An airline in critical condition
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Financial tasks over next 2 weeks could extend life of US Airways -- or signal the end
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TONY MECIA AND STAN CHOE
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Staff Writers
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As awful as the Christmas weekend's travel snafus were for US Airways, the obstacles facing the airline in the next two weeks could be far worse.
Between today and Jan. 14, US Airways must accomplish a series of specific financial tasks. Miss even one, and the airline could immediately begin shutting down, an event that would have severe repercussions for the Charlotte region, travelers around the country and the airline's 27,000 workers.
Last weekend's meltdown, when a rash of sick calls and bad weather canceled flights and left passengers without luggage, was an unexpected blow that will test the airline's effort to retain customers.
US Airways is no stranger to death watches. It endured similar countdowns during the aftershocks of 9-11, its 2002-03 bankruptcy reorganization case and its fruitless attempts to cut labor costs before its current bankruptcy filing. But never before has the Arlington, Va., airline skated so close to shutting down entirely, analysts say.
Asked last week if he's confident US Airways can complete the tasks of the next two weeks, company senior vice president Chris Chiames replied that the company is "giving every sign of an airline fully intending to stay in business."
Since its bankruptcy filing in September, the airline has made strides in transforming itself into a company that can compete with low-fare carriers. It has struck cost-cutting deals with three of its four major labor unions -- pilots, gate and ticket agents, and flight attendants -- and negotiated a key financing deal with General Electric Co., a big creditor.
But Chiames acknowledges US Airways still has plenty of work remaining to become the profitable, low-fare carrier it wants to become.
"We have tried not to overpromise," he said. "...We've tried not to sugarcoat things. We've been very frank in what the challenges are and what we need to get done."
At the same time, higher oil prices have made jet fuel more expensive, and the company's uncertain future has scared away passengers.
Nancy Holtzman, executive director of the Association of Corporate Travel Executives, says many corporate travel planners are worried about the airline folding.
"The ongoing state of bankruptcy and the carrier's uncertain future would have any travel manager considering a back-up plan for travelers who rely on USAir's system," said Holtzman, whose association has 2,500 members. "Most of our members have already planned for that contingency."
Carolinas HealthCare System, for instance, said last week that its travel office is not buying tickets on US Airways beyond March 1 for the 10,000 employees who use the office.
"They would just as soon avoid getting in a situation where in a worst-case scenario they'd have to go back and rebook the thing," a spokesman said.
But fliers from Charlotte have few choices to get to their destinations. US Airways flies about 90 percent of the passengers at Charlotte/Douglas International Airport. Charlotte is the airline's biggest hub and the base for about 5,700 employees.
"We're not selling away from US Airways," said Gary Silverstein, co-owner of Mann Travel in Charlotte. "It's hard to do that from Charlotte anyway."
Mann Travel is urging customers to use credit cards to buy their plane tickets, to offer some protection if US Airways were to fold. Passengers would likely be able to get refunds from their credit-card companies if the airline folds before their flights. The agency's customers are 55 percent corporate and 45 percent leisure, Silverstein said.
In Raleigh, Maupin Travel's customers are wary of US Airways, but price is still king, said Lisa Shupp, a travel consultant there.
"I have had people, probably about 30 percent of my clients, say they're willing to pay a little more to go on Delta or American," she said. But by `a little more,' they usually mean $20 or $30.
Thursday hurdle: Labor ruling
This weekend, many airline workers were rallying with management to prevent travel fiascos by volunteering to work as goodwill ambassadors at Philadelphia and Charlotte airports. If all goes well this weekend, the airline's next major hurdle comes Thursday. Then, Bankruptcy Judge Stephen Mitchell is scheduled to rule on the airline's request to throw out its labor contract with mechanics and baggage handlers, unless the union and company come to an agreement first. The company also is asking the judge to terminate two pension plans and cut retiree health benefits.Cutting $1 billion in labor costs is an essential part of the airline's plan.
"If they don't have that, the game is over," said Dan Kasper, an airline economist and consultant who has done work for US Airways.
The company has said a favorable ruling gives it a "fighting chance" to survive but in no way guarantees success. Most analysts expect the judge to rule in the company's favor.
Those cuts would pave the way for a new agreement with the Air Transportation Stabilization Board, the federal panel backing a $900 million loan. US Airways needs the ATSB's permission to continue spending cash, because the cash is collateral for the loan.
The ATSB set a cap on the amount of money US Airways is allowed to lose each month, and the airline has been under that cap through November, the most recent month reported.
The airline also has enough cash on hand -- $822.9 million at the end of November -- to satisfy the ATSB's other main restriction.
The ATSB has said it wants to see a viable business plan to allow the airline to continue using its cash reserve. The airline has said its plan is still a work in progress and that it needs more than labor cuts to survive.
