USAIRWAYS TO PROSPER

skyflyr69

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Dec 11, 2002
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A Tale of Two Bankruptcies
US Airways will emerge from Chapter 11 far better off than United. Here''s why.
FORTUNE
Monday, February 3, 2003
By John Helyar
When the nation''s No. 1 carrier, United Airlines, tried to buy US Airways in 2000, it seemed more like a mercy killing than a merger. US Airways was a weak No. 6, with poor prospects as an independent. The outlook only worsened in 2001 after the Justice Department nixed the deal and terrorists torpedoed aviation. US Airways was a consensus pick to be runway kill.
Today, of course, both airlines are bankrupt: US Airways filed for Chapter 11 last August; United''s parent, UAL, last December. But it''s US Airways, not the once-mighty United, that''s rapidly regaining altitude. Under Chapter 11, which gives a company protection from its creditors, $7-billion-a-year US Airways has restructured its debt and attracted new capital; it is scheduled to emerge from bankruptcy March 31. Meanwhile United, which had $14.3 billion in revenues last year, is struggling just to meet its lenders'' cash-flow and cost-cutting requirements. Absent progress, United could soon begin a spiral from Chapter 11 into Chapter 7: liquidation. The two airlines provide an object lesson in crisis management, proving that strong leaders, swift action, and smart strategy count for more than superior markets, equipment, and hubs.
One of the most obvious differences between the two airlines is the guy at the top. David Siegel, a young (41) yet seasoned veteran of the Continental Airlines turnaround whom US Airways hired as CEO last March, quickly implemented a new strategy: Focus on the carrier''s best short-hop Eastern routes, and scuttle many big jets for cheaper regional ones. Siegel also forged new ties with pilots. His jobs for jets program (he gave furloughed pilots first chance to fly regional jets) and his willingness to open the company''s books induced them to agree to pay cuts of at least 26% last July. That helped the carrier win conditional approval of $900 million in federal loan guarantees.
When the airline''s mechanics wouldn''t join other unions in making voluntary sacrifices, Siegel took the carrier into Chapter 11--a status that gives companies the ability to void labor contracts with a judge''s approval. That leverage helped Siegel bring the recalcitrants around. Filing Chapter 11 is a scary thing, but not nearly as much as Chapter 7, says Siegel. US Airways sought a second round of concessions in December; the pilots again led the way, agreeing to major work-rule changes. Now the pilots are grumbling because Siegel terminated their pension plan, eliminating a $2 billion shortfall and clearing the final hurdle out of Chapter 11. But many others are cheering. David Siegel knows where he''s going, and he''s tough, says Frank Jay, a Houston-based executive recruiter for the industry.
Compare Siegel with United''s Glenn Tilton, the former vice chairman of ChevronTexaco, who replaced interim CEO Jack Creighton last September. Tilton delivered swell pep talks to the demoralized workforce, but this oil-industry lifer knew too little about airlines to take decisive action and was too nice a guy to play hardball with union leaders. He allowed United''s application for vital federal loan guarantees to be dictated by what labor was willing to offer in pay cuts ($6 billion) rather than what management felt was required ($9 billion). Tilton is good with people, but that''s not what they needed, Jay says. They need somebody to kick ass and take names.
The Air Transportation Stabilization Board (ATSB), which administers the industry''s bailout fund, found United''s cost cuts too low. On Dec. 4, the ATSB rejected United''s application for $1.8 billion in federal loan guarantees, forcing United to file for Chapter 11 a few days later. The company foresees another 18 months in bankruptcy.
Another key difference between today''s United and US Airways is union power. Because a 1994 employee stock-ownership plan (ESOP) gave United''s pilots and mechanics unions board seats and employees 55% ownership of parent UAL, the carrier''s union leaders think of themselves as the true bosses. And they have an odd notion of sacrifice. Unions have so far agreed to only $70 million a month in interim pay concessions--a fraction of the required payroll trimming. Some bumper stickers in employee parking lots say full pay to the last day.
The unions at US Airways had no such ideas. With their employer operating in secondary hubs like Pittsburgh and long hanging on for dear life, the workers were plenty receptive to credible management with a clear plan. US Airways had been told for the last three or four years, ''You''re the next Eastern,'' says George Hamlin, an airline consultant based in Washington, D.C. Siegel has taken his troops through a positive, near-death experience. At United people are still in a grieving process.
Does United, whose debt load is now $21.5 billion (vs. $7.5 billion for US Air), have a future? There''s no remote chance of [Chapter 7], Tilton insists. There''s far too much opportunity and far too much improvement that''s within our control. He cites the airline''s still-vast route network, its recent bold (and, he claims, successful) business-travel fare cuts, its plans for a new and separate discount-airline subsidiary, and its progress in negotiations with unions and creditors.
But United''s relationship with labor is still frosty: The unions recently denounced the discount-airline plan as an attempt to shuttle their members into lower-paying jobs. And United is taking a very hard line in trying to wrest concessions from lenders and aircraft lessors, according to people close to those talks. That''s risky, considering how many of those parties have US Airways as a basis for comparison. US Airways went into bankruptcy with a very specific plan, says James Tussing, a lawyer representing some United creditors. They established a degree of credibility with creditors that United hasn''t.
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Mike W

