With US Airways facing crucial deadlines, credit rating slips again as talks with pilots remain stalled
TED REED AND TONY MECIA
Staff Writers
US Airways lurched Wednesday toward bankruptcy court, where it could seek to downsize its fleet or outsource more work, sources said.
During the day, credit rating agency Standard & Poor's and Bill Pollock, chairman of the US Airways chapter of the Air Line Pilots Association, sounded bankruptcy alarms.
The pilots, once expected to lead US Airways' charge to cut overall labor costs by $800 million annually, remained at odds with the airline as the clock seemed to tick down to a bankruptcy filing by next week.
Citing "a lack of progress in crucial labor negotiations and rapidly dwindling time to avert a second bankruptcy filing," S&P said it had cut US Airways' credit rating to CCC minus from CCC. The junk-bond rating reflects "a high near-term risk of bankruptcy," S&P said.
A second bankruptcy filing since 2002 wouldn't immediately ground US Airways, but some experts have suggested it could lead to the airline's demise.
US Airways faces pension payments of $133 million during the second half of the year, with about $110 million to come due Wednesday. Without labor agreements by then, "Management may judge that it cannot further deplete its cash reserves by making the payment," said S&P analyst Phil Baggaley.
Without a new contract for pilots, Pollock said in a message to the airline's 3,300 pilots, "we may be at the mercy of the court and third parties who may take a dim view of our inability to close a cost savings agreement with management when we had the chance."
US Airways spokesman David Castelveter said Wednesday there is no bankruptcy timetable.
"We are still having conversations with our labor groups about meeting cost targets," he said. "Absent our ability to reach our targets, we cannot rule out the possibility of judicial restructuring."
The Arlington, Va.-based airline has a long-standing contract with the Seabury Group, a restructuring consultant that was an adviser in its first bankruptcy. And early this year, it retained Arnold & Porter, a Washington law firm with a bankruptcy practice.
For weeks, US Airways' 28,000 employees -- 5,700 of them at its Charlotte hub -- have watched the soap opera of pilot negotiations and worried that the carrier may not have a future.
Other employees in the ailing industry also live precariously. On Wednesday, Atlanta-based Delta Air Lines said it will cut up to 7,000 jobs, shed its Dallas-Fort Worth hub and may have to seek bankruptcy protection. Like US Airways, Delta said it continues to get hit hard by high fuel costs and competition from low-fare rivals. (See related story, page 3D.)
Castelveter said all six established hub carriers "should be preparing for every outside contingency, (and) we're no exception."
In bankruptcy court, US Airways could find an easier path to reducing costs so that it can cut fares and survive in the new airline industry environment.
The airline would likely seek to downsize, possibly eliminating either its fleet of Airbus jets or, more likely, its older Boeing jets, said sources familiar with the airline's planning. Additionally, it could cease to operate regional jets through its subsidiaries, outsourcing regional jet flying, and could seek to outsource most maintenance work, as its low-cost competitors do, the sources said.
US Airways is still losing money after cutting expenses by $1.9 billion annually in a bankruptcy that ended in 2003. Now, it wants to cut $1.5 billion more, including the $800 million from labor.
Pilots have been asked for the largest chunk, $295 million. Unions representing flight attendants and customer service agents are also talking about cuts, but union leaders say they haven't gotten very far. The International Association of Machinists, representing mechanics and fleet service workers, has not agreed to talk about concessions.
Pollock's message Wednesday came after the pilots' deeply divided executive council on Monday declined to let pilots vote on the company's last proposal. It included a 21 percent pay cut, productivity gains and a 50 percent pension cut. Four members from Philadelphia and Pittsburgh were able to prevent a vote because they represent the majority of the union's members.
In an interview, Pollock said that because the four "don't have the courage to be associated with these types of concessions, they will let somebody take the decision out of their hands."
In a letter Wednesday to Pittsburgh pilots, Pittsburgh local leader John Brook said the airline's last proposal "did not address any of the financial needs, returns, and job security of our pilot group."
He specifically objected to proposals that pilots give up furlough protection, some disability coverage and retiree medical, dental and prescription drug benefits. "We have reached an all-time low when we attack the old and crippled," he wrote.
US Airways had $975 million in cash on June 30, and bank loans of about $720 million guaranteed by the federal Air Transportation Stabilization Board. Loan requirements state that it must have $700 million in cash at the end of each month, and must improve its financial results in 2004 and 2005.
Most analysts believe that while US Airways has the money to make the $110 million pension payment, a payoff would probably drop cash reserves to a point where the airline would fall out of compliance with terms of its loan guarantee, which are measured Sept. 30.
The airline could receive some help Monday, when the Internal Revenue Service is expected to announce whether the airline can delay paying nearly $30 million of those pension payments by crediting contributions made earlier this year to last year's obligations. That would help the company save needed cash.
