Air Transport World

No more rabbits. (Continental Holdings, Texas Air Corp.) (editorial)

Last July, ATW looked at Continental Holdings [nee Texas Air Corp.] and Continental Airlines, and decided that the companies were financially weak and in danger. "The big question is whether Texas Air has any other rabbits left to pull out of its hat," was the way Senior Editor Perry Flint summed up the situation.

It had and it did.

But it must have been an old hat, because Continental has pulled the same bankruptcy rabbit out of it that it flourished in 1983. The immediate reason cited by Continental was the rapid run-up in fuel prices since iraq's August invasion of Kuwait. But the airline agreed that contributing to the problem was the enormous debt load the airline was carrying, a product of the 1980's corporate borrowing binge.

This event should officially ring down the era of airline managers ignoring debt/equity ratios in their fascination with cash flow. This philosophy was embraced with gusto by the former Continental and Texas Air management team, led by Frank Lorenzo. …

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