hr: Money

Photo Credit: woinary

If you’re thinking about investing in an airline, think again. The flagging airline industry has been struggling to keep its wings above the clouds for nearly a decade now. Plagued mainly by rising fuel cost, airlines were forced to obtain credit from lenders and investors at exuberant rates.

The vicious cycle continues with the ever increasing oil prices and the sudden decline in value of the airlines’ badly-maintained collaterals. This resulted in credit crunch, where lenders and investors were forced to make it difficult for airlines to obtain financing. You see lenders do this by increasing interest rates and/or requiring additional collateral.

The airline industry has been ailing for years, but the big blow came during the 9/11, which almost literally shattered the industry to pieces, and has not recovered from that incident since.

Take the case of Delta Airlines Corp. and Northwest Airlines Corp., where both parties agreed to merge in a $3.63 billion stock deal. These two airline giants will pool in their resources together to obtain about a billion dollars in new revenue and savings just to survive the crunch. The credit crunch made raising revenues and financing more expensive, and the condition was made worse by the decline in consumer demand due to the weak economy.

Will the airline industry ever recover? Will the merger of Delta and Northwest save these companies from future decline? There have been a lot of things done to rehabilitate airlines in the recent past, but only a handful survived. Why? It’s because no one has direct control over oil prices. And how can you convince a frightened nation that it’s safe again to take the plane after that dreadful tragedy?

As an investor, you would want to put your money where it can safely grow, and investing in airlines is just not safe anymore.

Some authorities believe that the two airlines together could survive and become competitive even beyond the US. However, the risks are high and chances are, in the near future, the evil downward spiral would again occur. But who knows, maybe not.