TED REED AND TONY MECIA
Staff Writers
US Airways lurched Wednesday toward bankruptcy court, where it could seek to downsize its fleet or outsource more work, sources said.
During the day, credit rating agency Standard & Poor's and Bill Pollock, chairman of the US Airways chapter of the Air Line Pilots Association, sounded bankruptcy alarms.
The pilots, once expected to lead US Airways' charge to cut overall labor costs by $800 million annually, remained at odds with the airline as the clock seemed to tick down to a bankruptcy filing by next week.
Citing "a lack of progress in crucial labor negotiations and rapidly dwindling time to avert a second bankruptcy filing," S&P said it had cut US Airways' credit rating to CCC minus from CCC. The junk-bond rating reflects "a high near-term risk of bankruptcy," S&P said.
A second bankruptcy filing since 2002 wouldn't immediately ground US Airways, but some experts have suggested it could lead to the airline's demise.
US Airways faces pension payments of $133 million during the second half of the year, with about $110 million to come due Wednesday. Without labor agreements by then, "Management may judge that it cannot further deplete its cash reserves by making the payment," said S&P analyst Phil Baggaley.
Without a new contract for pilots, Pollock said in a message to the airline's 3,300 pilots, "we may be at the mercy of the court and third parties who may take a dim view of our inability to close a cost savings agreement with management when we had the chance."
US Airways spokesman David Castelveter said Wednesday there is no bankruptcy timetable.
"We are still having conversations with our labor groups about meeting cost targets," he said. "Absent our ability to reach our targets, we cannot rule out the possibility of judicial restructuring."
The Arlington, Va.-based airline has a long-standing contract with the Seabury Group, a restructuring consultant that was an adviser in its first bankruptcy. And early this year, it retained Arnold & Porter, a Washington law firm with a bankruptcy practice.
For weeks, US Airways' 28,000 employees -- 5,700 of them at its Charlotte hub -- have watched the soap opera of pilot negotiations and worried that the carrier may not have a future.
Other employees in the ailing industry also live precariously. On Wednesday, Atlanta-based Delta Air Lines said it will cut up to 7,000 jobs, shed its Dallas-Fort Worth hub and may have to seek bankruptcy protection. Like US Airways, Delta said it continues to get hit hard by high fuel costs and competition from low-fare rivals. (See related story, page 3D.)
Castelveter said all six established hub carriers "should be preparing for every outside contingency, (and) we're no exception."
In bankruptcy court, US Airways could find an easier path to reducing costs so that it can cut fares and survive in the new airline industry environment.
The airline would likely seek to downsize, possibly eliminating either its fleet of Airbus jets or, more likely, its older Boeing jets, said sources familiar with the airline's planning. Additionally, it could cease to operate regional jets through its subsidiaries, outsourcing regional jet flying, and could seek to outsource most maintenance work, as its low-cost competitors do, the sources said.
US Airways is still losing money after cutting expenses by $1.9 billion annually in a bankruptcy that ended in 2003. Now, it wants to cut $1.5 billion more, including the $800 million from labor.
Pilots have been asked for the largest chunk, $295 million. Unions representing flight attendants and customer service agents are also talking about cuts, but union leaders say they haven't gotten very far. The International Association of Machinists, representing mechanics and fleet service workers, has not agreed to talk about concessions.
Pollock's message Wednesday came after the pilots' deeply divided executive council on Monday declined to let pilots vote on the company's last proposal. It included a 21 percent pay cut, productivity gains and a 50 percent pension cut. Four members from Philadelphia and Pittsburgh were able to prevent a vote because they represent the majority of the union's members.
In an interview, Pollock said that because the four "don't have the courage to be associated with these types of concessions, they will let somebody take the decision out of their hands."
In a letter Wednesday to Pittsburgh pilots, Pittsburgh local leader John Brook said the airline's last proposal "did not address any of the financial needs, returns, and job security of our pilot group."
He specifically objected to proposals that pilots give up furlough protection, some disability coverage and retiree medical, dental and prescription drug benefits. "We have reached an all-time low when we attack the old and crippled," he wrote.
US Airways had $975 million in cash on June 30, and bank loans of about $720 million guaranteed by the federal Air Transportation Stabilization Board. Loan requirements state that it must have $700 million in cash at the end of each month, and must improve its financial results in 2004 and 2005.
Most analysts believe that while US Airways has the money to make the $110 million pension payment, a payoff would probably drop cash reserves to a point where the airline would fall out of compliance with terms of its loan guarantee, which are measured Sept. 30.
The airline could receive some help Monday, when the Internal Revenue Service is expected to announce whether the airline can delay paying nearly $30 million of those pension payments by crediting contributions made earlier this year to last year's obligations. That would help the company save needed cash.
