"US Airways Becoming Optimistic Again"

Monday, February 7, 2005

US Airways Becoming Optimistic Again
BY MATTHEW BARAKAT
The Associated Press


ALEXANDRIA, Va. - When US Airways filed for bankruptcy in September - its
second filing in two years - many experts wondered aloud whether the
airline's days were numbered.

The speculation intensified over the Christmas holidays, when the airline
experienced what its own chief executive labeled "an operational meltdown"
at its Philadelphia hub that he blamed on surly workers staging a wildcat
sickout - an allegation rejected by union leaders.

But a flurry of good news in the last few weeks ranging from new labor
contracts to new financing has airline management optimistic again. The
airline even took out full-page ads in major newspapers declaring "Clear
Skies Ahead."

CEO Bruce Lakefield wrote a letter to the airline's frequent fliers,
confidently stating, "We believe the most difficult days are behind us."

Indeed, some of the airline's strongest critics have changed their tune.
Terry Trippler, who runs the travel Web site TerryTrippler.com, said after
the holiday debacle that the airline was a goner. "Stick a fork in them,
folks. They're done," he said at the time.

Now, says Trippler, he would have no qualms about booking US Airways for
travel on, say, Memorial Day weekend.

"They just won't give up. The resilience of US Airways is nothing short of
amazing," Trippler said. "Management is optimistic, and it doesn't seem to
be foolish optimism. No one is more excited than me to say, 'Let's take that
obituary and put it away in the drawer for now.'"

While its accomplishments since its emergence from bankruptcy have been
significant, the airline still faces a huge hurdle: finding an investor to
provide $250 million or so in new finances. Any investor who does so will be
taking a sizable risk: the outfit that bankrolled US Airways' last emergence
from bankruptcy, the Retirement Systems of Alabama, could well lose its
entire $240 million investment depending on the final terms of the airline's
plan of reorganization.

Still, there have been some noteworthy accomplishments lately. The most
militant of the airline's unions, the International Association of
Machinists, agreed to new labor contracts that cut pay from 12 to 20
percent. The contracts were approved decisively, with more than 60 percent
in favor.

The airline also obtained financing deals with its primary lenders that give
it the necessary cash to operate through at least June, by which time the
airline hopes to have emerged from bankruptcy altogether.

On Sunday, the airline expanded operations at Reagan National Airport, near
Washington, adding flights to Atlanta, Chicago, Cleveland, Dallas, Detroit
and Houston. The airline is seeking to hire 200 new baggage handlers and
customer service agents to support the expanded operation.

After initial difficulty in filling the positions, US Airways attracted
hundreds of applicants to a job fair last week, even with starting pay as
low as $7.52 an hour and $9.59 an hour, depending on the job.

"There were plenty of naysayers out there who said this couldn't be done,
that US Airways would wither in the face of employee opposition," Lakefield
told employees on the day IAM ratified its new contracts. "You have proven
them wrong."

Still, the industry as a whole remains shaky. In US Airways' case, the
airline has acknowledged in court papers that its new cost structure does
not guarantee success but gives it "a fighting chance for survival."

The airline has projected that it will not turn a substantial profit until
at least 2008. Then, when it does turn a profit, some of that money will go
to the employees themselves. That's because, as an inducement to get unions
to accept the steep pay cuts, the airline promised that employees would get
10 percent of all profits on a profit margin of up to 5 percent, and 25
percent of all profits on a margin greater than 5 percent.

Thomas Boland, an airline restructuring expert and managing director of
Seneca Financial Group in Greenwich, Conn., said one of the biggest
obstacles to attracting a new investor could be the federal government.

The government's Air Transportation Stabilization Board provided a federally
guaranteed $900 million loan to US Airways that allowed it to emerge from
its first trip into bankruptcy. The airline still owes more than two-thirds
of that original loan, and the government enjoys a "superpriority status" as
a creditor, essentially meaning that it stands first in line among creditors
to get its money back.

Any new investor would likely expect certain privileges as a result of its
investment that could conflict with the ATSB's status, he said.

"I just don't see the (ATSB) being flexible to the needs of new money,"
Boland said.

Also, Boland said, US Airways' success in lowering its labor costs does not
alter the fundamental dynamic in the industry: Low-cost carriers like
Southwest and JetBlue are eating up market share from traditional carriers
like US Airways not just with cheaper labor, but with more profitable route
networks and other efficiencies.

Southwest, for instance, is increasing its presence in Philadelphia and is
expanding later this year into Pittsburgh, another US Airways stronghold.

"I don't think they (US Airways) have solved their cost issue," Boland said.
"And they've got some competitors who've figured it out."

ON THE NET

http://www.usairways.com


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