Airlines in Transition: The Most Vulnerable Players

Editor's note: This was originally published on RealMoney earlier this month. With the Delta-Northwest merger back in the news, it is being republished as a bonus for TheStreet.com readers.

For much of the last two decades, airlines have consumed massive amounts of capital. Yet that cash no longer sits on their balance sheets, thanks to a nearly uninterrupted string of operating losses.

As a result, the carriers have continually looked to replenish their coffers, through a combination of fresh debt and equity. These carriers are making the rounds again, hat in hand, and praying that the current hurricane season spares the Gulf Coast oil complex.

Simply put, any new spike in oil will make it harder to pull off equity or debt deals on favorable terms. But if oil falls toward $100, fresh financing should be quite easy to accomplish.

So where do the carriers stand in terms of their cash balances and burn rates? We can dispense straight away with a discussion of the one cash-rich operator in the industry: Southwest Airlines (LUV Quote). The carrier ended the June quarter with more than $5.8 billion in cash. As I'll note in my third piece, Southwest is likely to use that heap of money as a key competitive advantage.

Just about every other domestic carrier is in a state of financial distress. So it is instructive to look at their current cash balances and their sensitivity to oil prices.

Even after a recent equity infusion, U.S. Airways (LCC Quote) is clearly the most troubled carrier. The carrier in on track to post more than $400 million in negative operating cash flow this year. Yet while other carriers can move aggressively to trim capacity to save costs, U.S. Airways has much less flexibility.