Why Braniff International's colorful career has ended
Braniff International this week became the first major US airline in 20 years to declare bankruptcy. The airline, famous for its multicolored jets and self-promotion, thus ended a corporate lifespan that began in 1928 when it started operating a flight between Tulsa, Okla., and Oklahoma City. When it stopped flying on Thursday morning it had 8,500 employees. Why did Braniff declare bankruptcy?Skip to next paragraph
Subscribe Today to the Monitor
The company ran out of cash. Its fuel suppliers demanded cash on the spot to service its jets, and the company didn't have the cash needed to meet its $15 million payroll this week. How did the company run out of cash?
It expanded its routes at a time of soaring fuel costs and cutthroat fare wars. Thus, its expenses rose while its revenues shrank. When it went out of business, Braniff had accumulated a net loss of $377 million since 1979. Why couldn't the airline borrow the money?
The airline had already accumulated a debt of nearly $1 billion, owed to 26 banks, 11 insurance companies, and various aircraft makers. The company hadn't made any payments on interest or principal since March 1981. Although lenders agreed to defer principal and interest payments until Oct. 1, the company had to submit to lenders an operating plan that would show how the airline could eventually become profitable. What was the airline's plan?
The plan envisioned a much smaller, discount airline service. However, Barry Gordon, executive vice-president of National Aviation & Technology, a mutual fund, notes that the company not only shrank its expenses, but also saw its revenues shrink more. Are other airlines in financial trouble?
Yes, although none are as financially strapped as Braniff. Mr. Gordon notes that Continental, Western, and Republic all have earnings problems. However, he adds, they still have options open to them that Braniff did not. Will some airlines benefit from Braniff's going out of business?
Yes. American Airlines is expected to be the chief beneficiary because 60 percent of its routes overlapped Braniff's. And since the two airlines had been engaged in fare wars, American will no longer have to compete with Braniff's fares. Other domestic airlines to benefit include Muse Air, a Texas airline, and Southwest Airlines. What will happen to Braniff's Latin American routes?
Eastern Airlines agreed to lease them for 18 months for $18 million. However, Gordon doesn't believe Eastern has the equipment to fly all of Braniff's routes. Thus, Pan Am and Air Florida might get some of the routes. Are Braniff tickets good on other airlines?
If the tickets were purchased from a ticket agent, most other airlines are honoring them on a space available basis. If the ticket was issued directly by Braniff, most airlines won't honor them. Will the Braniff bankruptcy hurt the financial markets?
Most banks and insurance companies had already set up reserves in case Braniff went under. Thus, banking analysts expect it to have little effect on the banking system. And the lenders will eventually get some money back when they sell Braniff's planes. What impact will Braniff's demise have on airline fares?
It may mean airlines will be less likely to get into rate wars. Al Norling, an airline analyst with Kidder Peabody, says Braniff's bankruptcy ''eliminates one very destructive source of rate cutting if it remains in bankruptcy.'' Will the airline reemerge from bankruptcy like many of the railroads have?
Mr. Norling says he doesn't believe so. But Braniff president Howard Putnam pledged Thursday the airline would make a comeback and said he put it into bankruptcy rather than risk seizure of the company's jet fleet.