AVIATION: The Jet Debt

Eastern Air Lines, once one of the nation’s most profitable airlines, had sad news for stockholders last week. For the first nine months of the year, it lost $5.7 million, is likely to finish the year in the red and fail to make money for the first time since its incorporation in 1938. American Airlines reported that its earnings for the first nine months slid to $6,924,000 (v. $10,132,000 for the same period last year).

Eastern and American are not the only airlines feeling the pinch. Capital, National and Northeast have also been operating in the red. All told, in the first eight months, the combined profits of the nation’s major airlines were only $930,000, a startling drop from earnings of $46,539,000 for the same period in 1959. The decline had a variety of causes. Although revenues for the airlines were up 9% this year, the cost of depreciating the expensive new jets shot up 27.8% and ate up profits. Operating expenses were up 16%, largely because of the increased cost of running the Lockheed Electra, which the Federal Aviation Agency ordered to fly 105 m.p.h. below its normal cruising speed.

Pay in Advance. Part of Eastern’s troubles is an $8,000,000 loss of revenue that it suffered last summer in a twelve-day wildcat strike. The line is also carrying a heavy jet debt. It chose to begin writing off its $140 million debt for its new jet fleet before all the planes were delivered, must bear the brunt of the payments (the monthly interest charge alone is $583,000) without having the jets in service to help pay for themselves. It has also been hurt more than the other airlines by the Electra’s troubles since it has the largest (40) fleet. The cost of operating the Electras has increased 60.7% because they now take longer to fly the routes, use more fuel, and cost more in crew pay.

American Airlines, which flies 33 Electras, has also been affected by the higher operating costs, and is concerned about the Electra’s waning reputation (five crashes, with 223 fatalities, in less than two years), since load factors on its Electras are running 6% to 10% below the rest of the fleet. To try to counteract the Electra’s bad publicity, American has organized a truth squad of veteran Electra pilots, which is touring cities served by its Electras to extol the virtues of the aircraft.

Profits for a Few. Not all the airlines are in trouble. After losing money for the first six months, United Air Lines finally got more jets into service and made a brilliant recovery. Its third-quarter earnings were an alltime high and gave United a respectable profit of $9,711,535 for the first nine months. Hustling Delta Air Lines, the first line to fly DC-8s, has edged ahead of its archcompetitor Eastern in the number of passengers loaded at Atlanta. Continental Airlines, first of the smaller airlines to fly its own jets, has grown up with the commercial jet age. It now flies jets on 83% of its flights, has the lowest (43%) break-even point of any U.S. domestic airline, and made $1,447,000 in the first nine months.

To meet the high costs of the jet age, the airlines want to tailor their routes to the swifter, bigger jets. The Civil Aeronautics Board, under its new Chairman Whitney Gillilland, has already shown a willingness to let the trunk airlines drop some of the money-losing stops on their routes. It allowed American, Braniff, Continental, and TWA to discontinue service to a number of small stops. The big airlines hope that if they can improve the structure of their routes they can pay off he jet debt without a further drastic drag on their earnings.