The press alternates between reporting that United (UAUA) and US Air (LCC) are in merger talks one day, and not in merger talks the next. According to Reuters "United Airlines and US Airways have suspended merger talks due to concerns about labor opposition and integration costs." Of course, that could change tomorrow.
With the Delta (DAL) tie-up with Northwest (NWA) moving forward, it looks like other airlines believe that they are running out of time. High oil prices and a recession-driven loss of passengers means that operating income and cash flow in the industry could near $10 billion this year. Some of the carriers may not be able to weather that with with their current financial structures.
Airlines have quickly moved to two new strategies. One is very public and involves the cutting of routes and laying off of tens of thousand of employees.
The other planning goes on behind closed doors. This work is based on the idea that several carriers will have to go into Chapter 11. Each needs liabilities to greatly outweigh assets to make the move, but requires enough cash on the balance sheet to get through a restructuring.
Accountants with abacuses are sitting in windowless offices picking the best date for going into court and asking for protection. Based on current debt service and negative cash flow, some of them could be moving to bankruptcy in the third quarter.
Douglas A. McIntyre
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