Report Predicts Airline Bankruptcies, Liquidation in 2009

A report released Tuesday by Fitch Ratings on the country's top airlines states that numerous layoffs, grounded flights and ­price increases, in addition to various cost-cutting measures, may not be enough to aid the struggling airline industry from the escalating effects of high oil prices, CNN reports. The report warns that record fuel costs, as well as meager cash flow, may instigate "multiple bankruptcies and liquidation" for major U.S. airlines in 2009 and that recent economic changes by carriers "are not sufficient to counter the devastating impact of jet fuel prices."

The report was released about a year after many major U.S airline companies– such as United Airlines, Delta Air Lines and Northwest Airlines– rose out of bankruptcy protection (as recently as June 2007), and warns that the current situation may be more crippling than the industry's previous financial crisis.

Recent bankruptcies in the industry have remained limited to small carriers such as Aloha Airlines, ATA and Skybus. Yet the report warns that, come the usual drop in air travel in the fall, larger airlines may begin to experience the same tragedy, especially as a sustained economic slump continues to drive more passengers away.

"After Labor Day ... all the U.S. legacy carriers will see a rapid erosion of cash levels that could threaten their survival in 2009 if adverse fuel trends continue," wrote William Warlick, a senior director at Fitch and author of the report. He added that United, Delta, US Airways, Southwest, and JetBlue will have the most difficulty generating enough revenue to cover rising costs, while American Airlines and Continental look "stable."

Airline industry leaders are more than aware of the imminent danger brought by rising fuel prices, as CEOs from 12 of the nation's top airlines sent an open letter to airline customers last week and urged lawmakers to curb excessive speculation to scale back record fuel costs.


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