To survive, airline needs assistance from federal government, politicians
TONY MECIA AND STAN CHOE
Staff Writers
As it tries to win critical concessions from labor groups, US Airways will also likely need help from the federal government to avoid a potentially fatal bankruptcy.
Enter the politicians.
On Friday, U.S. Sen. Elizabeth Dole, R-N.C., sent letters to the Internal Revenue Service and the Pension Benefits Guaranty Corp., which are expected to rule within weeks on the airline's request to delay payments into pension funds.
With deadlines fast approaching, the letters are designed to "put some heat on," said Dole spokesman Brian Nick.
Another federal agency, the Air Transportation Stabilization Board, will play a crucial role in the carrier's future. The ATSB guarantees $720 million in US Airways' loans and could force repayment if the airline fails to meet certain financial tests Sept. 30.
Local members of Congress say they're monitoring the situation and stand willing to help if asked.
For now, the focus of the struggle to avoid bankruptcy is on labor talks. The union for the pilots, who are being asked for the biggest chunk of $800 million in concessions, is expected to negotiate through the weekend. (See story 1A)
But the airline's survival will also depend on negotiations occurring in Washington bureaucrats' offices. Because of the airline's participation in pension and airline loan guarantee programs, government decision-makers hold more influence over US Airways' future than they would over an ordinary company's.
At stake is the future of US Airways, the country's seventh-largest carrier, which has its largest hub in Charlotte. About 5,700 of the company's 28,088 employees are based here.
The company, based in Arlington, Va., is asking its major labor unions for a third round of concessions in two years, as part of a plan to transform itself into a lower-cost airline.
Without the cuts, US Airways has said, it is at risk of violating financial terms of its loan backed by the ATSB.
That could lead to a bankruptcy filing -- the second in about two years -- and perhaps eventually to a shutdown of the company.
The company and outside experts say the airline's main problem is high labor costs and competition with low-fare carriers. Any government decisions, they emphasize, are secondary to those fundamental problems.
"We're not going and asking anybody to help us with a government solution," said US Airways spokesman David Castelveter. "We need to fix what's broken in our own house."
Still, the reality that government agencies will be making decisions involving US Airways invites participation from politicians.
"Clearly, there are powerful senators and other powerful figures out there that may get involved," said Ken Button, an economist who studies transportation policy at George Mason University in Fairfax, Va. "The decision ultimately is political."
That sentiment has filtered down to employees. Cory Buckle, a US Airways flight attendant based in Charlotte, gives his company a 50-50 chance of surviving. But he handicaps the probability closer to 100 percent when considering survival through at least November.
"In an election year, I don't think anything is going to happen this year," he said. "The government is not going to have an airline shut down and throw 30,000 people out of work."
But experts say politicians don't always guarantee victory. In a notorious example, United Airlines earlier this year failed to gain federal loan guarantees, after enlisting U.S. House Speaker Dennis Hastert and other high-powered voices.
To avoid a bankruptcy filing in the coming months, US Airways needs help from three key government agencies:
• The Internal Revenue Service.
The IRS, which oversees pension plans for the federal government with the Pension Benefits Guaranty Corp., will decide whether to allow US Airways to delay payments into pension funds for some of its workers. US Airways says it needs to delay those payments, spreading them over five years rather than 18 months, to conserve its dwindling cash.
Millions of dollars in payments to pension funds are due Sept. 15, putting the company -- and the IRS -- under heavy pressure.
US Airways said this week that it would file an application, but government agencies declined to talk specifically about US Airways' application, saying its confidentiality is much like that of an individual's income-tax return.
But such requests have occurred in the past. Northwest Airlines won IRS approval last year to spread $454 million payments to its pension fund over five years.
The quickest the government can act on such applications is about four weeks, said Jeffrey Speicher, spokesman for the PBGC. US Airways has about three weeks until its deadline. In typical cases, the government takes several months.
• The Pension Benefit Guaranty Corp.
The PBGC, which takes over pension plans for companies that drop them, will negotiate what kind of collateral US Airways must put up to get its delay from the IRS.
In exchange for its waiver, Northwest Airlines gave its pension plans liens on some of its domestic slots, international routes, aircraft and engines. The airline didn't break out the worth of those assets.
