Scary Scenarios

April 2003

The Air Transport Association's recent report, Airlines In Crisis: The Perfect Economic Storm, is not a light read. The 34-page document was released prior to the war in Iraq, but used the pending conflict in a contrast/comparison to what happened to the airline industry in the first Gulf War. ATA predicts massive economic damage with this war and this economic damage could be so severe that "there is serious risk of chaotic industry bankruptcies and liquidations" and that "the prospect of a forced nationalization of the industry is not unrealistic." In submitting this document, ATA President and CEO James C. May offered that the report reviews the past and examines the impact of a pending war, but that without government action, the outlook for the industry is bleak.

ATA describes an economic crisis unlike anything the industry has previously experienced and cites the industry's high fixed-cost structure, conditions of the broader economy, as well as the post-9/11 decrease in the numbers of the flying public as critical causes. Four scenarios, ranging from "Most Likely" to "No war" to "Active War" to the "Worse Case Scenario," are outlined in the text.

As the U.S., and the world, are involved with the war in Iraq, the "Active War" scenario is now in play. ATA offers an analysis projection of "a 15 percent traffic decline during one quarter of 'active' war activity." A recent article in The Wall Street Journal discusses what might be the Bush administration's approach to relieving this problem. While the article offers that the Bush administration is looking at a financial rescue of sorts, industry officials believe that this type of effort won't do enough to keep more carriers out of bankruptcy court.

What does it mean for the aviation ground support industry? We all know that much of our success hinges on the success of the airlines. Certainly, we want a robust and revenue-generating aviation industry, but aviation ground support equipment manufacturers as well as ground service providers will need to stay on top of this story now that the "active war" scenario has risen to the top spot on the list. Hopefully, the sequel will be better.

Thanks for reading.

Michelle Garetson

Editor's contact information: editor@gsetoday.com or call 920-563-1622