The global downturn in air travel has affected adjacent markets

corporate governance Representatives of American airlines spoke in Congress about the need for government financial support for the industry, which otherwise faces a series of bankruptcies. However, many in Congress believe that airlines themselves must take care of their own salvation, because crises in this industry are a cyclical phenomenon, and the terrorist attack of September 11 only exacerbated problems for airlines that arose even earlier. Meanwhile, the crisis has already affected a related industry—aircraft manufacturing.
The crisis requires sacrifices
Leo Mullin and Donald Carty, chief executives of Delta Airlines and American Airlines, respectively, painted a dire picture of the airline industry and asked for financial help and a delay in implementing tougher safety measures. Otherwise, they said, many airlines that suffered significant losses after the events of September 11 would face bankruptcy. On October 2, the House Aviation Subcommittee said it would submit a bill to Congress, but the aid is unlikely to be significant and will not arrive until next year. And Forbes experts proposed a simple strategy for overcoming the crisis: reducing aircraft fleets, introducing a stricter flight schedule, reducing wages and forming strategic alliances. This is precisely the strategy that two American companies have long followed - Southwest Airlines and JetBlue, which continue to thrive despite the crisis.
In 2000, the largest American companies were profitable, but already in the second quarter of 2001 they began to incur losses: United Airlines - $292 million, American Airlines - $105 million, US Airways - $24 million. In 2001, losses of American air carriers amounted to $7.7 billion The third-largest carrier, Delta Airlines, announced that its losses in the third quarter of 2002 will be twice as high as expected - $350 million, which has already led to a drop in the company's shares by 24% (to $8.69). lowest in the last 20 years). The shares of its competitors are also falling. On August 13, 2002, US Airways went bankrupt, and United Airlines was on the verge of collapse - its daily losses amounted to about $1 million. America West would have gone bankrupt in early 2002 if the US government had not issued it a large loan secured by shares.
The emerging systemic crisis in the industry was superimposed by the negative consequences of the events of September 11th. In the first days after the terrorist attack, the US government allocated $5 billion for the needs of the affected airlines and created a $10 billion loan fund. But it did not help. Companies are faced not only with a sharp drop in demand for air travel, but also with a sharp increase in costs: insurance payments, the cost of providing additional security measures and salaries.
Mr. Mullen estimates that 40% of the airline industry's $7 billion in losses this year are attributable to insurance premiums: Over the past 12 months, airline insurance premiums have risen 45-fold, from $20 million to $900 million. In addition, airlines have spent tens of millions of dollars replacing doors in flight decks, hundreds of millions were lost due to cargo restrictions and the need to reserve first class seats for security personnel. Salaries and benefits for pilots and maintenance personnel remain an important expense. Even in the final months of the worsening crisis, many companies were unable to resist union demands for higher wages. Thus, United's payroll costs in the second quarter of 2002 amounted to 47% of the company's revenues.
Balancing on the brink of bankruptcy, airlines are turning to the government and banks for loans, exacerbating their already difficult financial situation. According to Standard & Poor's, the ratio of airlines' net borrowings to total revenues as of June 30, 2002 was 5:4, despite the fact that even in the crisis year for the airline industry in 1992, this ratio did not exceed 11:10.
Struggling with losses, companies save on the use of transport hubs and personnel. Delta is reducing the number of stewards and flight attendants by 1,500 people. United, in agreement with trade unions, intends to reduce personnel costs by $5 billion over five years. American is going to abandon its extensive system of transport hubs and the use of a large fleet of aircraft and reduce its staff by 7 thousand people. Companies are canceling benefits and bonuses for passengers, raising ticket prices and entering into strategic alliances. In August, Continental, Delta and Northwest agreed to jointly operate flights, both domestic and international.
In depth and breadth
According to the International Air Transport Association (IATA), from January to July 2002, international passenger air travel worldwide decreased by 7.49% compared to the same period last year. The least affected markets were Asia (0.54%) and the Middle East, where an increase of 2.33% was observed. In North America, the market fell by 8.89%, in South America by 5.12%. In Europe, the decline was 11.59%, with companies flying to the US particularly affected: British Airways, Virgin Atlantic, KLM and Lufthansa. The Swiss Swissair and the Belgian Sabena went bankrupt (on October 2 and November 9, 2001, respectively). And British Airways shares fell so much that on September 11, 2002, the company was excluded from the FTSE-100, and now Ryanair, the largest European company in the low-cost transportation sector, is vying for its place in the index. In general, small companies with a small volume of transportation are currently the most promising sector of the market.
The air travel crisis has already affected the aircraft industry - the number of new orders from regional aircraft manufacturers Canadian Bombardier and Brazilian Embraer has dropped to almost zero. Bombardier has stopped production of new planes, focusing on selling those already built. The German-American Fairchild Dornier declared itself bankrupt, and so far no one has expressed a desire to acquire it.
The aircraft manufacturing giants also failed to avoid difficulties. At the Farnborough Air Show at the end of July 2002, the number of new orders for civil aircraft was ridiculously low - two Boeing 777s and six Airbus A330s. At the end of the air show, Aeroflot announced its intention to buy 27 new aircraft (18 Airbus and 9 Boeing), but this did not change the overall picture. Boeing, which has already reduced its workforce by 30 thousand people, announced that it will produce 275 new aircraft in 2003 (compared to 380 in 2002). Airbus, part of the European concern EADS, which produces 300 new aircraft a year, does not intend to reduce production, which gives Boeing a reason to accuse its competitor of working for a warehouse.
So far, only military orders allow aircraft manufacturers to develop. The main employer is the American government. Thus, one of the orders within the framework of the development of a missile defense system, carried out by Boeing with the involvement of the European concern EADS, will cost the US budget $48 billion over ten years. EADS CFO Axel Arendt has already announced that EADS will soon increase its share of military production to 30%.

DMITRY Kommersant-SINITSYN, ELENA Kommersant-CHINYAEVA

Newspaper "Kommersant" No. 181/P dated 10/07/2002, page 17

Authors:

Elena Chinyaeva

A new round of the airline crisis