United States compensation package worries european carriers
LLOYDS LIST 1st October 2001
UNITED STATESNCOMPENSATION PACKAGE WORRIES EUROPEAN CARRIERS
By ROGER HAILEY
European all-cargo carriers will keep a close watch on the Dollars 500m compensation fund available to their US counterparts in the wake of the terrorists attacks on New York and Washington.
Mixed with sympathy for their US colleagues is the privately expressed fear that Congressional funds will bolster a weakened US all-cargo industry while European airlines receive nothing from Brussels.
'We are keeping a low profile at the moment,' said one European air freight industry observer who asked not to be named. 'This is a sensitive time and we don't want to be labelled anti-American. It would not help matters.
'However, this US action is clearly a state subsidy for their airlines, something that is illegal in Europe. It would be inappropriate to say anything in public now, but at some stage we will have to subject it to cool analysis.' Other contacts approached by Lloyd's List expressed the same sentiments. They noted the compensation claims but will wait for world events to settle down before making a formal comment.
US freighter airline Atlas Air, with six jets already grounded due to the economic downturn, and parcels giant FedEx have both confirmed that they are in negotiations with Washington about compensation.
UPS has still to make a decision on whether to apply. However, it issued a third quarter earnings warning late last week, putting a Dollars 130m tag on disruption caused by the terrorist attacks.
A statement said: 'UPS was on track to attain results within its guidance for the quarter. However, during the week of the attacks, volume declined more than 10% as shippers across the country reduced their activity.
'Although it has rebounded, volume is not yet back to early September levels, particularly in the air operations and internationally.' Domestic US air freight and international traffic were already in severe decline before the events of September 11.
US air fleets were grounded for two days following the terrorist outrages, when North American air space was closed to commercial traffic.
Congress acted swiftly to agree a Dollars 5bn cash compensation package for its passenger airline industry to meet the immediate crisis and also forecast losses for the next four months.
A further Dollars 10bn is likely to follow in government-backed loan guarantees for a key US industry facing severe financial problems.
The scale of the fresh crisis facing the US aviation industry can be judged by how United Airlines, American Airlines, Boeing and others axed more than 100,000 jobs in four days.
In that Dollars 5bn compensation package from Congress was the Dollars 500m allocated to US cargo carriers.
For freighter operators, the payouts will be based on revenue ton miles in August this year. They will also receive compensation for consequential losses up to December 31.
Claims originally had to be filed with Washington by Wednesday last week but the deadline has been extended.
Philip Baggaley, of US debt ratings agency Standard and Poor's, said: 'Airlines are expected to continue to incur heavy, if diminishing, losses through the remainder of this year, due mostly to depressed traffic levels. Even without the terrorist attacks most airlines were likely to have at least moderate losses during the fourth quarter.' One drawback in the US compensation plan, based on revenue ton miles, is that it will be linked to the carrier's financial figures forAugust.
Usually a quiet month for air cargo, August was preceded by six months of dramatic decline. US domestic air freight and express tonnages for the leading carriers was down 9.2% for the year to July, with international traffic down 2.3%.
The government cash is payable to registered aircraft operators and not to industry subcontractors, such as freight forwarders. Said a Department of Trade spokesman: 'Payments to air carriers will be subject to adjustment, audit and refund as may be deemed necessary.
'In the event that the compensation to which an air carrier is finally entitled is less than the amounts disbursed, the air carrier will be required to refund the overage.' Copyright 2001 Lloyds List. Source: World Reporter (Trade Mark) – FT McCarthy.
