Airlines seeking bailout from European Union

Airline losses from the volcanic ash cloud climbed above US$1 billion Monday, and the industry demanded compensation from the European Union as officials agreed to let flights resume on a limited basis.

PARIS — Airline losses from the volcanic ash cloud climbed above US$1 billion Monday, and the industry demanded compensation from the European Union as officials agreed to let flights resume on a limited basis.

Airlines are losing as much as $300 million per day, with European companies like British Airways suffering the most. An umbrella group for the airline industry criticized European leaders’ handling of the disruption, which has grounded thousands of flights to and from Europe for the past five days.

“It’s embarrassing, and a European mess,” said Giovanni Bisignani, chief executive of the International Air Transport Association. The group complained that it saw “no leadership” from government officials.

“It took five days to organize a conference call with the ministers of transport, and we are losing $200 million per day (and) 750,000 passengers are stranded all over. Does it make sense?” Bisignani said.

Air transport officials said losses could run as high as $300 million a day, although most analysts expect the effect on U.S. airlines will be limited.

The disruptions caused by the ash cloud happened just as airlines were seeing demand pick up, particularly in the more lucrative business travel segment. Last year, the recession suppressed both leisure and business travel, causing the industry to lose an estimated $9.4 billion, according to the IATA.

Analyst estimates put air travel industry losses in Canada at up to $4 million a day.

British Airways said airlines have asked the EU for financial compensation for the closure of airspace, which began last Wednesday. BA’s London hub was among the first airports shut down.

“This is an unprecedented situation that is having a huge impact on customers and airlines alike,” said BA Chief Executive Willie Walsh. “We continue to offer as much support as we can to our customers. However, these are extraordinary circumstances that are beyond all airlines’ control.”

The airline industry has racked up $50 billion in losses over the last decade. The 9/11 attacks, epidemics of SARS and bird flu, increased security requirements, and the economic crisis have all been cited as causes for decreased revenues.

After the 2001 terrorist attacks, Congress gave U.S. airlines $15 billion in aid and loan guarantees, which may provide an example for European governments dealing with the volcano.

Pierre-Henri Gourgeon, the No. 2 executive at Air France-KLM, said his company is losing $47 million a day even as test flights indicated the routes were safe to fly.

“On all these flights, there hasn’t been any reported problem upon arrival,” Gourgeon said. “There isn’t a real risk. The precautions that have been taken are too restrictive.”

European Union transport ministers reached a deal Monday to divide northern European skies into three areas: a “no-fly” zone immediately over the ash cloud; a caution zone “with some contamination” where planes can fly subject to checks for engine damage; and an open-skies zone.

Starting Tuesday morning, “we should see progressively more planes start to fly,” EU Transport Commissioner Siim Kallas said.

European civil aviation authorities held a conference call Monday about potentially reopening airspace, and transport ministers of all 27 European Union members were conferring by phone and videoconference.

Dominique Bussereau, France’s transport minister, told reporters Monday that he had urged EU president Spain ever since Saturday to call the ministerial meeting immediately — but Madrid declined.

“Naturally, it would have been better if had taken place Sunday or Saturday,” Bussereau said.

The prospect of continued losses and flight cancellations dragged down shares of many airlines, although they rallied before European closing times. German carrier Deutsche Lufthansa AG fell 2.6 per cent in Frankfurt; Air France-KLM SA dropped 2.8 per cent in Paris and British Airways slipped 1.4 per cent in London.

Johannes Braun, an analyst at Commerzbank in Frankfurt, said for individual airlines, “the cost impact is roughly comparable to a strike.”

But Jesup & Lamont aviation analyst Helane Becker in the U.S. said it was possible that European carriers would file for bankruptcy protection as a result of business lost to the ash cloud. She said British Airways was among those in the most dire financial circumstances.

Becker estimated that the impact for U.S. airlines will be similar to those incurred from the February winter storms that cost Delta — the world’s largest carrier — about $65 million in revenue. United Airlines lost about $40 million in revenue.

Robert Herbst, an aviation consultant, estimates the five US airlines that fly to Europe — Delta, United, American, Continental and US Airways — are losing $22 million collectively for each day airports are shut down — one-tenth of the estimated loss among European airline.

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