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Is Your Airline a Candidate for Bankruptcy?

The current travel industry slump is a mixed bag for consumers. On the upside, to stimulate demand, airlines have [% 2818154 | | discounted ticket prices %], and hotels are offering [% 2811432 | | generous bonuses %]. The downside is the prospect of widespread industry destabilization leading to bankruptcies and consolidation.

The gloom-and-doom scenario is straightforward. As the airlines continue losing money, their cash-on-hand is depleted; and their deteriorating prospects make lenders and investors less likely to provide more financial support. It’s a downward spiral that can only go so far before an airline is forced into seeking protection from creditors in Chapter 11 bankruptcy.

So, which airlines are at risk?

Handicapping airlines’ chances of survival is a matter of the utmost seriousness. Predicting an airline’s demise can easily be self-fulfilling if travelers react to the negative outlook by shifting their business to another carrier. At stake is not just a faceless corporation but the jobs of tens of thousands of airline workers.

So I leave the predictions to the financial analysts, whose job it is to closely follow the airlines’ financial ups and downs.

An Associated Press article in USA Today includes projections from two such analysts. At the top of their bankruptcy watch list is [[US Airways]], followed by [[American Airlines | American]].

In both cases, the issue is whether the airlines will have access to enough cash to remain solvent through the current travel downturn. And of course no one claims to know just how long this recession will last.

On a positive note, the analysts cited three carriers whose prospects are better: “Seattle-based [[Alaska Airlines | Alaska Air Group]], Atlanta-based [[Delta Air Lines]] and Houston-based [[Continental Airlines]] are considered by analysts to be in stronger financial positions.” I’ll go out on a limb and add a fourth airline to that list: [[Southwest Airlines | Southwest]].

There’s no cause for alarm or action in the short term. At this point, no one expects the larger airlines will run short of cash before the first part of 2010. So for now, it’s wait and see. But it’s worth remembering that while we wait, the clock is ticking.

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