By DAVID MOON, Moon Capital Management
It's bad enough when there is one little boy who constantly cries
'wolf.' Imagine an entire neighborhood of little boys crying wolf, while
at the same time setting out food for the wolves.
That is the airline industry. Airlines regularly warn of their
impending doom, while often acting in ways that actually bring about that
This past Monday, Delta Air Lines warned that it might have to file for
bankruptcy if its pilots' union didn't make certain salary concessions. A
few months ago, someone related an experience to me. She was in a meeting
with Delta executives discussing distribution systems. The Delta
executives warned the meeting attendees that they would likely issue a
bankruptcy warning this summer, but no one should worry; it was all part of
their negotiation strategy with the pilot's union. 'Wolf' anyone?
It's not just Delta; it's almost the entire airline neighborhood.
A year ago, American Airlines wrestled wage concessions from three major
unions after threatening to file for Chapter 11 bankruptcy without the salary
cuts. The company had just announced a loss of a billion dollars for the
first quarter of 2003.
US Airways, which emerged from bankruptcy in 2003, is now threatening another
bankruptcy filing if it doesn't get employee wage concessions.
Don't forget, these companies received $15 billion in federal financial
assistance following the 9/11 attacks. A year later, the industry went
back to the feds asking for another $9 billion. The airlines are money
addicts and the government is an enabler.
Local governments are as enabling as the feds. San Francisco
International Airport just cut its landing fees in an attempt to help
already-bankrupt United Airlines
In additional to financial bailouts, politicians are willing to help the
airlines with their negotiating strategy. Florida Congressman John Mica,
chairman of the House Aviation subcommittee, suggested that 'the best thing that
could happen to the large US carriers is being forced into bankruptcy,'
acknowledging it would increase their negotiating leverage with employees.
For every airline that threatens bankruptcy, however, it seems another two or
three actually file for protection.
The problems aren't just limited to well-known airlines or just those in the
U.S. Current bankruptcies include Royal Tonga Airline, Armenian Airlines,
Russian Vnukovo Airlines, Hawaiian Airlines, Las Vegas-based National Airlines,
Belgium's Delsey Airlines, Trillium Air, Pem-Air Limited and Brussels-based
Last year, pilots around the world celebrated the 100th anniversary of the
Wright brothers' first flight at Kitty Hawk, NC. On December 17, 1903, the
aviation industry was born. Since that day, the airline industry has, in
total, failed to produce a profit. Since inception, it has posted a net
With the exception of Southwest Airlines (which is such a different creature
that it warrants an entire column), I cannot imagine why anyone would commit a
long-term investment to this industry, except as a result of high-flying ego or
stupidity. Either that, or they are drawn to little boys and
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).