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Flying upside-down.

Byline: The Register-Guard

Bankruptcy has become a normal condition for the U.S. airline industry, with both Delta Air Lines and Northwest Airlines filing for protection under Chapter 11 on Wednesday. They join United and US Airways in seeking protection from creditors, and others may follow - the industry as a whole has lost $32 billion since 2001. The immediate losers include anyone with a claim against the bankrupt companies' assets or income, including stockholders, creditors and workers.

Part of the big airlines' troubles can be attributed to a long run of bad luck. The terrorist attacks on Sept. 11, 2001, disrupted air travel worldwide, resulting in losses that were only partly offset by a $2.5 billion congressional bailout. A sluggish economy left the airlines vulnerable to a series of setbacks, ranging from the SARS scare in Asia to the effects of a weak U.S. dollar on American travel overseas. Then, just as some carriers were reporting or predicting their first profits in years, oil prices spiked, pushing the industry's biggest variable cost skyward.

Yet, the big American airlines were in financial distress even before Sept. 11. Wednesday's bankruptcy filing by Delta and Northwest, the country's third- and fourth-largest carriers, came despite recent increases in passenger volumes and a decline in unoccupied seats. What's more, discount airlines and many regional carriers are thriving - indeed, competition from these upstarts has prevented the big airlines from simply raising fares to levels that ensure profitability.

One factor in Wednesday's Chapter 11 filings is that bankruptcy is a communicable disease. United and US Airways' bankruptcies permitted them to terminate their pension plans and shift pension obligations to the federal Pension Benefit Guaranty Corp. The PBGC insures pension benefits through premiums charged to solvent companies, including, until Wednesday, Delta and Northwest. The two carriers were, in effect, funding their own pension plans and their competitors' as well. It's no coincidence that Northwest's filing came the day before a $65 million pension payment came due.

Bankruptcy under Chapter 11 is supposed to be a temporary condition. Companies are shielded from creditors' claims while they continue operating, thereby preserving jobs and assets. It's expected that companies will soon reorganize in ways that promise to bring a return to profitability. Such plans usually include writing off debts and cutting workers' pay and benefits.

For the airlines, however, bankruptcy is proving to be a long-term proposition. US Airways has sought Chapter 11 protection twice in four years. United has been in bankruptcy for nearly three years, and its plan to emerge from protection next February is predicated on an oil price of $50 a barrel - 20 percent below current prices. One effect of recurrent or quasi-permanent bankruptcies is to force competitors to seek similar protection, and as a result, airlines representing half of the U.S. industry's capacity are in Chapter 11. Overseas competitors are beginning to complain that American bankruptcy laws are providing U.S. airlines with an illegal subsidy.

If the airlines can chart a flight path out of bankruptcy, it will be a rough one for airline workers, who can expect to see sharp reductions in pay and benefits. Few airlines are good merger candidates, given their debts and cost structures. Those that can merge, as when US Airways combines with America West, will resemble the junior partner. Some of the big names may disappear altogether. What will remain promises to look more like a service organization than an industrial enterprise.
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Title Annotation:Editorials; For airlines, bankruptcy becomes chronic
Publication:The Register-Guard (Eugene, OR)
Article Type:Editorial
Geographic Code:1USA
Date:Sep 16, 2005
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