting services to a broad range of businesses and other organizations in the financial, commercial and private sectors.
 -0- 10/27/92
 /CONTACT: Lisa Meyer, KPMG Peat Marwick, 212-909-5108/ CO: KPMG Peat Marwick ST: New York IN: AIR SU: ECO

SH-EE -- NY051 -- 5347 10/27/92 11:24 EST
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Date:Oct 27, 1992

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