One more article...
Posted on Fri, Aug. 13, 2004
Report: Airline needs help now
Analysis prepared for pilots says if US Airways can't cut labor costs, it could close in 180-270 days or less
TED REED
Staff Writer
If it fails to secure labor cost reductions, US Airways will likely liquidate by spring, according to a new report prepared by consultants for the airline's pilots union.
"The company's business model is not sustainable," said the report by Glanzer & Co. LLC. "Either it adjusts its cost structure ... or the company will cease operating within 180 to 270 days, if that long."
The confidential report was distributed this week to US Airways' pilots; a copy was obtained by the Observer. Both the airline and the Air Line Pilots Association said they generally agreed with the dire conclusions of the report, though they declined to comment on specifics.
The company, which emerged from Chapter 11 bankruptcy protection in March 2003, is extremely likely to return to bankruptcy court by mid-September, the report said.
US Airways, which has its largest hub in Charlotte, has been buffeted by high fuel costs and intense competition from low-fare carriers. Despite the previous bankruptcy reorganization, it has the airline industry's highest costs and has said it will lose money this year. The company has previously warned in securities filings that without cost cuts, it faces bankruptcy.
The pilots union retained consultant Glanzer to determine whether the company's demand for $295 million in annual concessions was warranted.
The report recommends that pilots, currently in negotiations with US Airways, generally provide the cost savings that the airline wants. The airline is seeking $1.5 billion in annual cost cuts, including $800 million from its unions.
The progress of talks with pilots, considered the most likely group to make a deal, has slowed. And there has been little or no movement in talks with other unions.
Even if there were a deal with pilots, a second bankruptcy filing should be expected in mid-September "as a result of various financial pressures," the report says. Chief among them is a $130 million payment due Sept. 15 to pension plans for flight attendants and mechanics. A Chapter 11 filing would allow the airline to conserve cash.
But harsh financial pressures would continue.
High fuel prices mean the airline won't be able to meet the Sept. 30 cash flow requirement mandated by the federal Air Transportation Stabilization Board, the report says. That failure would trigger a default, giving the board the option to seek repayment.
The airline needs to cut costs in order to convince the board to continue to provide the loan guarantees, the report says. The board was created after the Sept. 11 terror attacks to help the beleaguered airline industry. It guaranteed private-sector loans to US Airways and demanded that the airline meet certain financial requirements.
US Airways had a cash balance of $975 million at the end of the second quarter. The board's guarantees cover about $720 million in US Airways' debt.
The airline also needs to cost cuts in order to retain the confidence of its other creditors, including General Electric Capital Corp., which has provided financing for regional jets, and American Express, which has an escrow account for credit card payments for unused tickets.
If the airline's financial outlook deteriorates, creditors will become increasingly eager to get their money back, the report says, unless they are "persuaded that the company is a viable enterprise." Were any single major creditor to seek repayment, others would follow, triggering a failure, the report says.
In a second bankruptcy, the airline could secure cost cuts from unions and possibly negotiate lower payments on some of its debt. But a bankruptcy contested by every one of the unions could lead the stabilization board to conclude that it should simply seek repayment, the report says.
The airline's most valuable assets are its gates and assigned flight times at congested Northeast airports, such as New York's La Guardia, the report says. But because other airlines could profit more from those assets, "the company may be worth more dead than alive to groups other than the employees."
The report also suggests that the airline could modify its survival plan to include either obtaining fewer new airplanes or obtaining older, cheaper airplanes. Fewer planes would mean fewer pilot jobs.
In a prepared statement, the pilot's union said that it concurs with the report's conclusion "that we quickly reach consensual agreements with all of our labor unions so that we achieve the necessary cost reductions."
Joe Tiberi, spokesman for the International Association of Machinists said late Thursday that he had not seen the report. He said the union, which represents mechanics and fleet service workers, remains unwilling to open its contract for concessionary talks, though it will suggest other cost-saving measures to the company.