PBGC's Speicher said his department, like the IRS, couldn't comment on individual applications. How much collateral an applicant must offer depends on how many assets it owns, Speicher said.
• The Air Transportation Stabilization Board.
This government board, set up after the Sept. 11 attacks to help crippled airlines stay afloat, holds the keys to more than $700 million in cash for US Airways.
The ATSB has set financial performance tests for the airline, such as cash flow minimums, which US Airways appears likely to violate on Sept. 30.
If the airline breaks its terms, the ATSB could demand the cash be repaid, which would likely paralyze the airline, or it could renegotiate more generous terms.
The board has three voting members, coming from the Federal Reserve Board, the Treasury Department and the Transportation Department.
Political pressure is unlikely to sway those members, analysts and lobbyists say. The board has taken a number-crunching approach to its mission, said Ed Faberman, executive director of the Air Carrier Association of America, a lobbying group whose members include startup and low-fare carriers.
"I think some people questioned whether US Airways should have gotten the guarantee in the first place. However, (the ATSB) is trying as hard as possible to function as a business would function," he said.
US Airways -- like other financially struggling airlines -- doesn't have much fund-raising clout to wield on Capitol Hill.
The airline industry has hemorrhaged billions of dollars the past few years, and it has little left to donate to political campaigns. This election cycle, US Airways' Political Action Committee gave $12,000 to Democrats and Republicans, according to TRKC Inc., which tracks campaign finance.
Contributions from the PACs of bigger competitors, such as United Airlines and Delta Air Lines, also pale in comparison to other big corporate benefactors. United's PAC donated $55,500 this election cycle, and Delta's wrote checks for $78,000.
By comparison, Charlotte-based Bank of America Corp.'s state and federal PAC donated $552,819, and Charlotte-based Duke Energy Corp.'s PAC donated $257,310.
Michael E. Levine, a Yale law professor and former airline executive, says he thinks the government will help US Airways avoid liquidating before the election but that ultimately, it controls its own fate.
"In the end, US Airways is going to live or die on whether they can live on the customers' money," he said.
TONY MECIA AND STAN CHOE
Staff Writers
As it tries to win critical concessions from labor groups, US Airways will also likely need help from the federal government to avoid a potentially fatal bankruptcy.
Enter the politicians.
On Friday, U.S. Sen. Elizabeth Dole, R-N.C., sent letters to the Internal Revenue Service and the Pension Benefits Guaranty Corp., which are expected to rule within weeks on the airline's request to delay payments into pension funds.
With deadlines fast approaching, the letters are designed to "put some heat on," said Dole spokesman Brian Nick.
Another federal agency, the Air Transportation Stabilization Board, will play a crucial role in the carrier's future. The ATSB guarantees $720 million in US Airways' loans and could force repayment if the airline fails to meet certain financial tests Sept. 30.
Local members of Congress say they're monitoring the situation and stand willing to help if asked.
For now, the focus of the struggle to avoid bankruptcy is on labor talks. The union for the pilots, who are being asked for the biggest chunk of $800 million in concessions, is expected to negotiate through the weekend. (See story 1A)
But the airline's survival will also depend on negotiations occurring in Washington bureaucrats' offices. Because of the airline's participation in pension and airline loan guarantee programs, government decision-makers hold more influence over US Airways' future than they would over an ordinary company's.
At stake is the future of US Airways, the country's seventh-largest carrier, which has its largest hub in Charlotte. About 5,700 of the company's 28,088 employees are based here.
The company, based in Arlington, Va., is asking its major labor unions for a third round of concessions in two years, as part of a plan to transform itself into a lower-cost airline.
Without the cuts, US Airways has said, it is at risk of violating financial terms of its loan backed by the ATSB.
That could lead to a bankruptcy filing -- the second in about two years -- and perhaps eventually to a shutdown of the company.
The company and outside experts say the airline's main problem is high labor costs and competition with low-fare carriers. Any government decisions, they emphasize, are secondary to those fundamental problems.
"We're not going and asking anybody to help us with a government solution," said US Airways spokesman David Castelveter. "We need to fix what's broken in our own house."