Chiames said the airline is in constant contact with the ATSB. He declined to characterize the discussions.
Any new agreement would likely be announced at the beginning of next week, because the company has scheduled a court date on the matter for Jan. 13.
At the same time, the company's financial agreement with creditor GE requires it to find $100 million in investment or cost savings, in addition to the $1 billion in labor savings, by Jan. 14. If it fails to find that $100 million by then, GE has the right to end the agreement and could seek the return of more than 150 planes it leases to US Airways, which could lead to a shut-down.
Prognosis: Grim
Among analysts, employees and industry consultants, there is no consensus on whether the airline will make it.
After last week's high-profile flight cancellations, industry analyst Terry Trippler e-mailed reporters, saying: "Stick a fork in them, folks. They're done."
Mike Boyd, an aviation consultant in Colorado, is 90 percent sure US Airways will die, after seeing last weekend's fiasco.
"It looks like the employees are in mutiny. Then, customers stay away. Then, revenues drop off. (Death) could be a very quick thing."
Kasper, the consultant, thinks the company will probably succeed. Jerry Orr, Charlotte's longtime aviation director, says he thinks the airline can make it, too.
Handing out free chips, pretzels and sodas at Charlotte's baggage claim area last week, flight attendant Jeff Monroe said he's optimistic, despite the recent travel snafu.
"I give the airline positive chances of surviving," Monroe said. "We just have to reassure the traveling public this won't happen again." -- STAFF WRITER LEIGH DYER CONTRIBUTED TO THIS ARTICLE.
-- TONY MECIA: (704) 364-4053; [email protected]
What to Watch
Here are key dates fliers should watch to gauge US Airways' chances for survival:
• Wednesday: US Airways' flight attendants finish voting on a tentative cost-cutting agreement.
• Thursday: U.S. Bankruptcy Judge Stephen Mitchell says he hopes to rule on whether to throw out the labor contract for mechanics and fleet-service workers, the only union that hasn't agreed to concessions.
• Jan. 14: US Airways needs to find $100 million in cash or cost savings, or it risks upsetting a key deal with GE, which controls much of the airline's fleet.
• Jan. 14: US Airways hopes to win an extension to continue spending its cash. A federal panel, the Air Transportation Stabilization Board, holds the keys, after it guaranteed $900 million in loans that helped US Airways out of its last bankruptcy, in 2002-03.
http://www.charlotte.com/images/common/spacer.gif
Financial tasks over next 2 weeks could extend life of US Airways -- or signal the end
http://www.charlotte.com/images/common/spacer.gif
TONY MECIA AND STAN CHOE
http://www.charlotte.com/images/common/spacer.gif
Staff Writers
http://www.charlotte.com/images/common/spacer.gif
As awful as the Christmas weekend's travel snafus were for US Airways, the obstacles facing the airline in the next two weeks could be far worse.
Between today and Jan. 14, US Airways must accomplish a series of specific financial tasks. Miss even one, and the airline could immediately begin shutting down, an event that would have severe repercussions for the Charlotte region, travelers around the country and the airline's 27,000 workers.
Last weekend's meltdown, when a rash of sick calls and bad weather canceled flights and left passengers without luggage, was an unexpected blow that will test the airline's effort to retain customers.
US Airways is no stranger to death watches. It endured similar countdowns during the aftershocks of 9-11, its 2002-03 bankruptcy reorganization case and its fruitless attempts to cut labor costs before its current bankruptcy filing. But never before has the Arlington, Va., airline skated so close to shutting down entirely, analysts say.
Asked last week if he's confident US Airways can complete the tasks of the next two weeks, company senior vice president Chris Chiames replied that the company is "giving every sign of an airline fully intending to stay in business."
Since its bankruptcy filing in September, the airline has made strides in transforming itself into a company that can compete with low-fare carriers. It has struck cost-cutting deals with three of its four major labor unions -- pilots, gate and ticket agents, and flight attendants -- and negotiated a key financing deal with General Electric Co., a big creditor.
But Chiames acknowledges US Airways still has plenty of work remaining to become the profitable, low-fare carrier it wants to become.
"We have tried not to overpromise," he said. "...We've tried not to sugarcoat things. We've been very frank in what the challenges are and what we need to get done."
At the same time, higher oil prices have made jet fuel more expensive, and the company's uncertain future has scared away passengers.
Nancy Holtzman, executive director of the Association of Corporate Travel Executives, says many corporate travel planners are worried about the airline folding.
"The ongoing state of bankruptcy and the carrier's uncertain future would have any travel manager considering a back-up plan for travelers who rely on USAir's system," said Holtzman, whose association has 2,500 members. "Most of our members have already planned for that contingency."
Carolinas HealthCare System, for instance, said last week that its travel office is not buying tickets on US Airways beyond March 1 for the 10,000 employees who use the office.
