Non-Subscriber Extract
US airlines look for solutions and start to feel the fallout
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| 13 September 2001 |
By Jim Smith, Editor, Jane’s Transport Finance
Sources in the Wall Street community, reached at home by Jane's Transport Finance, maintain that this week's terrorist attacks using hijacked civil aircraft may have a ripple effect on US airlines.
For one thing, US government officials have begun to talk about re-instituting on a large scale the Federal Aviation Administration's domestic ‘sky marshal’ programme, which was phased out in the 1970s. That programme – aimed at preventing aircraft hijackings to Cuba – provided armed escorts on domestic flights whose identities were known only to the pilot and flight crew. During their heyday in the 1970s, sky marshals were paid between $15,000 and $18,000 annually.
Currently, federal air marshals travel on US air carriers along routes and into areas where worldwide terrorist activities indicate the highest probability of hijacking.
While amoritising the cost of an armed escort over the number of seats on widebody aircraft seems a cheap tonic, if the system were expanded to include small aircraft and regional airlines, passengers on larger aircraft would have to subsidise travel on smaller aircraft. That could sound the death knell for some airlines, said one analyst.
In addition, the cost of providing the expected enhanced security at airports – including smaller airports – could jeopardise the continued operation of smaller airlines and perhaps less profitable larger carriers.
A series of reports by Congress’ General Accounting Office and the Transportation Department's Inspector General found US airport security lacking, with low-paid airport security screeners checking passengers and carry-on baggage with equipment designed to detect bombs in luggage.
Airports most likely would assess higher landing fees and peripheral services to airlines, adding more costs to the already-eroded bottom lines of carriers – which have already been adversely affected by a global economic turndown and higher fuel prices. Airlines also are expected to hike fares for a decreasing number of discretionary travellers.
Heightened scrutiny may lead to longer turnaround times at airports, resulting in fewer flights and probably fewer aircraft needed to operate truncated schedules. One banker suggested that manufacturers might see orders cancelled, while aircraft leasing companies could experience reduced orders and have aircraft returned.
• Financially struggling Midway Airlines, which won permission from a bankruptcy court to keep operating last week, has become the first US carrier to succumb to the fallout from the terrorist attacks in New York City and Washington, DC. Midway declared today (13 September) that it would throw in the towel.
Lack of bookings and the demand for refunds on already-booked travel will cause Midway to begin returning aircraft to lessors and selling assets. The terrorist activities, coupled with a fall-off in business travel in the wake of the global economic turndown and increased competition from major carriers, proved too much for the North Carolina-based airline. At the time it declared bankruptcy, Midway served 28 destinations across the country with 74 aircraft. Midway had eliminated nine destinations and planned to decrease service on others.
In its bankruptcy filing, Midway listed assets of $318 million and liabilities of $232 million. The company posted losses of $15 million in 2000 and another $15 million in the first six months of this year.