Magazine article American Banker

Assessing Lenders' Exposure to Airlines

Magazine article American Banker

Assessing Lenders' Exposure to Airlines

Article excerpt

Loans to the beleaguered airline industry may be the latest credit problem facing commercial lenders, though analysts say a government bailout could prevent some defaults.

Bank One Corp., J.P. Morgan Chase & Co., FleetBoston Financial Corp., Citigroup Inc, and Bank of America Corp. all have pieces of $15 million to $1 billion syndicated loans to airlines or related companies, according to Thomson Financial Securities Data. Banks often sell portions or all of a loan on the secondary market, so the size of a company's exposure often changes after the syndication is completed.

John Otis, a bond analyst with Bear, Stearns & Co., estimated bank exposure to airlines at $6.5 billion, concentrated among the bigger airlines such as Delta, which has $2.25 billion of bank debt; American Airlines, with $1.6 billion; and Northwest Airlines, with $1.12 billion.

Lori Appelbaum, an analyst at Goldman Sachs Group Inc., put the figure slightly lower. "We estimate that revolving credit facilities and commercial paper backup lines for the major airlines total just $5 to $6 billion," she wrote in a note to clients Tuesday.

"The banking industry's lending exposure to airlines is very small and likely represents much less than 1% of outstandings."

But analysts are still concerned.

"There are likely to be incremental credit risks surfacing in over the next few quarters" in such sectors as "airline and travel," J.P. Morgan securities analyst Catherine Murray said in a recent report.

The Federal Aviation Administration's grounding of all U.S. aircraft last week combined with anticipated declines in leisure and business travel, are expected to pummel the industry's earnings and risk, sending some airlines into bankruptcy.

In a sign of their weakened financial condition, several have already started to lay off employees in large numbers and cut down on flight schedules. U.S. Airways, for instance, announced Monday that it would lay off 11,000 employees and reduce capacity by 23%. Stocks of the major airlines plunged by as much as 65% on Monday. Most of the major airlines, with exception of Continental Airlines, regained some ground on Tuesday.

Ms. Appelbaum said Northwest Airlines currently has a $1.1 billion credit facility agented by Citigroup, J. …

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