U.S. Postal Service May Face Default

The U.S. Postal Service is on the brink of financial collapse after Postmaster General Patrick Donahoe told the Senate that the company is to report loses worth $10 billion in the fiscal year ending on September 30, 2011. The service faces default and will not be able to cover its payments due to the federal budget while its debt liabilities could soon reach $15 billion, which is a threshold that signals default, he told the Homeland Security and Governmental Affairs Committee hearing.

U.S. Postal Service

The only way to avoid default is to drastically cut costs and reduce the number of mail processing facilities, he said, adding that transportation and equipment costs should also be reduced. Many large-scale industrial suppliers would be hit by such a move, including multinational postal equipment vendors like Siemens AG and sub-contractors like FedEx Corp. and Northrop Grumman Corp.

In the past five years, mail volume processed and handled by the U.S. Postal Service dwindled by 20 percent and the service was forced to ask Congress to allow it to delay payments worth $5.5 billion required to cover future retiree health benefits. The Postal Service is asking to be permitted to close a total of 3,700 post office across the country, lay off 220,000 employees and close mail delivery on Saturdays.

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