Alitalia went belly up over the weekend. The causes were the same as for most recent airline failures. Fuel is too high, and do are debt-loads. Passenger traffic is being undermined by a slowing economy.

The vultures have come to feed on the carrion. Investment groups and Air France have given indications that they would like to own a piece of the Italian carrier. They would like to have most of the debt go away first. If Chapter 11 has any consistent benefit for airliners it is that debt holders are obliterated.

Alitalia does not look terribly different from most of the US international carriers, especially AMR (AMR), Northwest (NWA), and UAL (UAUA), each of which operate substantial service outside America.

With oil falling from $140 a barrel to under $120, most airline stocks have made significant recoveries, but are still well down. UAL trades at $11 against a 52-week high of almost $52. Its long-term debt tops $7 billion.

It is a sucker’s bet to think that airlines can do well with oil at $120. Even if carriers were debt-free and passenger demand robust, there is nothing to offset hundreds of millions of dollars in extra fuel prices.

Alitalia differs from other airline bankruptcies because it is so large. Carriers have used Chapter 11 to cleanse balance sheets before. The next stop for that practice may well be the US.

Douglas A. McIntyre

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