Credit analyst sees US Air liquidating by year-end
Tue Feb 1, 2005 04:53 PM ET
NEW YORK, Feb 1 (Reuters) - US Airways Group Inc. (UAIRQ.OB: Quote, Profile,
Research) will probably fail in 2005, one casualty of a year that may also
see a Delta Air Lines Inc. (DAL.N: Quote, Profile, Research) bankruptcy, an
analyst at research firm CreditSights said on Tuesday.
"The 2005 outlook for our airline industry is dismal," Roger King, a debt
analyst specializing in airlines, said in a conference call with analysts,
portfolio managers, traders and journalists.
"High fuel costs and declining yields in particular should push US Airways
into liquidation," King said.
Declining yields, or average revenues per passenger, are hammering major
carriers along with high fuel costs, overcapacity, union battles and
problems with underfunded pensions and a lack of access to capital, he said.
Bankrupt US Airways, widely seen by analysts as the weakest of a struggling
industry, is particularly vulnerable because of its focus on the competitive
northeastern market. But few have forecast that the No. 7 U.S. carrier would
fail this year.
Told of King's comments on the conference call, US Airways spokesman David
Castelveter told Reuters: "We have worked hard to overcome obstacles that
many thought were insurmountable, yet like the industry, we still face a
number of challenges."
"We are taking the next steps to build an airline that can be successful in
a low-fare environment," Castelveter added.
US Airways said last year it was in danger of liquidating before it secured
$1 billion in labor concessions.
The airline has said it has operating cash through June, when it hopes to
exit bankruptcy, though it will need to find $250 million in equity to do
so.
Delta, the No. 3 U.S. airline, secured $1.1 billion in financing from units
of General Electric Co. (GE.N: Quote, Profile, Research) and American
Express Co. (AXP.N: Quote, Profile, Research) , helping it to avert filing
for bankruptcy protection. No similar rescues are likely this year, King
said.
Delta officials were not immediately available to comment.
"Delta's own guidance indicates it will not achieve a positive operating
margin in 2005, setting up a second liquidity event this fall," King said,
adding that the airline's pension and debt loads make it particularly
vulnerable.
"Manna will not fall from heaven 2 years in a row," he added. "Look for a
bankruptcy this fall."
King said current industry turmoil would likely bolster low-cost carrier
Southwest Airlines (LUV.N: Quote, Profile, Research) , already the
industry's most valuable airline.
The strength of the Dallas-based airline and other low-cost carriers like
JetBlue (JBLU.O: Quote, Profile, Research) is bad news for the sector's
traditional carriers, which still have higher cost structures even after
aggressive efforts to cut expenses, King said.
"They can just keep the pressure on the legacy carriers from the yield
standpoint and force cash outflows that inherently destabilize the balance
sheets," he said. (Additional reporting by John Crawley in Washington)