Can U.S. Airlines Avoid a Fresh Round of Bankruptcy Filings?

The Wall Street Journal raises the prospect of new bankruptcy filings by major US airlines by this winter, unless demand picks up. “Some carriers may have no choice but to seek protection from creditors this winter, when cash flow typically dries up,” the Journal reports.

A quick scan of Alacra Street Pulse shows that Associated Press reporter David Koenig raised this issue on June 12. He noted that airlines are still benefiting from the cost-saving effects of bankruptcies during the last downturn.

United (NYSE: UAUA) , American (NYSE: AMR) and US Airways (NYSE: LCC) are the most vulnerable among large carriers, according to credit-rating agencies and Wall Street investment houses, the WSJ reports.

While he doesn’t rule out one or more carriers filing as soon as this fall, Philip Baggaley, a debt analyst for Standard & Poor’s Corp., told the WSJ that “the more likely scenario is that they will manage to scrape by again.” He adds, though, that “there’s not a lot of room for error.”

Fitch Ratings analyst Bill Warlick said “The sheer collapse in unit revenue is pretty much unprecedented.” Fitch recently cut the corporate credit ratings of Delta (DAL) and United, pushing them deeper into speculative territory.

CreditSights recently offered a negative opnion on UAL’s new notes backed by airplane parts

With unencumbered collateral drying up and air traffic liability below historical levels, liquidity issues loom.

The nine biggest U.S. air carriers, including Delta Air Lines Inc., American Airlines parent AMR Corp. and United Airlines parent UAL Corp., may have a combined quarterly loss of $1 billion, estimated Michael Derchin, an analyst at FTN Equity Capital in New York. Derchin said he previously expected a $600 million loss.

TheStreet.com recently reported that “Airlines are trading as if headed for bankruptcy this year,” Avondale Partners analyst Bob McAdoo wrote.

“Demand remains putrid,” Kevin Crissey, an analyst at UBS Securities LLC in New York, wrote in a June 25 note to clients.

Bloomberg reports he lowered his estimates for earnings or losses and stock price targets Monday for the 10 U.S. carriers he follows, including Delta, AMR, UAL and US Airways.

Airline revenue patterns may be “about as bad” for June, July and August as they were in May, Crissey wrote.

Comments

[AirBoss:]

If they were to, with 1-2 exceptions, good luck with DIP finance.

More likely, selected pre-arranged 11s/asset acquisitions to fund stubs, and in the absence thereof, liquidating 7s.

Jul 13 12:56 PM