US Airways, Without New Plan, Is Dead Man Walking: Doron Levin
March 22 (Bloomberg) -- US Airways Group Inc. faces a financial plight that recalls a bygone era in the early 1980s when Chrysler Corp. couldn't stay in business without a government loan guarantee.
Then, as now, the U.S. government had to decide whether to step in. Then, as now, it had to decide when enough is enough.
The Air Transportation Stabilization Board agreed on March 12 to relax the terms of a $1 billion loan guarantee that helped US Airways, the seventh largest U.S. airline, emerge from bankruptcy protection last year. Now some competitors and free marketeers are saying the government may be going too far to prop up the Arlington, Virginia-based carrier.
``This should be US Airways' last stand,'' said Kevin Mitchell, chairman of the Business Travel Coalition, an advocacy group for large buyers of business travel services. ``If they can't make it as a going concern, there are others who can.''
Faced with an auditor's report that raised doubts about US Airways' ability to stay in business, the three-person stabilization board voted 2-1 to relax loan covenants that might have forced the airline into bankruptcy for a second time.
One airline heartened by that decision is UAL Corp., whose plan to bring United Air Lines out of bankruptcy relies on a $1.6 billion government loan guarantee it is seeking.
``Without that loan, it's back to the drawing board,'' Steve Miller, a UAL director, said. United is the world's second- largest airline, behind AMR Corp.'s American Airlines.
Sept. 11
Recall that while the stabilization board was created to keep airlines from failing in the wake of Sept. 11, 2001, US Airways was faltering even before the terrorist attacks. So far, the carrier isn't explaining publicly the details of how it plans to reverse losses in the face of rising competition from low-cost carriers, low ticket prices and high jet-fuel costs, its most critical problems.
In Chrysler's darkest hour, the automaker that is now part of Stuttgart, Germany-based DaimlerChrysler AG sought financial help from the government, banks and the United Auto Workers union.
It also needed a new vehicle to replace the aging gas- guzzlers that weren't selling. The answer turned out to be the fuel-efficient K car -- known as the Dodge Aries and Plymouth Reliant -- that later became the basis of Chrysler's blockbuster, the industry's first minivan.
Gerald Greenwald, former vice chairman of Chrysler and former chief executive of United, thinks US Airways must quickly try to transform itself into the next low-cost carrier, along the lines of Southwest Airlines Co., the largest U.S. discount carrier.
`Live Another Day'
``It would be their version of the K car, their chance to live another day,'' said Greenwald, who is a managing director of Greenbriar Equity Group LLC, in Rye, New York. The irony is lost on no one that in May Southwest begins 14 flights daily from Philadelphia, the most important hub of US Airways.
US Airways has begun negotiating with its pilots union for wage concessions.
The plan is to lower costs 25 percent from about 10.5 cents per available seat, flown one mile, compared with 6-7 cents per seat-mile for Southwest, JetBlue Airways Corp. and other low-cost carriers.
Becoming another Southwest, however, isn't in the cards, said David Castelveter, a US Airways spokesman. The airline has no intention of giving up overseas routes or abandoning the hub- and-spoke model of collecting travelers from many small towns and having them change planes at large airport-hubs.
`Something In-Between'
``We need to be something in-between,'' he said.
Investors and lenders have every right to be dubious, since the business model Castelveter describes has no precedent. The idea won't have a chance unless the pilots' union decides on a big step toward a wage cut. Pilots are the biggest component of labor costs, which are 40 percent of total costs.
The relaxation of financial covenants on US Airways loans didn't buy much time. Unless it can show a narrowing of operating losses by June and a return to profitability in 2005, the deal is off, and the bankruptcy judge's gavel could fall.
Chrysler, with loan guarantees, did manage a turnaround in the mid-1980s. Fortunately for it, competition by Japanese automakers hadn't yet reached today's deadly pace. Lots of investors made a fortune on rebounding Chrysler shares; even the government profited on Chrysler warrants; yet the automaker ultimately sold itself to Daimler-Benz AG in 1998.
Whatever US Airways pilots and other workers decide, they may have less time than they think. The U.S. airline industry has endured despite failed airlines - think Eastern, Pan Am, TWA. There won't be much sympathy if the airline returns to Washington with hat in hand.