--------------------------------------------------------------------------------
Ted Reed: (704) 358-5170; [email protected]
Posted on Fri, Aug. 13, 2004
Report: Airline needs help now
Analysis prepared for pilots says if US Airways can't cut labor costs, it could close in 180-270 days or less
TED REED
Staff Writer
If it fails to secure labor cost reductions, US Airways will likely liquidate by spring, according to a new report prepared by consultants for the airline's pilots union.
"The company's business model is not sustainable," said the report by Glanzer & Co. LLC. "Either it adjusts its cost structure ... or the company will cease operating within 180 to 270 days, if that long."
The confidential report was distributed this week to US Airways' pilots; a copy was obtained by the Observer. Both the airline and the Air Line Pilots Association said they generally agreed with the dire conclusions of the report, though they declined to comment on specifics.
The company, which emerged from Chapter 11 bankruptcy protection in March 2003, is extremely likely to return to bankruptcy court by mid-September, the report said.
US Airways, which has its largest hub in Charlotte, has been buffeted by high fuel costs and intense competition from low-fare carriers. Despite the previous bankruptcy reorganization, it has the airline industry's highest costs and has said it will lose money this year. The company has previously warned in securities filings that without cost cuts, it faces bankruptcy.
The pilots union retained consultant Glanzer to determine whether the company's demand for $295 million in annual concessions was warranted.
The report recommends that pilots, currently in negotiations with US Airways, generally provide the cost savings that the airline wants. The airline is seeking $1.5 billion in annual cost cuts, including $800 million from its unions.
The progress of talks with pilots, considered the most likely group to make a deal, has slowed. And there has been little or no movement in talks with other unions.
Even if there were a deal with pilots, a second bankruptcy filing should be expected in mid-September "as a result of various financial pressures," the report says. Chief among them is a $130 million payment due Sept. 15 to pension plans for flight attendants and mechanics. A Chapter 11 filing would allow the airline to conserve cash.
But harsh financial pressures would continue.
High fuel prices mean the airline won't be able to meet the Sept. 30 cash flow requirement mandated by the federal Air Transportation Stabilization Board, the report says. That failure would trigger a default, giving the board the option to seek repayment.
The airline needs to cut costs in order to convince the board to continue to provide the loan guarantees, the report says. The board was created after the Sept. 11 terror attacks to help the beleaguered airline industry. It guaranteed private-sector loans to US Airways and demanded that the airline meet certain financial requirements.
US Airways had a cash balance of $975 million at the end of the second quarter. The board's guarantees cover about $720 million in US Airways' debt.
The airline also needs to cost cuts in order to retain the confidence of its other creditors, including General Electric Capital Corp., which has provided financing for regional jets, and American Express, which has an escrow account for credit card payments for unused tickets.
If the airline's financial outlook deteriorates, creditors will become increasingly eager to get their money back, the report says, unless they are "persuaded that the company is a viable enterprise." Were any single major creditor to seek repayment, others would follow, triggering a failure, the report says.
In a second bankruptcy, the airline could secure cost cuts from unions and possibly negotiate lower payments on some of its debt. But a bankruptcy contested by every one of the unions could lead the stabilization board to conclude that it should simply seek repayment, the report says.
The airline's most valuable assets are its gates and assigned flight times at congested Northeast airports, such as New York's La Guardia, the report says. But because other airlines could profit more from those assets, "the company may be worth more dead than alive to groups other than the employees."
The report also suggests that the airline could modify its survival plan to include either obtaining fewer new airplanes or obtaining older, cheaper airplanes. Fewer planes would mean fewer pilot jobs.
In a prepared statement, the pilot's union said that it concurs with the report's conclusion "that we quickly reach consensual agreements with all of our labor unions so that we achieve the necessary cost reductions."
Joe Tiberi, spokesman for the International Association of Machinists said late Thursday that he had not seen the report. He said the union, which represents mechanics and fleet service workers, remains unwilling to open its contract for concessionary talks, though it will suggest other cost-saving measures to the company.
--------------------------------------------------------------------------------
Ted Reed: (704) 358-5170; [email protected]
