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 youtestified 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, Idon't think there is any other party out there who could help preserve thisindustry.
Aside from financial aid, which needs to happen very quickly, the firstthing that the government needs to do is to restore confidence in the airtransport system, and that may involve federalization of security and othermeasures. That is the most essential thing. Absent that, this business isdead.TSC: Do you believe that the $24 billion that the airline industryis seeking from the government is sufficient? Gibson: They are now seeking nearly $18 billion. None of us knowsfor sure. All of us are making projections based on past events -- the GulfWar, Pan Am 103. While they help give us an indication, none of them arecomparable to the events that happened last week. Certainly the airlines'traffic results since the system started up again are much more depressedthan one might have expected. TSC: What about the $5 billion that President Bush is giving to theindustry 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), will run out of cash. The financialmarkets are closed to them because of the liability issue now facing theentire airline industry. Unless there is some kind of shield provided bythe government to protect airlines from third-party claims, no one in theirright mind would lend money to the airlines. The second problem you've got is confidence in the business goingforward. We don't know when passengers will return. It may not be soonenough. So every airline in the nation is at risk of going bankrupt. Giventhe fiduciary responsibility of a lending institution, who in their rightmind would lend money to a business that they can't predict will be arounda month from now? The answer is, they won't. That's where the loan guarantees are needed. There is no privatecompany that can afford the risk, because the risk is unknown. TSC: What's going to happen to the aircraft that are in production now atBoeing (BA) 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.