Airing War Fears

Would a war in Iraq deal a crippling blow to America's already limping airline industry? According to a new study commissioned by a major airline and obtained by TIME, half of America's large airlines could be bankrupt within a year if war — even a brief one — breaks out in Iraq.

The report's author, Mark Gerchick, a former top official at the Department of Transportation and now an independent consultant, notes that during the 1991 Gulf War, airline bookings dropped 8.5%, which helped drive even perennially profitable Southwest Airlines into the red. But the industry entered that conflict in much better shape than it is in now. The 18 months since Sept. 11 have been a wartime economy for the airlines, says Gerchick, and the jolt of another Gulf War would keep more travelers grounded and force high fuel prices even higher.

Gerchick estimates that the industry might lose up to $9 billion this year — more than four times what it lost in 1991. No wonder that most major carriers are seeking bankruptcy experts, including American Airlines, which has hired lawyers, industry sources say.

Two weeks ago, American, the world's largest airline, announced that it lost a record-setting $3.5 billion in 2002--a loss even larger than the one posted by bankrupt United. In a classic airline-industry understatement, American called its losses "unsustainable."