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Dec 9, 2002
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I wish when these people write these stories they would actually do some research before they print them.The line, when the mechanics refused to go along,Seigel took US Airways into Chapter 11,is false.Seigel filed Chapter 11 on August 11th.The IAM did not have any kind of concession package negotiated for either Fleet Service or Maintenance and Related at that time.We did not vote on our packages until the end of August.At that time maintenance rejected the concession proposal.We were three weeks into bankruptcy by then.Trying to make it sound as if the mechanics forced US Airways into bankruptcy is at least shoddy reporting but my guess is that there is an underlying motive.
 

a320av8r

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Aug 20, 2002
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Obviously a Wall Street business mag doesn't want to hear about screwing companys, only about screwing employees. Makes for a better read.
"Wall Street loves slave labor"
 

Biffeman

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Nov 25, 2002
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This article contains false information, US Airways did not file chapter 11 because of the mechanics not reaching an agreement, at the time of filing the IAM mechanic and related and fleet service agents and the CWA Customer Service and Res Agents had not reached agreements. Siegel even said it was failure to reach agreement with the lease, debt and bond holders is why the filed bankruptcy.
 

Biffeman

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Nov 25, 2002
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US Airways has tried to cut lease rates on some of its 311 planes, but was having trouble, Senior Vice President Chris Chiames said.

"We've been putting off payments on aircraft for going on two months now," he told reporters. "The financial condition of the airline was such that it was unsustainable to continue to operate with such a high cost involving older aircraft that have high lease rates and those kinds of things."

While US Airways was able to successfully negotiate cost-savings from many of its employee groups, the Company determined that is was unlikely to conclude consensual negotiations with certain vendors, aircraft lessors and financiers in a timeframe necessary to complete an out-of-court restructuring. Siegel cited as factors the large number of lessors and financiers and the Company's inability to reject surplus aircraft leases and return excess aircraft outside of Chapter 11.
 

PITbull

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Dec 29, 2002
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[blockquote]
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On 2/3/2003 2:28:43 PM Biffeman wrote:

This article contains false information, US Airways did not file chapter 11 because of the mechanics not reaching an agreement, at the time of filing the IAM mechanic and related and fleet service agents and the CWA Customer Service and Res Agents had not reached agreements. Siegel even said it was failure to reach agreement with the lease, debt and bond holders is why the filed bankruptcy.
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[/blockquote]

Biff,

I am glad you cited that misleading and false information about IAM. Mangement has stated that they filed for Chapter 11 because their vendors, and leassors would not agree to the concessions the co. tried to negotiate. IAM vote was not even in then.

They also cited that U came in with a definite "plan", UA did not. Your damn straight they did. Well thought out "plan" to boot. Siegel brought his notorious clan in. Doesn't take an Einstien to figure that you can cut operating costs by filing for chapter 11 protection, and demanding that your work group work at such reduced wages and benfits that they themselves can no longer pay their own bills. Liquidation shifted from the co. to the individual employees going forward. And this is all considered "good" and praiseworthy of this team?

I think the IAM should demand a retraction for giving the public "false" information. Siegel should also set the record straight for the sake of the sacrifices made by the IAM. "call foul".

Thanks for setting the record straight.
 

real world

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Dec 14, 2002
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You guys are all right it was not labor that put us over the edge. Up to the point of bankruptcy and for that matter labor has provided us will all of the needed concessions it was the lessors that backed us into a corner.
 

PITbull

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Dec 29, 2002
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[blockquote]
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On 2/3/2003 10:07:51 PM real world wrote:

You guys are all right it was not labor that put us over the edge. Up to the point of bankruptcy and for that matter labor has provided us will all of the needed concessions it was the lessors that backed us into a corner.
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[/blockquote]

Nice to see you on the board "Real World".

Now, can you make sure that a retraction go out in Forbes Magazine, along with some management acknowledgement that it was absolutely NOT IAM that forced a decision of bankruptcy for U?