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US Airways Makes Case For More Concessions

Sun Feb 08, 2004 1:09 am

"US Airways Outlines Case for Additional Concessions

Published: February 7, 2004

Officials at US Airways, which is struggling to meet the conditions of federal loans that lifted it out of bankruptcy last year, began making the case for more wage and benefit cuts yesterday to skeptical union leaders who have already publicly declared that "the concessions stand is closed."

US Airways has been working on a strategy since December, when its chief executive, David N. Siegel, said that unexpectedly heated competition from low-fare carriers was forcing it to revise the business plan used as the basis for its emergence from bankruptcy last spring.

Executives at US Airways, which is based in Arlington, Va., outlined the company's financial situation to its labor advisory council, which includes unions representing the pilots, flight attendants, mechanics, ground personnel and other employees. The airline said it lost $98 million in the fourth quarter, compared with a $794 million loss a year earlier.

"The company discussed, in very general terms, a framework of the future direction" that US Airways would take, said a US Airways spokesman, David Castelveter.

US Airways' unions have consistently said they would not grant a third set of contract concessions, on top of two sets of wage and benefit cuts the airline sought as part of its restructuring. Indeed, yesterday's meeting was not a formal bargaining session, but a regular quarterly meeting.

Mr. Castelveter, however, said there was "general agreement" by both sides that discussions would continue. The labor council, he added, clearly "had a realistic understanding of the depth of the problem the company faces, and it appears to be ready to confront the challenges facing the company."

Union officials did not comment.

US Airways faces a strict set of covenants that it must meet in June to remain in compliance with $900 million in federal loans awarded by the Air Transportation Stabilization Board, which Congress created after the September 2001 attacks to administer a $15 billion bailout package.

The airline ended the fourth quarter with $1.29 billion in unrestricted cash, down from $1.38 billion at the end of the third quarter. To comply with the loan covenants, the airline must have just over $1 billion in cash on hand at the end of June.

Analysts said that they expected the decline in the airline's cash to continue this quarter. Moreover, this year has had a rough start for many carriers, which have been plagued by declines in traffic and delays because of winter storms.

The meeting between executives and labor leaders followed weeks of angry exchanges, including a call by the Air Line Pilots Association for the airline to fire Mr. Siegel. Another major union, the International Association of Machinists and Aerospace Workers, has dismissed the idea that it would agree to additional wage and benefit cuts by declaring, "The concessions stand is closed."

Last month, US Airways retained Morgan Stanley to find potential buyers for major assets, including its shuttle; gates at La Guardia Airport in New York and Logan Airport in Boston; its regional carrier US Airways Express; and one of its hubs - Charlotte, N.C.; Pittsburgh; or Philadelphia.

Yesterday, Mr. Siegel told analysts during a conference call that the airline had not decided whether to sell any assets. Nonetheless, the threat apparently succeeded in getting union leaders' attention, said Gary L. Chaison, a professor of industrial relations at Clark University in Worcester, Mass.

"This is really hardball bargaining," Professor Chaison said yesterday. "It intensifies negotiations. It shows what the alternatives are."

Mr. Siegel yesterday repeatedly stressed the airline's need to lower its costs closer to those of low-fare carriers. He said that they had become the airline's benchmark.

Last quarter, US Airways' overall costs averaged 10.22 cents per seat mile, the method the industry uses to measure expenses. That was in line with costs at other major airlines, Mr. Siegel said, but well above the average at discount competitors, which he said was about 6 cents per mile.

The largest and most profitable of those carriers, Southwest Airlines, poses the most immediate threat to US Airways. Southwest plans to begin service in May from Philadelphia.

US Airways is the leading carrier on five of the six routes that Southwest plans to fly from Philadelphia.

Regardless, Mr. Siegel told analysts he thought that Southwest posed a bigger threat to other low-fare carriers in Philadelphia.

B. Ben Baldanza, US Airways' executive vice president for marketing, added that he doubted that air fares would drop much immediately when Southwest begins flying, because low-fare carriers already operate in Philadelphia. Indeed, fares there have dropped as much as 29 percent in the last three years, according to Back Aviation Solutions, a consulting group.

That appeared to contradict Mr. Siegel's earlier assertion that US Airways had to be prepared to cut fares by as much as 30 percent to compete with Southwest.

Robert W. Mann Jr., an airline industry analyst based in Port Washington, N.Y., said he disagreed with Mr. Siegel's view that US Airways was not in imminent danger at Philadelphia.

Referring to the turnaround plan under discussion, Mr. Mann said, "I hope that isn't the state of the art of the rest of their analysis, because they are going to be disappointed."

From today's New York Times business section:
Eastern Air lines flt # 701, EWR-MCO Boeing 757

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