Troubled Air Transport Industry

Report Outline
Airlines' Economic Plight
Outlook for Plane Makers
Constraints to Growth
Special Focus

Airlines' Economic Plight

The friendly skies have become increasingly troubled for commercial aviation in the United States and throughout the world. Depressed economic conditions have cut into airline traffic while operating costs have spiraled upward. For the past two years, airlines have been awash in red ink, and industry experts see little hope for a dramatic upturn in the near future. Two big international airlines have gone belly up this year alone. British-based Laker Airways folded early in the year, followed in May by the spectacular collapse of Braniff International.

Airline troubles have spilled over into the aircraft manufacturing industry as well. Shrinking airline profits and high interest rates have cut into sales of both new and used aircraft by the two remaining U.S. commercial jet airplane makers, Boeing and McDonnell Douglas, and by their competitor, Airbus Industrie, a multinational European airframe consortium. Declining aircraft sales could have a serious impact on the U.S. balance of trade. Exports of civil aircraft, engines and parts reached $13.9 billion last year, out of total aerospace exports of $18.1 billion, and exports represented 72 percent of industry sales. While not as significant as exports of agricultural products, which topped $40 billion, aerospace exports racked up a healthy $13.1 billion trade surplus in 1981.

Mounting Losses of Commercial Carriers

U.S. scheduled airline members of the Air Transport Association, the domestic airlines' trade association, suffered losses of $222 million in 1980 and $421 million in 1981. In the first quarter of 1982, the 11 major airlines—those with annual revenues of more than $1 billion—posted the worst performance in U.S. aviation history. Their net losses amounted to $583.3 million for the January-March period. A leading aviation trade journal headlined an editorial “Carnage in the First Quarter,” noting that the losers included Delta Air Lines which “had not shown a loss in 25 years.” In the second quarter, losses were smaller ($34.9 million) but still substantial.