IATA Chief Says Labor, Credit Problems Lurk

Airlines in the United States are counting down the days of 2007... looking forward to claiming this year as their first profitable one since 2000. But while the champagne may already be on ice, the head of the International Air Transport Association cautioned US carriers not to celebrate too much.

Reuters reports in a speech this week to the Washington Aero Club, Giovanni Bisignani (right) warned the bubble could burst due to a number of factors, in particular labor unrest and credit woes.

"Unfortunately, as the industry shows even fragile profitability, labor starts to look for a free lunch. Already we've seen strikes from France to Japan," Bisignani said Wednesday, speaking of upcoming labor negotiations for several carriers. "Several key US contracts will be negotiated next year -- if labor pursues an agenda as an irresponsible adversary, our common future is limited."

As ANN has reported, labor groups such as the Allied Pilots Association, the union for pilots at American Airlines, have made no secret their intention to take advantage of the current financial upswing in upcoming contract renegotiation talks.

APA says its pilots took it hard on the chin -- and even harder in their wallets -- in 2003 to keep the airline out of bankruptcy -- and they now want some of that back, especially as several executives were awarded lucrative bonuses earlier this year.

Today, labor costs represent 23 percent of total costs for airlines nationwide. That's a high number... but it's actually five percentage points less than in 2001, before the 9/11 terror attacks that spurred years of financial downturns, and restructuring at many airlines.

Bisignani also warned US carriers -- which for the most part have resisted upgrading their fleets, despite a global surge in airline orders -- may find it harder in 2008 to order new planes. Airlines reluctant to order in 2006 and 2007, due to economic uncertainty brought on by high fuel prices, may find manufacturers unable to fill any new orders for several years.

"Lenders will be cautious and even if orders are placed today, production lines at Boeing and Airbus are virtually full for the next three years," Bisignani said, adding credit woes among US carriers also throws "a shadow over the industry."

About 1/3 of the US airliner fleet is over 25 years old -- and while safety hasn't been compromised, those older models are far less efficient than newer planes. That's a big risk factor, Bisignani said, with oil prices pushing $100 a barrel.

With continued volatility in many areas, Bisignani warned airlines to not grow overly-jubilant.

"The industry is out of intensive care, but the industry is not financially healthy," Bisignani said, according to The Associated Press.

FMI: www.aeroclub.org, www.iata.org