The International Air Transport Association (Iata) cut its forecast for airline industry profits by a quarter to $3.5 billion for 2012 and warned the industry could plunge to an $8.3 billion loss if Europe's debt problems trigger another banking crisis.     

Iata, whose 240 airlines carry 84 percent of global traffic, had previously forecast industry profits of $4.9 billion in 2012 after an estimated profit of $6.9 billion this year. The 2011 figure remains unchanged in Iata's latest industry outlook.     

'The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the eurozone sovereign debt crisis,' said Iata director general Tony Tyler on Wednesday.

'Such an outcome could lead to losses of over $8 billion, the largest since the 2008 financial crisis,' he added.

So far aviation has been relatively optimistic about its prospects as Europe teeters on the edge of recession, with rising demand in Asia and capacity restraint in North America seen boosting profits and driving talk of a two-speed market.    

But Iata, whose members include the likes of International Airlines, Lufthansa, Air China and American Airlines, said it could not ignore growing economic risks.

North American airlines are performing better than their European rivals after cutting costs and holding down capacity but Iata said the recent American Airlines bankruptcy filing underscored the sector's fragility. - Reuters