Simon Calder: The Man Who Pays His Way

Those airlines aren't bankrupt, they're just breathing easy
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The Independent Travel

On 29 May 1979, after several fatal crashes involving DC-10s, all these aircraft were grounded worldwide. You can trace the subsequent collapse of Sir Freddie Laker's no-frills airline to this catastrophic start to the summer season.

On Wednesday, there was no threat that the Northwest Airlines DC-10s heading for Britain would be grounded, even though the carrier had filed for Chapter 11 Bankruptcy. Nor will Delta's transatlantic flights from Gatwick and Manchester end any time soon, even though the beleaguered airline made the same move within the same hour.

Chapter 11 is a legal condition designed to head off bankruptcy. It allows companies in poor financial state breathing space, and permits them to renegotiate everything from wage deals to supplier agreements. So popular is Chapter 11 status among US airlines that it has become known as "The Carwash". An ailing carrier spends months or years getting financially cleaned up, and emerges looking as good as new. Or does it?

The magic worked for Continental Airlines, at least for a while. Eastern and Pan Am, however, went from Chapter 11 bankruptcy to the real thing. And there are many airlines inside and outside the US baying for more blood.

Even before September 11, the American aviation industry was a financial mess. Giants like American, United and Delta had become bloated and inefficient, their preposterous costs sustained only by the willingness of some travellers to pay silly prices. After the attacks, fares and passenger numbers went into free-fall. Rational economics implied that one or more big airline should simply go bust, but no one could ever accuse US aviation of behaving in accordance with the laws of the market.

Billions of dollars were pumped in by the federal government, ostensibly to defray extra security costs, and to help with restructuring. British Airways, Virgin Atlantic and many other airlines cried foul, but Washington took no notice. For a healthy industry, one or more of America's "legacy" carriers should have been allowed to die rather than being kept on a financial life-support machine. This would allow relatively young, innovative airlines like Southwest or JetBlue to thrive. Instead, these dinosaurs have been allowed to blunder on.

SHOULD YOU worry if you are holding a ticket for Delta or Northwest? Probably not. They stress that operational life continues as normal. "Customers can continue to travel on Northwest Airlines with confidence". Delta promises: "We are operating our full schedule of flights." And your frequent-flyer points are safe, they say.

Indeed, I shall be paying extra attention to the deals offered by both airlines. What carriers in "The Carwash" crave is a steady supply of cash. Historically, Northwest has undercut the rest of the market: a decade ago, the airline offered a £275 one-way from Gatwick to Sydney that meandered from Sussex to Boston to New York to Osaka in Japan before reaching Australia some days later. Delta, as you might expect from the world's third-largest airline, has an enticing range of destinations via Atlanta and Cincinnati that may now open up at lower prices.

WHILE YOU plan your next bargain getaway, spare a thought for the airline executives who are impatiently drumming their fingers, waiting for a sizeable US airline to go bust. If and when it happens, a slew of departure gates and slots will suddenly become available. The vultures are circling, waiting for the richest pickings. But the waiting is infuriating - especially for Fred Reid. Eighteen months ago, he was appointed as boss of Virgin America, Sir Richard Branson's endeavour to weave the Virgin magic on the US domestic airline industry. Flights, we were told, would begin early in 2005.

The new carrier's main hub is San Francisco, or at least it would be if Virgin America had some aircraft, routes and customers. But at least Mr Reid can pass the time with a more profound understanding of the difficulties facing Delta: his last job was as the frail Atlanta-based airline's president.

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