By Dena Aubin
WASHINGTON (Reuters) - The U.S. airline industry still has too many planes and too much debt to be profitable over the long term despite some recent improvement in revenue and fuel costs, fixed-income analysts said on Tuesday.
"We have too many airlines and too many hubs," said Roger King, analyst at independent research service CreditSights, speaking at the Reuters Aerospace and Defense Summit in Washington. "When you look at the industry, it's really one big overhead."
Despite multiple bankruptcies in the sector, debt has not been appreciably reduced as much of it is in the form of leases or secured debt, which cannot be erased in a bankruptcy without giving back aircraft to lenders, King said.
"The legacy carriers are basically pillars of debt with a little bit of equity optionality on top," King said.
U.S. airlines are expected to chalk up losses of up to $10 billion this year after straining under high fuel costs, large pension burdens and keen competition.
Some airlines were able to raise fares this year to recoup part of their fuel costs and more fare increases could come if capacity is reduced but it is not clear whether demand will hold up in the face of rising fares, King said.
Because so much damage was inflicted on airlines' balance sheets over the last four to five years, "it's going to take an extended period of recovery to really make a dent in the heavy debt loads," said William Warlick, senior director in corporate finance for Fitch Ratings.
Airlines will not have much opportunity to reduce debt next year other than meeting payments on maturing debt, said Warlick. Continued...
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