By Steve Halvonik
Sunday, May 16, 2004
US Airways will hold its annual shareholders meeting Wednesday in Alabama as the airline prepares for what experts say will be a make-or-break summer.
In spite of a bankruptcy restructuring, $1.8 billion in cost-cutting, a $1 billion federal loan and the elimination of thousands of jobs, US Airways is still teetering on the brink of financial collapse. Its cost structure remains the highest in the industry, it's under assault from Southwest Airlines in its most lucrative market and it's confronting soaring fuel costs -- its second-biggest expense -- at the start of its busiest season.
"It appears they've reached their triple witching hour," said Olivia S. Mitchell, executive director of the Pension Research Council at the University of Pennsylvania's Wharton School of Business.
Management's immediate task is to convince disgruntled employees and restive shareholders that its latest turnaround plan, which has been revealed in bits and pieces over recent weeks, really will work. If it doesn't, the company is likely headed for a second bankruptcy and possible liquidation.
"The big question is this: Will the new model fly?" said Ray Neidl, aviation analyst with Blaylock & Partners in New York.
Chairman David Bronner will lay out his case to employees and shareholders Wednesday.
The new model calls for a total reinvention of US Airways, from a traditional hub-and-spoke mainline carrier to a modern point-to-point flier in the mold of low-cost carriers like Southwest and AirTran. US Airways' goal is to protect its Eastern stronghold by matching competitors' cheap fares.
US Airways already has slashed ticket prices in Philadelphia, its most profitable market, to hold off Southwest Airlines.
Making the new model work won't be easy. The company must slash an additional $1.5 billion from expenses through union concessions and overhauling hub operations in Pittsburgh, Philadelphia and Charlotte, N.C. Airline experts said all of this probably has to be accomplished by the end of the summer, or US Airways won't survive long enough for another shareholders meeting.
"Their options are narrowing as time passes," said Phil Roberts, vice president and managing partner of R2A Transportation Management Consultants in San Francisco. "This summer is absolutely crucial for cash generation."
Getting the unions to go along is the biggest hurdle. Having conceded $1 billion in wages and benefits in two earlier rounds of cost-cutting, employees are not in a particularly giving mood. Many of them believe that David Siegel, US Airways' former chief executive officer, squandered those concessions.
Their refusal to negotiate further givebacks led to Siegel's departure last month. It's now up to the new CEO -- Bruce Lakefield, who is reportedly on friendlier terms with union representatives -- to obtain $800 million to $900 million more in labor concessions from the airline's 28,000 workers.
"You're talking about a huge change in cost structure, and it's not clear the unions are going to cooperate," Mitchell said.
Jim Roddey, the former Allegheny County chief executive, said: "They may get the pilots (to cooperate), but I don't think they're going to get the mechanics. They're the toughest."
Bronner's changing of CEOs may have improved the negotiating atmosphere, but it hasn't altered the International Association of Machinists and Aerospace Workers' bargaining position, said union spokesman Joseph Tiberi.
"We believe we can help the company save substantial amounts of money, which it needs, without reopening our contracts," Tiberi said. The contracts, signed during bankruptcy reorganization, don't expire until 2008, he added.
Jack Stephan, a spokesman for the Air Line Pilots Association, said he was optimistic that his union could reach a new agreement with US Airways.
"We definitely like the Bronner-Lakefield team," Stephan said. "Bronner is a straight shooter, and Lakefield brings incredible integrity and credibility to an organization where it was lacking."
Neidl said he remained optimistic that US Airways management could succeed.
"Can they move quick enough? I think they can," Neidl said. "They're doing a good job and they're getting some favorable buzz. All they need is employee enthusiasm."
Sunday, May 16, 2004
US Airways will hold its annual shareholders meeting Wednesday in Alabama as the airline prepares for what experts say will be a make-or-break summer.
In spite of a bankruptcy restructuring, $1.8 billion in cost-cutting, a $1 billion federal loan and the elimination of thousands of jobs, US Airways is still teetering on the brink of financial collapse. Its cost structure remains the highest in the industry, it's under assault from Southwest Airlines in its most lucrative market and it's confronting soaring fuel costs -- its second-biggest expense -- at the start of its busiest season.
"It appears they've reached their triple witching hour," said Olivia S. Mitchell, executive director of the Pension Research Council at the University of Pennsylvania's Wharton School of Business.
Management's immediate task is to convince disgruntled employees and restive shareholders that its latest turnaround plan, which has been revealed in bits and pieces over recent weeks, really will work. If it doesn't, the company is likely headed for a second bankruptcy and possible liquidation.
"The big question is this: Will the new model fly?" said Ray Neidl, aviation analyst with Blaylock & Partners in New York.
Chairman David Bronner will lay out his case to employees and shareholders Wednesday.
The new model calls for a total reinvention of US Airways, from a traditional hub-and-spoke mainline carrier to a modern point-to-point flier in the mold of low-cost carriers like Southwest and AirTran. US Airways' goal is to protect its Eastern stronghold by matching competitors' cheap fares.
US Airways already has slashed ticket prices in Philadelphia, its most profitable market, to hold off Southwest Airlines.
Making the new model work won't be easy. The company must slash an additional $1.5 billion from expenses through union concessions and overhauling hub operations in Pittsburgh, Philadelphia and Charlotte, N.C. Airline experts said all of this probably has to be accomplished by the end of the summer, or US Airways won't survive long enough for another shareholders meeting.
"Their options are narrowing as time passes," said Phil Roberts, vice president and managing partner of R2A Transportation Management Consultants in San Francisco. "This summer is absolutely crucial for cash generation."
Getting the unions to go along is the biggest hurdle. Having conceded $1 billion in wages and benefits in two earlier rounds of cost-cutting, employees are not in a particularly giving mood. Many of them believe that David Siegel, US Airways' former chief executive officer, squandered those concessions.
Their refusal to negotiate further givebacks led to Siegel's departure last month. It's now up to the new CEO -- Bruce Lakefield, who is reportedly on friendlier terms with union representatives -- to obtain $800 million to $900 million more in labor concessions from the airline's 28,000 workers.
"You're talking about a huge change in cost structure, and it's not clear the unions are going to cooperate," Mitchell said.
Jim Roddey, the former Allegheny County chief executive, said: "They may get the pilots (to cooperate), but I don't think they're going to get the mechanics. They're the toughest."
Bronner's changing of CEOs may have improved the negotiating atmosphere, but it hasn't altered the International Association of Machinists and Aerospace Workers' bargaining position, said union spokesman Joseph Tiberi.
"We believe we can help the company save substantial amounts of money, which it needs, without reopening our contracts," Tiberi said. The contracts, signed during bankruptcy reorganization, don't expire until 2008, he added.
Jack Stephan, a spokesman for the Air Line Pilots Association, said he was optimistic that his union could reach a new agreement with US Airways.
"We definitely like the Bronner-Lakefield team," Stephan said. "Bronner is a straight shooter, and Lakefield brings incredible integrity and credibility to an organization where it was lacking."
Neidl said he remained optimistic that US Airways management could succeed.
"Can they move quick enough? I think they can," Neidl said. "They're doing a good job and they're getting some favorable buzz. All they need is employee enthusiasm."
