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The Airlines Could Show Big Three the Way

The airline industry thinks the automakers are nuts.

After all, while "bankruptcy is not an option" has become a mantra for automakers, the legacy airlines expect to post profits in 2009, largely because recent bankruptcies prepared them to deal with the troubled economy.

Auto executives reiterated their stand at a Senate Banking Committee hearing Tuesday, with General Motors (GM - Get Report) CEO Rick Wagoner proclaiming that "80% of consumers would not consider buying a car from a company in bankruptcy."

Chrysler CEO Bob Nardelli agreed, while Ford's (F - Get Report) chief, Alan Mulally, generally stayed away from the topic. "We believe we have sufficient liquidity to make it through this slowdown," he said.

Between 2002 and 2007, four of the six legacy carriers went through Chapter 11 bankruptcies, and all four emerged better off.

Delta (DAL - Get Report) recently merged with Northwest to form the world's biggest airline. US Airways (LCC) joined forces with America West to create a carrier far more successful than either was individually.

UAL (UAUA) failed in a seemingly endless, almost comical quest to find a merger partner. But it did shed $7 billion in annual costs, including more than $3 billion in labor expenses.

The airlines' experience earlier this decade offers a lesson for the automakers, says Michael E. Levine, a senior lecturer at New York University School of Law and a former airline executive.

For decades, legacy carriers and automakers dominated their respective markets, facing virtually no competition. The airline industry was regulated, and the auto industry might as well have been. When lower-cost providers came along, the existing major players were so entrenched they couldn't cope.
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LCC $0.00 0.00%
DAL $41.43 -3.47%
F $13.31 -0.89%
GM $30.59 -2.11%
CAL $24.90 -0.44%


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