Grounded flights may pull down wider economy

"I really had no idea this thing could drag on as long as it has. A week and a half ago, I thought it was a one-time thing," said Steven G. Cochrane, senior managing director of Moody's Energy.com.

He said the groundings could have a "moderate impact" on the overall economy and directly affect the balance sheets of the airlines involved. "Their margins are so thin right now. There's no wiggle room for the airlines. Anything that provides any kind of a speed bump is going to put them into a loss."

For one thing, Cochrane said airlines no longer are able to hedge successfully against rising fuel costs. In the past, they could enter into fixed-price contracts when prices were fluctuating that gave them some protection against increases. "No one out there now is willing to agree to provide them fuel in the future at today's prices. The risks are all on the upside on price," he said.

Airline analyst Ray Neidl of Calyon Securities said the rise this week in oil prices to over a record $110 a barrel is potentially more damaging to airline finances than the FAA groundings. Still, he acknowledged that if the groundings go on for a "long time, it's going to cause overall general economic problems." He said he was optimistic that the problems would turn out to be short-term ones.

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U.S. airlines transport more than 2.1 million passengers on a typical day, directly employ over a half million workers, provide extensive cargo services, link U.S. cities with each other and with the rest of the world and "are the backbone of the travel and tourism industry," said Basil Barimo, vice president of the Air Transport Association of America, an industry trade group.

"The U.S. airline industry is not simply an important sector of our national economy. Its services fuel our entire economy," Barimo said. "Air transportation is an indispensable element of America's infrastructure and our nation's economic well-being."

The intensified inspections that resulted in the wide-ranging groundings were ordered by the FAA after Southwest Airlines was found last month to have flown planes that missed inspections.

Darryl Jenkins, an analyst who teaches airline management at Embry Riddle Aeronautical University in Daytona Beach, Fla., said he didn't think it was necessary "to ground an entire fleet and inconvenience hundreds of thousands of people" when many of the inspections and maintenance jobs could have been done at night. He accused the FAA of swinging back and forth between being too cozy with the airline industry and being too rigid.

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