Use Threats, Deadlines To Deal With Financially Troubled Carriers

The money-lending industry is cracking down on the passenger-flying industry and the result could be deadly for airlines already in or headed for bankruptcy.

"There is simply no patience for the industry not to fix its own house," said Delta CFO Michael Palumbo, whose own company flirted with bankruptcy earlier this year. He was quoted by the New York Times.

The sad, simple truth is, the financial industry, which ultimately has a choke-hold on the airlines, is now willing to do what it's seldom done in the past: let some airlines crumble into obscurity a la Braniff and Eastern.

Sure, after 9/11 there was a lot of goodwill surrounding the commercial airline industry. Lenders, regulators and Congress were all sympathetic and willing to help an industry perhaps hardest hit by Osama bin Laden's terrorist attacks. But that was then. This is now.

Late last month, a group of United Airlines leaseholders tried to repossess 14 aircraft -- a move only stopped by the judge in charge of United's bankruptcy. Indeed, Henry Hubschman, president of GE Aviation Financial Services, has set the tone for the industry when he told the Times, "We can flex our muscles by moving our assets."

That's just what GE did with US Airways -- took back 25 aircraft. That, however, was more of a win-win because it freed up $140 million in much-needed capital at the twice-bankrupt carrier. But GE also laid out a timetable, demanding US Airways meet certain deadlines that require US Airways to exit bankruptcy by June.

For many industry leaders, it's nothing less than heartwrenching. Take the ATA bankruptcy, for instance. Even the deal George Mikelsons struck with low-cost-carrier AirTran has been sidetracked by bankruptcy court provisions requiring the judge entertain competing bids for ATA's gates and flying stock.

"What has happened to this industry is unprecedented. Nobody thought it would be this bad for this long," Mikelsons told the Times. If he loses control of the airline, he said, "I will feel like I sold my child into slavery."

FMI: www.nata-online.org