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US Airways In Trouble Again - <i>Article</i>

Wed Feb 04, 2004 10:24 pm

US Airways in trouble again
Airline has lost about $200 million since emerging from bankruptcy

The Atlanta Journal-Constitution
Published on: 02/03/04

Only 10 months after emerging from bankruptcy, US Airways' future is in doubt once again.

The airline's losses are mounting. Southwest Airlines and other low-fare carriers are invading its turf. It has the industry's highest costs, and it is struggling to get more concessions from angry employees.

Friday, the nation's seventh-largest airline is expected to report fourth-quarter losses that will boost its total to about $200 million since emerging from bankruptcy March 31.

The most pessimistic analysts say it's a matter of time before the Arlington, Va.-based carrier exits the scene entirely by selling itself off or heading into bankruptcy again — this time to be liquidated.

"The next 30 to 60 days are going to be critical," said Ray Neidl, with Blaylock & Partners.

To be sure, many troubled airlines have outlived predictions of their demise. US Airways officials say they have plans to cut costs further and compete in the new era of discounters' growth and Internet pricing.

At its current pace of losses, Neidl says US Airways will be in default by June on the $900 million federally guaranteed part of a $1 billion loan the company got through the airline aid package passed by Congress after Sept. 11, 2001.

The company could try to work out a more favorable payment plan, and it has said it will consider selling assets to avoid default.

The most marketable of those assets are coveted airport gates and landing slots at three congested airports: Boston, New York's La Guardia Airport and Washington's Reagan National.

Even if US Airways buys some time, longer-term survival looks problematic, said Standard & Poor's analyst Phil Baggaley.

"Long-term, their best hope is to be acquired or integrated into another system," he said. A proposed buyout by United in 2000 was killed by regulatory issues, although such a deal might now be more acceptable given US Airways' duress.

But other airlines that might be potential buyers have their own financial problems. United, for instance, is deep in its own Chapter 11 case.

Inevitable failure?

Since 9/11, many analysts and airline executives have felt that the failure of one big carrier is almost inevitable.

Should US Airways be that carrier, its departure could help rival airlines along the Eastern seaboard, where its routes are concentrated.

Atlanta-based Delta Air Lines, which competes heavily with US Airways, might be able to raise fares and pick up some useful assets such as landing slots at Washington's Reagan National Airport.

But growing discounters such as Southwest, AirTran and JetBlue also would fill any void left by US Airways, offsetting the benefit to big carriers. Already, Southwest is setting up shop in Philadelphia, a US Airways hub.

US Airways' exit could be a mixed blessing, Delta Chief Executive Gerald Grinstein recently told airline analysts.

"You may tend to get a short-term improvement [in fares] but over the long term, experience tells us that capacity flows into those markets," he said. "And if some of those assets end up in the hands of low-cost carriers, you're going to have another bigger [problem]."

AirTran is window shopping US Airways' assets and watching for new markets to jump into, as it did in Baltimore after a US Airways' regional unit shut down in late 2001.

"We have the ability to move pretty fast," said Joe Leonard, chairman of the Orlando-based discount carrier, although he declined to say what US Airways assets his company would look at.

Employees anxious

US Airways' 28,700 employees and its hub cities of Charlotte, Philadelphia and Pittsburgh are watching the company's travails anxiously.

So, too, are officials at the Retirement Systems of Alabama. The $20 billion state pension fund invested $240 million for 37 percent of US Airways' shares, plus $500 million for working capital.

The deal helped US Airways complete its Chapter 11 reorganization in a relatively quick seven months. But it left court protection last March, just as the war in Iraq depressed airlines' fortunes.

"Could we have stayed in [reorganization] longer and demanded more from employees? We probably should have if we'd known what was coming," David Bronner, the retirement system chief who's now US Airways' board chairman, told USA Today recently.

"The world sort of tanked on us."

Grinstein called US Airways a "cautionary tale" showing why Delta needs deep, long-term labor cost concessions from its pilots union rather than cosmetic fixes.

"The situation at US Airways is a clear reminder that the business plan that we pursue must be fully capable of leading us all the way to ... sustained profitability," Grinstein said last month.

To survive, said Michael Roach, with airline consulting firm Unisys R2A, US Airways needs to match Southwest's costs. The latter has simpler, more efficient operations and more productive — though not necessarily lower-paid — employees.

"No [big] carriers have been able to do that so far," he said.

JetBlue, AirTran move in

The threat isn't just from Southwest. JetBlue and AirTran continue to expand in US Airways' markets.

Still, some believe the knockout punch for US Airways could come when Southwest launches service in May in Philadelphia.

It's the kind of battle US Airways has lost twice before, said Roach. US Airways abandoned the Baltimore and California markets after Southwest invaded and drove fares below costs.

"Southwest is going to build up very quickly at Philadelphia," Roach said. "I don't see what [US Airways] can do."

US Airways probably can't survive without the Philadelphia hub, said Baggaley.

"They have no place to retreat. They will have to stand and fight," he said.

