"US Airways in precarious spot after talks with pilots break off"

Tuesday, August 24, 2004

US Airways in precarious spot after talks with pilots break off
By Dan Fitzpatrick
The Pittsburgh (PA) Post-Gazette


US Airways and its pilots union have broken off their do-or-die
concessionary talks, dealing a major blow to the company's campaign for $800
million in labor cuts and increasing the likelihood of a bankruptcy filing
this fall.

The setback, which came late Sunday, coincided with a risky Florida strategy
unveiled yesterday by the nation's seventh-largest airline challenging
American Airlines' South Florida hegemony with new flights from Fort
Lauderdale to the Caribbean and Latin America. 

To some, the two events looked like the last gasp of an airline that appears
headed for a second trip through bankruptcy court and possible liquidation.
"There is no plan," said Allegheny County Airport Authority Director Kent
George. "There is no real direction." 

The Florida strategy, which uses Fort Lauderdale as a U.S. gateway to the
Caribbean and Latin America, would not take off until February, with flights
and connections to 10 new international cities.

US Airways, though, may not make it to February if it cannot coax more
concessions from its five major unions in the next three weeks. The
Arlington, Va.-based company pushed for a new pilot accord last weekend,
hoping it would put more pressure on the flight attendants, passenger
service workers, machinists and dispatchers.

Without new agreements from all unions, the company may file for bankruptcy
by mid-September ahead of several financial hurdles it faces next month.

The company, perhaps as a last resort, provided pilot negotiators Sunday
with one last proposal and asked that it be forwarded to the union's 12-man
governing body, the Master Executive Council, then to the rank and file for
a ratification vote.

The council, controlled by pilot leaders who believe the union has been too
conciliatory in prior negotiations, will meet tomorrow to review the
proposal and "determine what further actions should be taken," pilot
spokesman Jack Stephan told US Airways pilots yesterday via a telephone
message.

Local airline analyst and investor Bill Lauer said he expects union leaders
to send the offer out for a vote without endorsing it, asking 3,000 pilots
to make the fateful decision. "If they conclude their jobs are really at
stake, union politics be damned, they will probably ratify this thing," he
said.

US Airways is seeking $295 million in concessions from the pilots, but the
talks broke down over substantial disagreements on pilot furloughs, cuts in
retirement benefits and a host of productivity changes, including the amount
of sick and vacation time each pilot can take.

One big area of disagreement is a "no-furlough" clause requested by the
union versus the company's request to furlough as many as 775 pilots.

In breaking off talks, the company informed the pilots that despite agreeing
to a 16.25 percent pay decrease, the union's most recent proposal would not
cut deeply enough for US Airways to be profitable, attract backers and
compete with more aggressive low-cost carriers such as JetBlue Airways and
Southwest Airlines.

Without more union cooperation, the company said, it reserves the right to
file for bankruptcy by Sept. 10 and ask a judge to make the cuts.

Yesterday, the airline's management declined to engage in any verbal
sparring, saying only that the pilots were aware of the company's financial
problems. "We expect to hear from them soon," the company said.

The pilots were not as sanguine, unleashing a torrent of criticism from all
factions of the union, ranging from moderates, who have reached
accommodation, to hard-liners, who have suggested enough is enough.

"Since the beginning of these talks," said Stephan, a spokesman representing
the view of moderate union chairman Bill Pollock, "we have witnessed a
disturbing trend by the company to seemingly dismiss several significant
proposals from our pilot negotiators. Instead, management has responded by
'piling on' additional demands." 

Philadelphia union representatives Dan Von Bargen and John Crocker, two
pilot leaders who believe the Air Line Pilots Association has been too
conciliatory in years past, called the company's take-it-or-leave-it
proposal "yet another step backwards" and said "it is apparent that the
company feels the only way to an agreement is through ALPA's complete
capitulation."

The company, they said, is to blame for the lack of progress at the
negotiating table. Now that a $110 million pension payment is due Sept. 15,
forcing a possible default on more than $700 million in federally backed
loans, ALPA said, "we are being placed in the proverbial burning house by
the very same people that only met with us at a lethargic pace for the past
two months."

Von Bargen, Crocker, two pilot representatives from Pittsburgh and one from
Boston are largely responsible for the firm stance adopted by the union's
negotiating team. These same five union leaders, critical of a previous
round of concessions that gutted the pilots' old pension plan, promised
their members a more vigilant defense this time around.

They also control enough votes on the union's governing council to sway any
vote, meaning they will decide tomorrow whether the company's last,
take-it-or-leave-it proposal goes out for a rank-and-file vote. 

As observers struggled to make sense of the negotiating impasse yesterday,
they also scratched their heads at US Airways' new Florida strategy.

Florida is a market where brutal competition from Southwest Airlines and
other low-fare discounters has hurt US Airways in the past. In the
mid-1990s, in fact, US Airways lost $100 million a year in Florida even with
full planes. 

Yet in six months, US Airways intends to wade back in by using Fort
Lauderdale Hollywood International Airport to connect eight U.S. cities --
including Pittsburgh -- to 10 international destinations, including
Kingston, Jamaica and San Salvador, El Salvador. Passengers also will be
able to access a more simplified fare structure on these flights, including
the trip from Pittsburgh to Fort Lauderdale.

US Airways may be able collect more revenue in the Caribbean, but Fort
Lauderdale is only 25 miles from an American Airlines hub at Miami
International Airport.

Experts question if it can survive such competitive proximity, given that US
Airways is already fighting one fare war in Philadelphia against
fast-growing Southwest, which intends to increase the pressure on US Airways
this fall by offering as many as 41 daily flights from Philadelphia
International Airport by Oct. 31. 

"It is kind of like competing with Southwest is not enough for them," said
Lauer, the airline analyst and investor. "They have now decided they want to
go head-to-head with American, which dominates Miami, the Caribbean and
Latin America. It just doesn't make a lot of sense to me." 

More than likely, any growth in Fort Lauderdale will come at the expense of
Pittsburgh International Airport, where US Airways is eliminating a third of
its flights this fall, leaving it with 240 daily flights to more than 50
cities.

Attached Graphic:

Cutting it Close

usairwaysconcessions.gif