Analysis: Wall Street Crisis Report

It is the early days of the latest Wall Street crisis, but one thing is clear, the appetite for re-regulation is large. However, it is unlikely to go beyond re-regulating the banking and investment industry that was undone by its own excesses. Indeed, some are calling for more airline deregulation, considering it remains the most heavily regulated deregulated industry in the world.
Immediate worries that credit will not be available for airlines have not been realized so far, according to Teal Group’s Richard Aboulafia. “The good news, ILFC notwithstanding, aircraft finance is holding.” ILFC, one of the largest customers for both Boeing and Airbus, was part of AIG but is maxing out its three credit lines to borrow $6.5 billion in emergency funding in a deal cut the same day the government took an 80 percent stake in AIG in exchange for an $85 billion rescue loan. Aboulafia acknowledged that the industry’s heavy reliance on third-party financing could be in jeopardy.
“It is definitely a potential concern, but right now if you want financing you can get it,” he said. “Airlines have tapped credit lines taking them to first quarter 2009. The question is whether there is a group of investors to give them the same financial conditions they enjoy now and, for that, there is no answer.”
However, industry execs are worried. Condor Managing Director Jean Christoph Debus, speaking at a conference in Germany, expects to see higher credit costs compounded by increasing difficulty in hedging fuel costs as the result of the Wall Street crisis.
Prior to the government bailout of AIG and others, one would have been fairly certain the calls for re-regulating the airline industry would have fallen on deaf ears, despite being touted in Congress earlier this year. Related Story
“Some politicians and former industry executives began calling for re-regulation, the holy grail of economic stupidity,” wrote Aboulafia from Farnborough. “Bankruptcy regulations make industry exits problematic. Airlines also suffer from very tightly regulated cross-border capital flows, very tightly regulated merger and consolidation procedures, very tightly regulated airport slot allocation, and very tightly regulated national market restrictions, and the answer to the industry’s problems is…more regulation?”
He makes a strong argument for freeing up the free market to be free. For a complete analysis and what it means for regionals see the next issue of Regional Aviation News.