US Airways has asked for more concessions from employees, after securing $1 billion in labor savings before and during its trip through Chapter 11.

Southwest's arrival is "a wake-up call," said US Airways chief spokesman Chris Chiames. He said major carriers have "got to adapt or they will go the way of the dodo bird."

He said US Airways' aim is to remain a hub-and-spoke carrier while lowering unit costs to about 8 cents a mile, close to Southwest's 7 cents a mile. Its costs were about 11 cents a mile in the third quarter.

Talks start with pilots

US Airways began talking to its pilots union last week about relaxing work rules to boost efficiency, which likely will mean more layoffs.

It could be a hard sell. During its bankruptcy reorganization, US Airways cut more than 17,000 jobs, then incensed pilots by terminating their pension plan. In December, the union called on US Airways to fire CEO David Siegel and Chief Financial Officer Neal Cohen.

The Air Line Pilots Association hasn't retracted that demand, but it concedes US Airways needs more help.

"We know one thing for certain is the status quo is not an option," said ALPA spokesman Jack Stephan.

He said US Airways also needs to find ways to make itself competitive besides seeking more labor concessions.

"Part of our frustration is with management that keeps running the same old play over and over again."
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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 9:14 am

Tell us something we don't know!
Matt D
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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 9:22 am

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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 10:04 am

again... interesting words about merging with UA

shall be interesting to watch over the next few months!

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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 10:30 am

"But other airlines that might be potential buyers have their own financial problems. United, for instance, is deep in its own Chapter 11 case."

UAL is not merging with anyone, they are still in CH-11.
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RE: US Airways In Trouble Again - <i>Article

Thu Feb 05, 2004 12:25 pm

Hey your photo..if the ship said United, would your caption be

Matt D
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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 12:29 pm

In a very narrow technical sense of the word, yes.
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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 12:43 pm

Sure looks like US Airways is done, I hope so I have never liked them as an airline and they are just looking to take what little their employees have left to save themselves. They don't have the cash to pay their debt so it's time to go. Taking pensions from pilots? That's rough. Surprised they made it this long..

R.I.P US Airways
Matt D
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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 12:45 pm

Remember the post I made about a month ago for everyone to predict the death date for USAir?

I still stand behind my prediction that it will be before April 15. If they skate past that, then they will go Chap 7 sometime between Labor Day and Halloween.
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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 1:01 pm

Well ill be watching this, I have a friend who works for US Airways doing some sort of analyst job- which he finally got after working for that one KC based carrier that I cant think of right now... took him 8 months to find a new job after that one went belly up, hes got a really skill for finding and working for airlines about to go broke!
Matt D
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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 1:12 pm

that one KC based carrier that I cant think of right now

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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 2:05 pm

Sounds to me he better start looking for a new job now, sorry to see that who he works for is going down the toilet. They should do the honorable thing and either find an airline to buy them or go quietly. They in no way can compete with the LCCs and have no money and have little or no way to save money short of asking their employees to work for free. Do the honorable thing and fold, give Southwest your routes and your terminal space at ISP you sure don't need it.

R.I.P US Airways
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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 4:26 pm

While all the news about US Airways has been as dark as their paint scheme, I sure wouldn't count them out just yet. I think you can go back to the first days that had message boards and find posts about the end of US Airways.

I will put this in simple terms. If you were to put costs for the airline on a scale of 1 to 10, in the late 90's US Air would have scored a 11. If Southwest, (The symbol of LCC) is on the same scale, it stays a steady 4 year after year. If US Airways is going to remain around, everyone knows it needs to get it's cost down close to 4. That is not an easy thing to take if your an employee that was once valued at an 11 by your employer and now in only two years your value has gone way down but still remains about a 7. In any other time, the employees wouldn't take this, or go any further down closer to 4 because they could always go somewhere else. Although, these are different times. There isn't any other place to go. If your young, it's not good news, but at-least you can start over. But if your ten years from retirement, which is a good portion of those not already gone at US Airways, then your setting yourself up to be valued a 4 whether you like it or not. All the company has to do is say, we will liquidate, or we will sell valuable parts. which when it's in a bind it always says. This sets off bells for further discussions on what needs to be done to go even lower. US Airways will continue to get what it wants as long as it makes a convincing argument that it's on the edge. Once they reach their target, and if they succeed in getting to that target, then they will quickly expand. Then everyone will say, "pretty soon, US Airways is going to fail if they continue to expand so fast". Oh well, what's new?

Look for US Airways to stick around for a while I believe.
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RE: US Airways In Trouble Again - <i>Article</i>

Thu Feb 05, 2004 11:18 pm

So when does the firesale begin??? Id love for NWA to take those 9 PW A333's USAirways has,maybe even some of thier newer baby buses!

OK but now seriously i cant say i disliked USAirways nor liked them but it is deffinately sad to see an airline going through so much financial trouble. Also it awful to know what will happen to all thier employs if they do go belly up (wish you all the best) and man what an effect this will have on local economy in its hub cities i know ill feel it having just moved to the KPIT area.

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