Still, the reality that government agencies will be making decisions involving US Airways invites participation from politicians.
"Clearly, there are powerful senators and other powerful figures out there that may get involved," said Ken Button, an economist who studies transportation policy at George Mason University in Fairfax, Va. "The decision ultimately is political."
That sentiment has filtered down to employees. Cory Buckle, a US Airways flight attendant based in Charlotte, gives his company a 50-50 chance of surviving. But he handicaps the probability closer to 100 percent when considering survival through at least November.
"In an election year, I don't think anything is going to happen this year," he said. "The government is not going to have an airline shut down and throw 30,000 people out of work."
But experts say politicians don't always guarantee victory. In a notorious example, United Airlines earlier this year failed to gain federal loan guarantees, after enlisting U.S. House Speaker Dennis Hastert and other high-powered voices.
To avoid a bankruptcy filing in the coming months, US Airways needs help from three key government agencies:
• The Internal Revenue Service.
The IRS, which oversees pension plans for the federal government with the Pension Benefits Guaranty Corp., will decide whether to allow US Airways to delay payments into pension funds for some of its workers. US Airways says it needs to delay those payments, spreading them over five years rather than 18 months, to conserve its dwindling cash.
Millions of dollars in payments to pension funds are due Sept. 15, putting the company -- and the IRS -- under heavy pressure.
US Airways said this week that it would file an application, but government agencies declined to talk specifically about US Airways' application, saying its confidentiality is much like that of an individual's income-tax return.
But such requests have occurred in the past. Northwest Airlines won IRS approval last year to spread $454 million payments to its pension fund over five years.
The quickest the government can act on such applications is about four weeks, said Jeffrey Speicher, spokesman for the PBGC. US Airways has about three weeks until its deadline. In typical cases, the government takes several months.
• The Pension Benefit Guaranty Corp.
The PBGC, which takes over pension plans for companies that drop them, will negotiate what kind of collateral US Airways must put up to get its delay from the IRS.
In exchange for its waiver, Northwest Airlines gave its pension plans liens on some of its domestic slots, international routes, aircraft and engines. The airline didn't break out the worth of those assets.
PBGC's Speicher said his department, like the IRS, couldn't comment on individual applications. How much collateral an applicant must offer depends on how many assets it owns, Speicher said.
• The Air Transportation Stabilization Board.
This government board, set up after the Sept. 11 attacks to help crippled airlines stay afloat, holds the keys to more than $700 million in cash for US Airways.
The ATSB has set financial performance tests for the airline, such as cash flow minimums, which US Airways appears likely to violate on Sept. 30.
If the airline breaks its terms, the ATSB could demand the cash be repaid, which would likely paralyze the airline, or it could renegotiate more generous terms.
The board has three voting members, coming from the Federal Reserve Board, the Treasury Department and the Transportation Department.
Political pressure is unlikely to sway those members, analysts and lobbyists say. The board has taken a number-crunching approach to its mission, said Ed Faberman, executive director of the Air Carrier Association of America, a lobbying group whose members include startup and low-fare carriers.
"I think some people questioned whether US Airways should have gotten the guarantee in the first place. However, (the ATSB) is trying as hard as possible to function as a business would function," he said.
US Airways -- like other financially struggling airlines -- doesn't have much fund-raising clout to wield on Capitol Hill.
The airline industry has hemorrhaged billions of dollars the past few years, and it has little left to donate to political campaigns. This election cycle, US Airways' Political Action Committee gave $12,000 to Democrats and Republicans, according to TRKC Inc., which tracks campaign finance.
Contributions from the PACs of bigger competitors, such as United Airlines and Delta Air Lines, also pale in comparison to other big corporate benefactors. United's PAC donated $55,500 this election cycle, and Delta's wrote checks for $78,000.
By comparison, Charlotte-based Bank of America Corp.'s state and federal PAC donated $552,819, and Charlotte-based Duke Energy Corp.'s PAC donated $257,310.
Michael E. Levine, a Yale law professor and former airline executive, says he thinks the government will help US Airways avoid liquidating before the election but that ultimately, it controls its own fate.
"In the end, US Airways is going to live or die on whether they can live on the customers' money," he said.
