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For the already struggling airline industry, last week’s terrorist attacks on the World Trade Center and the Pentagon will now result in an onslaught of consolidations, bankruptcies and, of course, massive litigation. The nation’s two largest carriers, UAL Corp.’s United Air Lines Inc. and AMR Corp.’s American Airlines Inc., also face the threat of being held liable for the disasters. United and American Airlines each had two planes hijacked by terrorists in last week’s attacks. And CNN reported Tuesday that United plans to cut 20 percent of its 100,000-member work force, or about 20,000 jobs. Both AMR and UAL saw their stock prices head up Tuesday after being battered in trading Monday. AMR closed up $2.16 at $20.16 while UAL finished up $2.18 at $19.68. Still, it is too soon to say if the airlines, their insurers or someone else will be held responsible, said Lee Kreindler, a New York aviation lawyer. Kreindler, who is leading a plaintiff’s group suing Libya over the Dec. 21, 1988, bombing of Pan Am flight 103 over Lockerbie, Scotland in which 270 people were killed, said someone must pay. “The bottom line is I believe that families will be able to recover damages for the losses that they have suffered,” he said. “But it is too early to say what or who will become the most important defendant in the case.” In fact, it is unclear just how many claims could be brought against the two carriers and their insurers. Potential plaintiffs include the families of those killed both on the flights and in the World Trade Center and Pentagon. In addition, possible claims could come from those injured on the ground near the WTC and business and property owners who suffered damage. The terrorists themselves or the nations that sheltered them are also potential defendants. Seven days after the attacks, most domestic carriers have resumed at least some of their operations, but at reduced schedules. During the Gulf War, carriers kept all of their planes in the air and used reduced fares to lure back passengers, said Adam Pilarski, an analyst with Avitas Inc. of Chantilly, Va. That strategy failed, resulting in a number of bankruptcies. “Traffic fell dramatically during the Gulf War, when there was a perceived terrorist threat,” Pilarski said. “Now, we have an actual hit, so you have to imagine the impact will be even more severe.” Even before last week, fuel and labor costs for the commercial airline industry were rising. Coupled with slowing demand, some industry analysts are now predicting domestic losses as high as $5 billion, twice the figure of earlier estimates. The day after the attacks, Midway Airlines Corp. announced it would shut down entirely. The Morrisville, N.C.-based carrier, already operating under bankruptcy protection, said it expected demand for air transportation to decline sharply. By Monday, most carriers had concluded similarly, reducing their schedules by at least 20 percent. Continental Airlines Inc. said it would lay off about one-fifth of its work force, or 12,000 employees, and America West Inc. cut about 2,000 jobs. Additional layoffs by other carriers are anticipated. Experts said that those cutbacks should provide some relief. Airlines are also counting on relief from the U.S. Congress to lessen the blow. Gordon Bethune, Continental’s CEO, said over the weekend that the industry is “in an unprecedented financial crisis” and needed “immediate Congressional action to survive.” He estimated that Continental is losing about $30 million a day and without assistance, could have to file for Chapter 11 bankruptcy protection by mid-October. Initial efforts to pass $15 billion in aid and loans failed to get through the House of Representatives over the weekend. But Transportation Secretary Norman Mineta said he hoped to have a bailout package ready for Congress by next week. Lobbyists for the airlines have also urged Congress to consider limiting their liability. Even if the government does assist, it might not be enough to keep all airlines viable, analysts warned. One candidate being mentioned for consolidation is US Airways Group Inc., which said Monday it was cutting about 23 percent of its capacity and 11,000 employees because of the slowdown. Even before the attack, the Arlington, Va.-based carrier had expected to lose $160 million during the third quarter. US Airways has been floundering since government regulators blocked its planned $12.3 billion deal to be acquired by United Airlines parent UAL Corp. earlier this year. Plagued by some of the highest labor costs in the business and undercut by budget carriers operating in its markets, some observers had questioned whether the company could endure even before the terrorist attack. “They had only a slight chance of surviving on their own before September 11,” said one observer who asked not to be named because he has ties to the carrier. “Now, they have none.” Representatives from US Airways and other carriers did not return calls seeking comment. No deal for US Airways is likely until questions about Washington, D.C.’s Reagan National Airport are resolved, analysts said. Government sources, citing the airport’s proximity to the Pentagon and other buildings, have speculated that the airport may never be allowed to return to its full, pre-disaster capacity. While many airlines operate at National, no airline relies on it more than US Airways, analysts said. The airline is the airport’s biggest user, accounting for almost 30 percent of its takeoffs and landings. National is also a cog in US Airways’ lucrative shuttle service connecting Washington to New York and Boston, long considered the airline’s crown jewel. Without the airport, the airline might not be able to generate the revenue necessary to avoid bankruptcy. “The closure of [National] may have just shifted US Airways into goodbye gear,” said Michael Boyd, an Evergreen, Colo.-based aviation consultant. And without National, there might not be any reason to buy US Airways. In addition to US Airways, industry observers count Continental, America West, Northwest Airlines Corp. and AirTran Airways Inc. as the industry’s most vulnerable companies. Recent events might also make it easier to get a merger past antitrust review. Although officials thwarted US Airways planned merger with United earlier this year, the government did allow bankrupt Trans World Airlines Inc. to be swallowed by American because TWA was deemed a “failing firm.” Observers said that given the circumstances, a similar scenario involving other airlines is now possible. “I don’t think that recent events mean that mergers will get a free pass, but I do believe that antitrust agencies will be more likely to give companies the benefit of the doubt,” said Kevin Arquit, an attorney with Clifford Chance Rogers & Wells in Washington. “I think they will be more willing to let the markets decide which mergers make sense.” A Department of Justice spokeswoman did not return calls seeking comment. But Mark C. Schechter, an attorney with Howrey Simon Arnold & White in Washington, said: “I am not sure I see how allowing a merger would turn red ink into black ink. If you went to United today and asked them if they would like to own US Air right now, I am not sure what they would tell you.” Copyright (c)2001 TDD, LLC. All rights reserved.

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