Alexa

Spanair crash could prove costly for carrier

Spanair crash could prove costly for carrier

Spanair's fatal plane crash in Madrid could delay parent airline SAS's already-difficult effort to sell the troubled carrier and distract Spanair temporarily from cost-cutting efforts aimed at turning it around, analysts said.
But a strong insurance package is likely to insulate the airline from excessive financial blows from potential compensation payouts and any grounding of its fleet.
Analysts said Thursday that it was still too early to grasp the full financial effects of the crash that killed 153 people because responsibility for the Europe's worst plane disaster in two decades has yet to be determined.
However, they said that while the reputation of Spanair _ owned by Scandinavia's SAS AB _ would certainly take a hit in the short term, the carrier could survive in the longer run despite its pre-existing financial troubles.
"They have insurance, so that should cover them, unless it turns out to be Spanair's fault of course," said Sydbank analyst Jacob Pedersen, adding that airline passengers may also be temporarily scared off by traveling with Spanair. "But normally this effect only lasts for a few days instead of weeks and months."
SAS chief executive officer Mats Jansson declined to comment at a press conference in Madrid on the potential impact of the tragedy on the company's finances or reputation, while Spanair CEO Marcus Hedblom also declined to comment on the future of the carrier.
SAS has been trying to sell Spanair, Spain's second-largest airline after Iberia, for more than a year as the carrier struggles to turn a profit amid tough competition and a slumping Spanish economy. The Swedish company's effort to find a buyer _ hampered by rough business conditions for all airlines _ could be delayed until the liability question becomes clearer, a possiblity reflected in a 3.4 percent drop in its share price to 42.20 kronor (US$6.62) in Stockholm.
Jyske Bank analyst Karsten Sloth said that one of the biggest potential risks to Spanair's finances is the possibility that the airline is forced to ground its MD-80 aircraft fleet, either on a temporary or permanent basis, if the cause of Wednesday's accident proves to be technical.
Spanair said Thursday that the MD-82 airliner that crashed had experienced overheating in an air intake valve before a first attempt at takeoff, but added that it was not clear if that had anything to do with the crash.
"It will take some time to decide where responsibility should be placed," said Sloth.
American Airlines was forced to ground its entire MD-80 series earlier this year after a safety audit, canceling around 6,000 flights as the hydraulic wiring was checked.
Almost 400 people have died in accidents involving the MD-80 series over the past 5 years, including the 2007 One-Two-GO Airlines Flight 269 runway crash at Phuket airport that killed 80 people and the 2005 West Carribbean Airways Flight 708 crash in northwest Venezuela that killed all 152 passengers and 8 crew.
Another major financial outlay for Spanair is likely to be compensation payouts to passengers and/or their families, although ABG Sundal Collier analyst Lars Heindorff said that would be mitigated by the solid insurance package that the carrier has in place.
The crash does put a cloud over Spanair's attempts to revive its financial fortunes. It announced in July that it planned to cut some 1,000 jobs and drop 15 aircraft and a number of routes to get back into the green.
The company has mainly been hurt by a weaker Spanish economy and stiffer competition put up by international low-cost carriers such as Ryanair Holdings PLC and easyJet PLC as well as domestic budget airlines including Vueling and Iberia's Clickair.
Orion Securities analyst Alexander Solovjov said that Spanair's expansion efforts has led to large overcapacity where the carrier has not been able to offset rising staff and fuel costs.
Sloth said that dealing with the aftermath of the crash takes the carrier's focus away from its implementation of its cost-cutting plan.
"This process will disturb getting the company back on track," he said.
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AP Reporters Louise Nordstrom in Stockholm and Harold Heckle in Madrid contributed to this report.