U.S. Airlines Hard Hit by Surging Fuel Prices Likely to File Chapter 11
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Photo Credit: Cubbie_n_Vegas
A number of U.S. carriers that include United Airlines parent UAL Corp. incurred losses in New York trading, taking a benchmark stock index to its lowest week since the terrorist attacks on Sept. 11, based on speculations that the risk for bankruptcy is increasing.
The sudden rise this week by 2.3 percent (86 percent 12 months) in jet fuel prices has been stripping the airlines of cash and prompting analysts to increase their loss estimates’ scope.
“We view the value of the stocks as primarily coming from the chance that fuel prices plummet before the carriers must seek bankruptcy court protection. This is certainly one possible outcome, but we are not holding out much hope,” said analyst Kevin Crissey, UBS Securities LLC.
“If [jet fuel] prices continue to go higher, some of the airlines could be at risk of bankruptcy by early next year,” according to Philip Baggaley, Standard & Poor’s analyst.
The biggest US carriers may be in for a $7.2 billion operating loss in 2008. Northwest Airlines Corp., US Airways and AMR are most definitely the ones who will seek protection under Chapter 11 bankruptcy.
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