U.S. airlines running a little low on cash: experts

By Kyle Peterson - Analysis

CHICAGO (Reuters) - U.S. airlines, struggling to spur demand amid economic recession, face a potential liquidity crisis if revenues keep falling while credit markets remain tight.

Despite their best efforts, several of the top U.S. airlines currently have less cash on hand than some experts think is comfortable.

If revenue does not increase this year, carriers may breach the minimum liquidity covenants enforced by their creditors, who then may accelerate the loan and force a default.

"If revenue doesn't stabilize and capital markets remain constrained, then I think it's certainly possible that we'll see increased risk of a covenant breach for a couple of carriers moving into 2010," said Fitch Ratings analyst Bill Warlick.

The airlines that face the greatest risk of covenant breach are US Airways Group (LCC.N), American Airlines parent AMR Corp (AMR.N) and United Airlines parent UAL Corp (UAUA.O), he said.

"This scenario would likely unfold only if revenue trends continue to worsen through the summer with no evidence of a U.S. macro recovery appearing by late in the year," Warlick said.

The U.S. airline industry, lurching for years from one crisis to the next, now finds itself grappling with depleted demand as the recession bites into business and leisure travel.

Airlines rapidly downsized late last year and again in 2009 to offset weaker demand. But the struggle to right-size the business continues, and revenue is weaker. Meanwhile, credit markets remain tight as the economic crisis grinds on.