"Global Aviation Eyes Swift Aid"

Tuesday, September 25, 2001

Global Aviation Eyes Swift Aid


NEW YORK/LONDON (Reuters) - U.S. airlines could see the first
installments of the Bush administration's crucial $15 billion bailout
package as early as Tuesday, as European carriers pushed for more aid
amid further bleak forecasts for the global aviation industry. 

Plunging oil prices brought some relief to the sector, which has been
struggling with steep declines in passenger traffic and higher security
and insurance costs since the Sept. 11 hijacked plane attacks on the
United States. 

The U.S. Department of Transportation said initial payments to the
nation's faltering airline industry could be as early as Tuesday. Over
the weekend, President Bush signed a bailout for $5 billion in cash and
as much as $10 billion in loans for the industry. 

The first payments will be based on carrier size measured in available
seat miles during the second quarter, while a second set of payments
will reflect capacity during August, said Bill Mosley, a Transportation
Department spokesman. 

U.S. House Democratic leader Richard Gephardt of Missouri also said on
Tuesday he wanted legislation to help tens of thousands of displaced
airline workers either as part of the proposed aviation security
measures or as a separate bill. 

More than 100,000 U.S. aviation jobs have been lost as airlines cut back
on scheduled services in the wake of the attacks. 

Aviation officials also moved to beef up security. The largest U.S.
pilot's union proposed to Congress on Tuesday that commercial pilots
carry guns in the cockpits as the last line of defense against
hijackers. 

Germany's flagship carrier Deutsche Lufthansa (LHAG.F) also said it
would assign sky marshals as European airlines moved to step up
security. German Transport Minister Kurt Bodewig declined on Tuesday to
provide details on how the marshals would operate or whether they would
carry firearms. 

STILL SOMBER MOOD 

Early signals of swift financial relief in North America echoed growing
calls for assistance for European carriers. The Italian government said
it would provide an aid package of 300 billion to 400 billion lire ($140
million to $190 million) for its airlines to help soothe the aftershocks
of the attacks. 

Still, the mood among mainline carriers remained somber. 

Analysts said the survival of Swissair Group (SWSZn.VX), another weak
carrier whose condition has become more serious since the attacks, was
in the hands of creditor banks. 

Chairman Mario Corti said late on Monday that if the company could not
get fresh equity within two weeks, it would no longer be ``economically
viable.'' 

Italian flagship carrier Alitalia (AZPIa.MI) also announced 2,500 job
cuts -- about 10 percent of its workforce -- and said it would reduce
its fleet and schedule. 

Belgium's unprofitable Sabena was locked in negotiations with its unions
over a restructuring plan that it has been trying to implement for
months. The Belgian government, which has periodically bailed out the
company over the years, said it would not give it any more money. 

BOEING SEES GROWTH, BUDGET CARRIERS BOOKINGS NORMAL 

In more positive news, Boeing (BA.N) Chief Executive Phil Condit said on
Tuesday that the aerospace giant saw areas of growth outside its six
business units despite the downturn that has crippled the airline
industry. 

Condit said he also saw growth in Boeing's space and communications
business. 

A leading aircraft maker, Boeing said on Monday it had not changed its
view that profits in 2002 would exceed those for this year. But the
manufacturer has downgraded the number of aircraft it expects to deliver
and has announced plans for 20,000 to 30,000 layoffs due to the attacks.


Rival Airbus said it planned no large-scale layoffs despite the sector's
slump. 

Among the brighter news for airlines since the attacks was a further 13
to 15 percent slump in oil prices which, combined with earlier declines,
left benchmark Brent North Sea crude 20 percent cheaper than it was
before Sept. 11. 

European budget carriers Ryanair Plc and Easyjet Plc also both issued
upbeat statements on their performance, reinforcing impressions that
no-frills airlines outside of the United States have suffered less than
mainline operators. 

BLEAK INDUSTRY FORECASTS 

But top airline trade group IATA forecast total international passenger
traffic for the second half of the year could be down 16 percent from a
year ago -- a catastrophe for a sector that can usually manage only thin
profit margins and can do little about its costs when business declines.


U.S. domestic traffic, at the heart of the aviation crisis, would see a
17.5 percent decline, the International Air Transport Association said
in Budapest, warning that the trend remained uncertain. 

``We're completely in the dark,'' association director Peter Morris told
an industry conference. 

Falls in demand are exacerbated by airlines' having planned to introduce
more capacity this year in the form of additional planes -- based on
aviation's traditional 5 percent annual growth. 

The cost of additional security is a further burden, and Lufthansa
proposed that the industry should standardize a surcharge in passing
that cost on to passengers. The airline said it was seeking an agreement
with other airlines on the surcharge. 

KLM Royal Dutch Airlines (KLM.AS) said on Monday it had imposed such a
surcharge, which also covered the cost of higher insurance. 

Canceling old insurance from Tuesday, global insurers capped renewed
third-party war and terrorism coverage at just $50 million covering
death or injury on the ground for airlines considered to be good risks.
Previously, airlines had been insured for up to $2 billion. 

The new figure was considered inadequate since most airlines have
unlimited liability for such injuries and damage. Without a stopgap,
carriers faced groundings on Tuesday. 

But governments, including more stepping forward at the last moment,
have offered to subsidize premiums or to carry the liability themselves,
at least until a better solution can be found with the commercial
insurers.

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