With extremely low valuations that are getting further battered by news - and rumours - about swine flu, airline companies are probably in their worst shape in memory - no small feat for p

With extremely low valuations that are getting further battered by news - and rumours - about swine flu, airline companies are probably in their worst shape in memory - no small feat for probably the world's least profitable industry.

Could private equity firms that are sitting on piles of investors' cash take a punt on the airlines' value reviving once the threat of a pandemic recedes and the global economy enters an eventual upswing?

Certainly airlines and other travel-related stocks have been the worst hit this week as fears of the impact of swine flu escalated. Aer Lingus nosedived by 20 per cent at one point on Tuesday after issuing a profit warning, while Air France-KLM and British Airways slipped by 3 and 5 per cent respectively.

The carnage could easily become worse, spreading across the stock market as a whole. 'Exposed industries such as airlines have borne the brunt of the equity sell-off, but if fears escalate into wider global growth concerns, broad-based declines in global indices are possible,' says UBS analyst Geoffrey Yu.

Private equity companies have already been casting an eye over the aviation sector. The bidders for AIG's aircraft leasing business, ILFC, are said to include Terra Firma Capital Partners, groups led by Thomas H. Lee Partners and Carlyle Group, and Onex Corp and Greenbriar Equity Group.

The interest may also extend to Irish flag-carrier Aer Lingus, whose chairman Colm Barrington said last December that the airline, fighting off repeated hostile bids from onetime domestic rival turned low-cost giant Ryanair, was seeking a friendly investor to take a majority stake.

Private equity will perhaps never find a better time to invest in airlines, and the potential upside could conceivably be substantial - if the buyout firms can use their much-vaunted turnaround skills to change the fortunes of an industry that has lurched from crisis to crisis for the past quarter-century.