ALEXANDER CAMPBELL & DAVID LEARMOUNT / LONDON
Security specialist warns industry of dangers of "over-reaction or paralysis" as prospect of war in Iraq intensifies
After the worst two years in their history, airlines around the world are preparing themselves for the unknown effect of a new war in the Gulf. They face harm to both their operations and commercial prospects and the indirect impact of the war on the global economy.
Operationally, risks include airspace closures, threatened or actual attacks on aviation, trapped aircraft, crew and passengers, and the effects of anxiety, says security specialist Ian Jackson of Airlock Partners. He warns carriers must avoid "over-reaction or paralysis".
Owen Highley, a consultant at London aviation law firm Beaumont, says that, commercially, the greatest risk is to cashflow as ticket sales fall. Added to this are the risks of higher insurance and security spending, especially if new terrorist threats appear. Airline lobbyists around the world have still not managed to persuade governments to pay for the increased security brought in after 11 September. Nor will governments be keen to provide emergency insurance coverage again.
The best defence against cash-flow problems is a strong reserve, and British Airways' chief executive Rod Eddington has set aside £2 billion ($3.3 billion) in cash reserves to enable the airline to survive even a "prolonged" post-war recovery period. But raising cash will be difficult for US carriers. Credit ratings of major carriers are low, and many have little unused collateral.
Analysts at the UK Institute of Directors and the US Center for Strategic and International Studies agree that a 30- to 60-day war would be economically neutral and the net effect on the economy could be positive. But a longer war could bring traffic down, warns Neil Hampson of consultancy Roland Berger, who forecasts "little effect" on air traffic of a brief war, but warns a "severe downturn associated with a prolonged ground campaign" could last up to two years.
Airlines could face a war-induced economic crisis, possibly caused by a crisis of confidence after another terror attack, or an oil price hike.
However, other US airlines are unlikely to follow United Airlines into Chapter 11. JP Morgan senior airline analyst Jamie Baker says: "Assuming reasonable US success in Iraq, it is unlikely that bankrutpcy courts will get any busier than they already are."
Source: Flight International
