In the next five minutes, Dallas-based American Airlines will lose about $17,361. By the end of the day, the world's largest airline will blow through $5 million in mostly borrowed money.
With the exception of budget carrier Southwest Airlines, American and its top U.S. competitors are losing money so fast - nearly $9 billion last year - that many industry analysts fear some will follow US Airways and United Airlines into bankruptcy proceedings unless they succeed in trimming annual expenses by billions of dollars before cash reserves are depleted.
That day is growing near. The situation is so grave that many industry experts say it's no longer a question of whether the nation's major hub airlines will have to drastically restructure their businesses this year. Rather, it's a question of whether they will do so with or without the aid of a bankruptcy judge.
"Until the current situation can be resolved favorably, the nation's airline industry, at least the major network carriers, are not in a position to serve the traveling public long-term," airline analyst Ray Neidl said in testimony given to the Federal Aviation Administration in Washington on Tuesday.
The crisis is a legacy of the stock market bubble of the late 1990s, when airline profits soared as flush leisure travelers and high-flying Internet executives spent lavishly on travel. Airlines pumped up business fares, expanded service and gave employees big raises.
Then the economy fell into recession, followed soon after by the Sept. 11, 2001, terrorist attacks. In the 17 months since then, U.S. airlines have posted record-setting losses.
Understating the industry's predicament, American Airlines Chief Financial Officer Jeff Campbell called the company's $3.51 billion loss for 2002 "unsustainable."
Yet barring a stunning economic recovery, it's about to get worse. With war in Iraq threatening, airline executives are bracing for the possibility of another 8 percent to 10 percent drop-off in air travel, coupled with a war-related increase in jet fuel prices. In other words, the industry is facing the possibility of even higher costs and fewer passengers in the months ahead if war breaks out.
Airline stock prices have fallen so low that you could sell every share of the top five U.S. carriers and generate only enough cash to buy a few wide-body jets, one analyst noted. At the same time, lenders who came to the aid of cash-strapped airlines after Sept. 11 have pretty much reached the limits of their generosity.
"Until [the industry] can reduce costs, pretty much everybody is going to end up like United," said Darryl Jenkins, executive director of George Washington University's Aviation Institute. "The losses are so enormous that these cannot be sustained, and we're probably pretty much at the end of our borrowing ability now in the capital markets."
Seeking better terms
Struggling airlines are watching the bankruptcy moves of United and US Airways as they consider their own reorganization plans. Both carriers are using the courts to force lenders and aircraft lessors to offer more favorable terms.
Arlington, Va.-based US Airways, which lost $1.65 billion last year, has extracted $1.9 billion in annual savings from employees and aircraft lessors as part of its bid to emerge from bankruptcy next month.
United, which lost $3.2 billion last year, is pursuing a similar strategy, though at a slower pace. The world's second-largest carrier is pushing unions for $2.4 billion in wage and productivity concessions and is restructuring leases on dozens of jets that it no longer can afford. Management also says it plans to launch a new low-cost carrier that will compete with low-fare leader Southwest, which remains the only major airline to earn a profit since the terrorist attacks.
If United and US Airways emerge from bankruptcy with lower costs, American and other carriers will have to match their moves to remain competitive, analysts said.
"If they manage to get greatly reduced [aircraft] leases, American and Delta and Continental and Northwest Airlines will come back and say, `Wait a second; I'm flying a similar plane, and I'm paying double what United is?'" said Adam Pilarski, senior vice president of Avitas, an aviation consulting firm in Washington. "The question is: Can the other airlines restructure their deals without going into Chapter 11?"
Northwest Chief Executive Officer Richard Anderson has said the airline's aircraft lease holders will have to do their part to aid the company's recovery. The nation's fourth-largest carrier lost $798 million last year and is seeking more concessions from employees to cut costs.
It has trimmed more than $1 billion in expenses and furloughed hundreds of pilots.