Aviation Week & Space Technology
February 10, 2003
4Q Is Tough Sledding At United, US Airways
DAVID BOND/WASHINGTON
United Airlines, early in its Chapter 11 reorganization, and US Airways, which thinks it still is on track to emerge from it by April, reported heavy 2002 losses and made clear, in numbers and deeds, that solving labor-cost problems remains the key to their survival.
The alliance partners, last among the big U.S. network airlines to issue financial results, had little but bad news for their stakeholders. United logged net losses of $1.5 billion in the fourth quarter of 2002 and $3.2 billion for the year, compared with $308 million in the fourth quarter of 2001 and $2.1 billion for the full year. US Airways, with less than half United's revenues, lost $794 million in the fourth quarter and $1.65 billion for the year. But unlike United's, these results improved on 2001, when US Airways lost $1.2 billion in the quarter and $2.1 billion for the year.
One big difference is that United's results included only a few weeks in Chapter 11 and thus reflected none of bankruptcy protection's cost-saving benefits. US Airways entered Chapter 11 in August, so parts of its cost-reduction program were in effect for the fourth quarter.
In that context, some of the just-issued financial data should give US Airways pause. Although its labor costs as a percentage of total costs were nearly six percentage points lower in the fourth quarter than for the year, its labor productivity--measured in available seat miles divided by labor costs--showed no gain. And labor costs as a percentage of revenue remained high.
United's productivity was better but its labor cost percentages were worse. And American--seeking labor concessions in an attempt to stay out of Chapter 11--had better productivity than United.
Although US Airways has secured union agreements covering all pay and work-rule concessions it thinks it needs, it had to act unilaterally on the last big labor hurdle to emerging from bankruptcy. On Jan. 30, the airline told the Pension Benefit Guaranty Corp. (PBGC) of its intention to terminate the pilots' defined benefit pension plan, as of Mar. 31, and substitute a defined contribution plan into which it will pay $850 million over the next seven years.
The carrier tried but failed to get administrative approval from the PBGC and legislation from Congress to stretch out payment of the roughly $3 billion it would have taken to keep the old plan going, and it said it will continue to seek legislative help if Congress deals with pension funding issues this year. Lacking that, and if its proposal is approved by the PBGC and the bankruptcy court, the PBGC will administer the current plan.
Other US Airways labor concessions have turned what used to be competitive disadvantages into advantages, CEO David Siegel said Feb. 5 at a conference of securities analysts. Pay is "effectively frozen" for six years, with low increases and no snapbacks. If war or a terrorist attack puts the carrier back in the red, it can defer 5% of pay for as much as 18 months, for as many times as this happens. The US Airways pilot scope clause, which used to be one of the most restrictive, is now one of the most flexible, and the airline and its affiliates will be able to fly as many as 465 regional jets, including RJs with more than 70 seats.
In addition to increasing code-share service with United, Siegel said US Airways will apply this spring to become a member of the Star Alliance, currently anchored by United and Lufthansa. US Airways' strength in the eastern U.S. makes it "a very strong natural fit" with Star, he said.
©February 10, 2003, The McGraw-Hill Companies Inc.
You see, Chip, despite your unceasing (and unsourced) efforts to "spin" United's current problems into a "US Airways takes over United" scenario, it's just as easy to find articles that put US Airways in a bad light.
BTW, (according to a table attached to the article) I find it interesting that UA's 4th Quarter 2002 operating margin was -28.7% while US' comparable figure was -37.4%. This occurred while US already had some of its cost reductions in place.
Incidentally, Chip, what is the likelihood of the US pilots actually striking over the pension issue, and what do you believe your airline's future would look like if that happens?
Perhaps
UNITED should be looking for a new partner!