The Daily Interview: Airlines Could Be Headed for a Grounding
The U.S. airline industry will be crippled if the government does not provide relief on an order never before seen in the private sector, says Scott Gibson, a senior vice president with Simat, Helliesen & Eichner, a company that provides consulting to the airline industry.
Senior Vice President,
Simat, Helliesen & Eichner
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TSC: What did the House Transportation Committee ask you as you testified before them Wednesday?
Gibson: They are looking at a bill to help the airline industry. This is such a cataclysmic event, akin to an act of war, that it threatens the entire airline industry. Government has an essential role here to keep this key infrastructure business up and going. Were they not to do that, I don't think there is any other party out there who could help preserve this industry.
Aside from financial aid, which needs to happen very quickly, the first thing that the government needs to do is to restore confidence in the air transport system, and that may involve federalization of security and other measures. That is the most essential thing. Absent that, this business is dead.
TSC: Do you believe that the $24 billion that the airline industry is seeking from the government is sufficient?
Gibson: They are now seeking nearly $18 billion. None of us knows for sure. All of us are making projections based on past events -- the Gulf War, Pan Am 103. While they help give us an indication, none of them are comparable to the events that happened last week. Certainly the airlines' traffic results since the system started up again are much more depressed than one might have expected.
TSC: What about the $5 billion that President Bush is giving to the industry in immediate cash? Is that sufficient?Gibson: It's sufficient to stabilize the airlines for today, yes. The airlines have a very specific problem today, and that is cash. American, held by AMR (AMR), and United, held by UAL (UAL - Get Report), will run out of cash. The financial markets are closed to them because of the liability issue now facing the entire airline industry. Unless there is some kind of shield provided by the government to protect airlines from third-party claims, no one in their right mind would lend money to the airlines. The second problem you've got is confidence in the business going forward. We don't know when passengers will return. It may not be soon enough. So every airline in the nation is at risk of going bankrupt. Given the fiduciary responsibility of a lending institution, who in their right mind would lend money to a business that they can't predict will be around a month from now? The answer is, they won't. That's where the loan guarantees are needed. There is no private company that can afford the risk, because the risk is unknown. TSC: What's going to happen to the aircraft that are in production now at Boeing (BA - Get Report) and Airbus? Who is going to buy those? Gibson: The airlines have probably started negotiations with the aircraft manufacturers. It is inconceivable to me that in a world when you have 20%-25% of the current fleet grounded that you have an ability to afford the new deliveries. There are 930 aircraft on order by U.S. passenger carriers.
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