"They would just as soon avoid getting in a situation where in a worst-case scenario they'd have to go back and rebook the thing," a spokesman said.
But fliers from Charlotte have few choices to get to their destinations. US Airways flies about 90 percent of the passengers at Charlotte/Douglas International Airport. Charlotte is the airline's biggest hub and the base for about 5,700 employees.
"We're not selling away from US Airways," said Gary Silverstein, co-owner of Mann Travel in Charlotte. "It's hard to do that from Charlotte anyway."
Mann Travel is urging customers to use credit cards to buy their plane tickets, to offer some protection if US Airways were to fold. Passengers would likely be able to get refunds from their credit-card companies if the airline folds before their flights. The agency's customers are 55 percent corporate and 45 percent leisure, Silverstein said.
In Raleigh, Maupin Travel's customers are wary of US Airways, but price is still king, said Lisa Shupp, a travel consultant there.
"I have had people, probably about 30 percent of my clients, say they're willing to pay a little more to go on Delta or American," she said. But by `a little more,' they usually mean $20 or $30.
Thursday hurdle: Labor ruling
This weekend, many airline workers were rallying with management to prevent travel fiascos by volunteering to work as goodwill ambassadors at Philadelphia and Charlotte airports. If all goes well this weekend, the airline's next major hurdle comes Thursday. Then, Bankruptcy Judge Stephen Mitchell is scheduled to rule on the airline's request to throw out its labor contract with mechanics and baggage handlers, unless the union and company come to an agreement first. The company also is asking the judge to terminate two pension plans and cut retiree health benefits.Cutting $1 billion in labor costs is an essential part of the airline's plan.
"If they don't have that, the game is over," said Dan Kasper, an airline economist and consultant who has done work for US Airways.
The company has said a favorable ruling gives it a "fighting chance" to survive but in no way guarantees success. Most analysts expect the judge to rule in the company's favor.
Those cuts would pave the way for a new agreement with the Air Transportation Stabilization Board, the federal panel backing a $900 million loan. US Airways needs the ATSB's permission to continue spending cash, because the cash is collateral for the loan.
The ATSB set a cap on the amount of money US Airways is allowed to lose each month, and the airline has been under that cap through November, the most recent month reported.
The airline also has enough cash on hand -- $822.9 million at the end of November -- to satisfy the ATSB's other main restriction.
The ATSB has said it wants to see a viable business plan to allow the airline to continue using its cash reserve. The airline has said its plan is still a work in progress and that it needs more than labor cuts to survive.
Chiames said the airline is in constant contact with the ATSB. He declined to characterize the discussions.
Any new agreement would likely be announced at the beginning of next week, because the company has scheduled a court date on the matter for Jan. 13.
At the same time, the company's financial agreement with creditor GE requires it to find $100 million in investment or cost savings, in addition to the $1 billion in labor savings, by Jan. 14. If it fails to find that $100 million by then, GE has the right to end the agreement and could seek the return of more than 150 planes it leases to US Airways, which could lead to a shut-down.
Prognosis: Grim
Among analysts, employees and industry consultants, there is no consensus on whether the airline will make it.
After last week's high-profile flight cancellations, industry analyst Terry Trippler e-mailed reporters, saying: "Stick a fork in them, folks. They're done."
Mike Boyd, an aviation consultant in Colorado, is 90 percent sure US Airways will die, after seeing last weekend's fiasco.
"It looks like the employees are in mutiny. Then, customers stay away. Then, revenues drop off. (Death) could be a very quick thing."
Kasper, the consultant, thinks the company will probably succeed. Jerry Orr, Charlotte's longtime aviation director, says he thinks the airline can make it, too.
Handing out free chips, pretzels and sodas at Charlotte's baggage claim area last week, flight attendant Jeff Monroe said he's optimistic, despite the recent travel snafu.
"I give the airline positive chances of surviving," Monroe said. "We just have to reassure the traveling public this won't happen again." -- STAFF WRITER LEIGH DYER CONTRIBUTED TO THIS ARTICLE.
-- TONY MECIA: (704) 364-4053; [email protected]
What to Watch
Here are key dates fliers should watch to gauge US Airways' chances for survival:
• Wednesday: US Airways' flight attendants finish voting on a tentative cost-cutting agreement.
• Thursday: U.S. Bankruptcy Judge Stephen Mitchell says he hopes to rule on whether to throw out the labor contract for mechanics and fleet-service workers, the only union that hasn't agreed to concessions.
• Jan. 14: US Airways needs to find $100 million in cash or cost savings, or it risks upsetting a key deal with GE, which controls much of the airline's fleet.
• Jan. 14: US Airways hopes to win an extension to continue spending its cash. A federal panel, the Air Transportation Stabilization Board, holds the keys, after it guaranteed $900 million in loans that helped US Airways out of its last bankruptcy, in 2002-03.
