NOTE 2 — LIQUIDITY MATTERS
The Postal Service incurred net losses of $3,794 million, $2,806 million, and $5,142 million for the years ended September 30, 2009, 2008 and 2007. A significant portion of the loss in 2009 is attributable to an unprecedented decline in mail volume, which fell by 25.6 billion pieces, resulting in a $6,842 million or 9.1% decrease in revenue compared to 2008. Also contributing to the losses over these three years were significantly higher retiree health benefit costs pursuant to P.L. 109-435 and its requirement to fund the newly created PSRHBF, contractually mandated Cost of Living Adjustments (COLAs), and record fuel prices for a substantial period in 2008.
The decline in mail volume is primarily a result of the widespread economic recession, although the long-term trend of hard copy correspondence and transactions being diverted to electronic media continues and has somewhat accelerated during the recession. Since peaking at 213 billion pieces in 2006, mail volume dropped 9.5 billion pieces in 2008 and an additional 25.6 billion pieces to 177 billion pieces in 2009. Volume is expected to drop a further 10-15 billion pieces in 2010 causing a revenue decline between $2.5 billion and $3.5 billion. It is possible that volumes and revenues could decrease at rates greater than these projections. Despite the effects of price increases in 2008 and 2009, revenues declined in 2009 by almost $7 billion compared to 2008. Revenue is expected to continue to decrease into 2010, and even with substantial cost reductions, our 2010 net loss is projected to be over $7 billion.
We experienced negative cash flow from operations for two of the past three years. In 2009, we reduced our PSRHBF payment by $4 billion due to the passage of P.L. 111-68. Had this reduction not been enacted, cash flow from operations would have been negative in 2009 as well. P.L. 111-68 does not affect the required $5.5 billion payment due on September 30, 2010.
We believe that, while there are sufficient cash flows for ongoing operations, there is considerable uncertainty as to whether we will have sufficient cash on September 30, 2010 to fund our required $5.5 billion PSRHBF payment. If we cannot fund this payment on Septembesr 30, 2010, we will experience a cash shortfall. There is also uncertainty as to what the legal and/or regulatory consequences would be to the Postal Service if we cannot fund this PSRHBF payment. We will continue to inform the Congress on our financial outlook and on legislative changes that would help ensure the availability of cash at year-end. However, there can be no assurance that adjustments to the PSRHBF payment schedule will be granted by September 30, 2010, or at all.
We can fund some of our obligations through increased debt. However, our annual net increase in debt is limited by statute to $3 billion, and our total outstanding debt is limited to $15 billion. We currently project net debt outstanding in 2010 to increase by $3 billion, but this may not be sufficient to fund our 2010 PSRHBF obligation. Moreover, if significant losses continue in 2011, the overall $15 billion debt limitation will likely be insufficient.
To meet these challenges, the Postal Service has, and continues, to take a number of actions to increase efficiency, reduce costs and generate new revenue. These actions include the 115 million workhour reduction and freeze on executive salaries in 2009, maximizing operational efficiencies, renegotiating contracts with major suppliers, halting construction of most new facilities and initiating revenue generation efforts utilizing the increased pricing flexibility available under P.L. 109-435. Although each of these efforts is expected to positively impact cash flow in 2010, they may not, individually, or in the aggregate, be sufficient to offset a possible September 30, 2010 cash shortfall.
In 2009, we requested Congress to consider two changes to the laws governing the Postal Service. First, we asked to restructure our payments for retiree health benefits. We also requested that Congress remove the annual appropriation bill rider, first added in 1983, that effectively requires the Postal Service to deliver mail six days each week. No savings are anticipated for 2010 from the proposed ability to adjust the six-day delivery requirement, even if granted sometime during 2010. Multiple operational, contractual and customer issues would need to be resolved before actual implementation of a five-day delivery schedule. However, such important new flexibility could provide direct cost savings beginning in 2011.
As previously noted, the enactment of P.L. 111-68 did not reduce the $5.5 billion payment required on September 30, 2010 or address our longer term issue with the unsustainably large PSRHBF payment schedule. We continue to regularly update Congress regarding these financial issues.
Our ability to generate sufficient cash flows to meet obligations is substantially dependent on the strength and speed of the economic recovery and on our ability to execute strategies to increase efficiency, reduce costs and retain and grow revenue. In addition, restructuring of the PSRHBF payment schedule may be necessary. However, no assurance can be given that our efforts will be successful or that Congress will enact additional legislation in 2010 in time to impact 2010, or at all.
