* Middle East conflict sends jet fuel prices soaring,

disrupts airspace

* Budget airlines most vulnerable to failure, M&A, airline

body chief says

* Slow aircraft, engine deliveries deepening airline woes

* Airline body sticks with net-zero by 2050 target

By Joe Brock

RIO DE JANEIRO, June 6 (Reuters) - Soaring jet fuel prices

driven by conflict in the Middle East are likely to push more

airlines into bankruptcy and spur more sector consolidation this

year and next, the head of the global airline body said on

Saturday.

Global airlines are grappling with higher fuel costs driven

by the U.S. and Israel's war with Iran, which has choked jet

fuel supplies and disrupted key air corridors, forcing costly

detours.

Budget carriers have been among the hardest hit, lacking

higher margin revenue streams such as premium cabins,

high-paying travelers and credit card loyalty programs.

The strain is already showing: U.S. budget airline Spirit

Airlines collapsed last month, and it will not be the last, said

Willie Walsh, director general of the International Air

Transport Association, the industry's main trade body.

"Unfortunately I think there will be some carriers that will

find this high fuel price very difficult to cope with," Walsh

told Reuters at IATA's annual summit in Rio de Janeiro, adding

he expects some airlines to go out of business and others to be

acquired by larger carriers.

Even so, the pressure does not spell the end of the low-cost

airline model, which continues to thrive outside the United

States, where the big three carriers, United Airlines, Delta Air

Lines ( DAL ) and American Airlines ( AAL ), are squeezing out budget

competitors, Walsh said.

"I don't see that the low-cost model is broken, in fact,

quite the opposite," he said, highlighting Ryanair's strong

performance in Europe as an example.

There is one blockbuster deal Walsh does not see happening:

United Airlines CEO Scott Kirby's audacious proposal to buy arch

rival American Airlines ( AAL ) and create a U.S. aviation behemoth. The

idea, which surfaced earlier this year, failed to get done

despite Kirby raising it with President Donald Trump.

"I don't think that's going to happen. I think the

regulatory hurdles would be very significant. I don't know

whether that was a genuine effort to pursue consolidation or

Scott just trying to stir up some media," Walsh said.

MIDDLE EAST AIRLINE WOES

The Iran conflict has upended traffic flows through Middle

Eastern hubs such as Dubai, Doha and Abu Dhabi, creating acute

challenges for Gulf carriers including Emirates, Qatar Airways

and Etihad.

Walsh said he didn't think the conflict would do permanent

damage to the Gulf as an aviation hub given its strategic

geographic importance and the value of the popular Gulf

carriers, which account for 14% of global capacity.

"That capacity cannot be replaced by airlines from other

regions around the world," Walsh said.

"Once things settle down, I would expect the Gulf carriers

to regain their important position in the market."

Adding to the strain is the slow pace of aircraft deliveries

from Boeing ( BA ) and Airbus, along with engine delays from GE

Aerospace and Pratt & Whitney, a unit of RTX, limiting airlines'

ability to expand fleets and improve efficiency.

Walsh said the industry is increasingly frustrated by the

delays, particularly as engine makers post strong profits while

airlines struggle. He estimates supply chain disruption cost

airlines about $11 billion last year.

"We're disappointed that they're not moving faster. We're

disappointed that they're not sharing the pain that the airline

industry is sharing," he said.

Aircraft and engine makers have said that much of the delays

are out of their control, stemming from post-pandemic supply

chain disruptions and political trade disputes.

As airlines come under financial strain and climate policies

lose momentum in the U.S. under Donald Trump, industry leaders

have grown more cautious about meeting a 2050 net zero emissions

target.

Walsh said IATA is not ready to abandon the goal.

"I certainly believe it's more challenging to achieve net

zero in 2050 because we've not made the progress that we had

expected to see on the development of sustainable fuels," he

said.