War fears plunge airlines into crisis

The cloud of an imminent Gulf war cast a lengthening shadow over the world's airlines yesterday as Iberia and Japan's JAL warned of weak bookings while American carriers held out the prospect of up to 70,000 job cuts.

As crisis gripped the industry, airline shares plunged worldwide, with British Airways falling 4.25p to 90.75p, its lowest level since privatisation in 1987.

Asia's largest carrier, Japan Airlines System (JAL), led the bloodletting early yesterday by warning it would make a loss for the second successive year because travellers had been deterred by fears of a war in Iraq.

JAL's chief executive, Isao Kaneko, said the Bali bomb and a typhoon in Guam had contributed to the airline's plight: "We've seen a fall in international flight reservations in February and March, with customers worried about the situation in Iraq."

Hours later, Australia's national carrier, Qantas, revealed that it had abandoned a bond issue which was intended to raise up to A$200m. The airline said investors had "expressed concern over the timing of the issue, given increasing tensions surrounding a possible war in Iraq".

Spanish carrier Iberia disclosed plans to cut its capacity by 3 per cent, predicting that a war lasting three to six months would prompt a fall in demand for the year of about 2 per cent.

Iberia had been viewed as relatively unaffected because its traffic is largely to Latin America, rather than to the crisis-prone United States.

There was a further warning on the health of the US airline industry yesterday, with the forecast that war in Iraq would cost another 70,000 jobs and increase losses across the business this year by $4bn.

The predictions came in a report from the Air Transport Association, which is seeking government aid to help pay increased security and fuel costs. "Wholesale bankruptcies in the airline industry, major airline liquidations and even the forced nationalisation of our airline system are some of the risks we confront."

There were reports yesterday that American Airlines, the largest carrier in the world, had begun preparing for the possibility of bankruptcy by lining up $2bn of debtor-in-possession financing. The head of the airline's cabin crew union told members that a bankruptcy filing "may be sooner rather than later".

US airlines have cut 98,000 jobs since the terrorist attacks on New York and Washington.

According to the ATA, the industry will cut another 11 per cent of its 650,000-strong workforce and take out 2,200 daily flights if there is conflict in Iraq. Combined losses this year would swell from $6.7bn to $10.7bn.

Meanwhile, UAL, parent of bankrupt United Airlines, has asked a US bankruptcy court to give it more time to file its reorganisation plan to ensure the plan is not "premature".

· Cathay Pacific will face an employment tribunal in London over the dismissal of a group of Heathrow-based pilots who took industrial action two years ago. A tribunal in Croydon yesterday ruled that the airline had a case to answer, throwing out the Hong Kong carrier's claim that it was not answerable to British law.