March 22 (Bloomberg) -- US Airways Group Inc. faces a financial plight that recalls a bygone era in the early 1980s when Chrysler Corp. couldn't stay in business without a government loan guarantee.
Then, as now, the U.S. government had to decide whether to step in. Then, as now, it had to decide when enough is enough.
The Air Transportation Stabilization Board agreed on March 12 to relax the terms of a $1 billion loan guarantee that helped US Airways, the seventh largest U.S. airline, emerge from bankruptcy protection last year. Now some competitors and free marketeers are saying the government may be going too far to prop up the Arlington, Virginia-based carrier.
``This should be US Airways' last stand,'' said Kevin Mitchell, chairman of the Business Travel Coalition, an advocacy group for large buyers of business travel services. ``If they can't make it as a going concern, there are others who can.''
Faced with an auditor's report that raised doubts about US Airways' ability to stay in business, the three-person stabilization board voted 2-1 to relax loan covenants that might have forced the airline into bankruptcy for a second time.
One airline heartened by that decision is UAL Corp., whose plan to bring United Air Lines out of bankruptcy relies on a $1.6 billion government loan guarantee it is seeking.
``Without that loan, it's back to the drawing board,'' Steve Miller, a UAL director, said. United is the world's second- largest airline, behind AMR Corp.'s American Airlines.
Sept. 11
Recall that while the stabilization board was created to keep airlines from failing in the wake of Sept. 11, 2001, US Airways was faltering even before the terrorist attacks. So far, the carrier isn't explaining publicly the details of how it plans to reverse losses in the face of rising competition from low-cost carriers, low ticket prices and high jet-fuel costs, its most critical problems.
In Chrysler's darkest hour, the automaker that is now part of Stuttgart, Germany-based DaimlerChrysler AG sought financial help from the government, banks and the United Auto Workers union.
It also needed a new vehicle to replace the aging gas- guzzlers that weren't selling. The answer turned out to be the fuel-efficient K car -- known as the Dodge Aries and Plymouth Reliant -- that later became the basis of Chrysler's blockbuster, the industry's first minivan.
Gerald Greenwald, former vice chairman of Chrysler and former chief executive of United, thinks US Airways must quickly try to transform itself into the next low-cost carrier, along the lines of Southwest Airlines Co., the largest U.S. discount carrier.
`Live Another Day'
``It would be their version of the K car, their chance to live another day,'' said Greenwald, who is a managing director of Greenbriar Equity Group LLC, in Rye, New York. The irony is lost on no one that in May Southwest begins 14 flights daily from Philadelphia, the most important hub of US Airways.
US Airways has begun negotiating with its pilots union for wage concessions.
The plan is to lower costs 25 percent from about 10.5 cents per available seat, flown one mile, compared with 6-7 cents per seat-mile for Southwest, JetBlue Airways Corp. and other low-cost carriers.
Becoming another Southwest, however, isn't in the cards, said David Castelveter, a US Airways spokesman. The airline has no intention of giving up overseas routes or abandoning the hub- and-spoke model of collecting travelers from many small towns and having them change planes at large airport-hubs.
`Something In-Between'
``We need to be something in-between,'' he said.
Investors and lenders have every right to be dubious, since the business model Castelveter describes has no precedent. The idea won't have a chance unless the pilots' union decides on a big step toward a wage cut. Pilots are the biggest component of labor costs, which are 40 percent of total costs.
The relaxation of financial covenants on US Airways loans didn't buy much time. Unless it can show a narrowing of operating losses by June and a return to profitability in 2005, the deal is off, and the bankruptcy judge's gavel could fall.
Chrysler, with loan guarantees, did manage a turnaround in the mid-1980s. Fortunately for it, competition by Japanese automakers hadn't yet reached today's deadly pace. Lots of investors made a fortune on rebounding Chrysler shares; even the government profited on Chrysler warrants; yet the automaker ultimately sold itself to Daimler-Benz AG in 1998.
Whatever US Airways pilots and other workers decide, they may have less time than they think. The U.S. airline industry has endured despite failed airlines - think Eastern, Pan Am, TWA. There won't be much sympathy if the airline returns to Washington with hat in hand.
............or "YOU'RE DEAD WRONG!"
Yup. Point taken. I figured I'd give it one shot. But, ultimately, there are none so blind as those who will not see.
You Are Cracking Me Up!!!!
