This article from NYTimes.com has been sent to you by psa188@juno.com. /-------------------- advertisement -----------------------\ Enjoy new investment freedom! Get the tools you need to successfully manage your portfolio from Harrisdirect. Start with award-winning research. Then add access to round-the-clock customer service from Series-7 trained representatives. Open an account today and receive a $100 credit! http://www.nytimes.com/ads/Harrisdirect.html \----------------------------------------------------------/ US Airways Ready to Test Federal Loan Program April 27, 2002 By EDWARD WONG Only five months ago, US Airways joined its competitors in balking at applying for loan guarantees from the federal government. The airlines had just seen what the government wanted from America West in exchange for $380 million in backing: a stringent business plan, promises to cut costs and the option to buy a third of the company's stock. Too much, the other airlines said, even though America West accepted the deal. But now, US Airways, the country's sixth-largest carrier and an East Coast mainstay, has said that it will probably apply for loan guarantees in the next few weeks. That would set up the biggest test to date of the government's offer to shore up the embattled industry after the terror attacks of Sept. 11. Critics of the bailout program say Washington should not be propping up foundering companies. That is especially true in the case of US Airways, they say, because the government blocked a market-based solution last July by scuttling the company's proposed merger with United Airlines. Unions are also wary because the government will almost certainly ask for a business plan that involves labor concessions or a cap on wage growth. That could lead to a political struggle between labor and the Bush administration. Last week, when US Airways reported a $269 million loss for its first fiscal quarter - its seventh consecutive losing quarter - David N. Siegel, the airline's new chief executive, said he expected to seek a government-guaranteed loan from the Air Transportation Stabilization Board, which was set up under post-Sept. 11 legislation. The board has set an application deadline of June 28 for participation in the $10 billion loan program. So far, America West and three smaller airlines have applied, and only America West, the country's eighth-largest airline, has received a government-backed loan. Some analysts say that US Airways needs a loan guarantee not only for liquidity to restructure the company - as of March 31, it had just $561 million in cash - but also for use as a negotiating tool to bring labor costs down. "They have to get employees on board," said Susan M. Donofrio, an analyst at Deutsche Bank. "The loan guarantee is part of the program to lower labor costs." US Airways has the highest operating costs of all the major airlines. Last year, its cost of flying one seat one mile was 12.46 cents, compared with 10.14 cents for Delta Air Lines and 7.54 cents for Southwest Airlines, according to the US Airways annual report for 2001. Southwest was the only airline to declare a profit last quarter. The government gave America West a cudgel against labor when it required as part of the loan guarantee that if America West exceeded the per-unit labor costs outlined in a seven-year business plan, it would have to prepay the loans by the excess amount. So far, America West and its unions have not had to butt heads. "I think US Airways will be a significant weather vane for how this wind will blow, whether the political process will allow the A.T.S.B. to force adjustments in labor contracts," said Michael E. Levine, a former airline executive who teaches at Harvard Law School. "I think we'll all have ringside seats in this show." Almost 90 percent of the 35,667 employees of US Airways belong to unions, and union leaders would probably view any crackdown by the stabilization board on wages as part of a continuing antilabor stand by the Bush administration. Last year, President Bush blocked strikes by mechanics at both United and Northwest Airlines. And the unions are already concerned about the cost-cutting position of the stabilization board, whose three members come from the Treasury and Transportation Departments and the Federal Reserve. "We don't feel it's appropriate for the White House, Congress or any other government agency to dictate rules and wages," said Joe Tiberi, a spokesman for the International Association of Machinists, which represents 130,000 airline employees, including more than 12,000 at US Airways. "As for how much of a say they'll have in this, it'll be a test case. But it seems they will try to recommend some kinds of reductions in labor costs, and we feel it's not the government's job to be involved in that." Earlier this month, labor and management at US Airways reached agreement on at least one cost-cutting measure. The Air Line Pilots Association agreed to let the company double the number of regional jets in its fleet to 140. Pilots had feared job losses from the deployment of the smaller planes, but they relented after US Airways offered to retain nearly 300 pilots it had threatened to furlough. The deal will allow US Airways to replace less-fuel-efficient jets on some short-haul routes. In the next several weeks, the company is expected to lay out for its pilots the business plan that it would submit with a loan-guarantee application, said Roy Freundlich, a first officer and union spokesman. "We want to be involved in the development of the plan," he said. "Right now, the company is trying to work through the issues with us, but we would still like further participation to make sure we're involved and to make sure the plan would be acceptable to the pilots." Mr. Freundlich said the new managers of US Airways, appointed after Mr. Siegel took over as chief executive last month, are people with whom "we can actually deal." But the executive team, made up of airline industry veterans, is generally seen as tough when it comes to labor negotiations. The Sept. 11 attacks damaged US Airways more than most of its competitors because it has almost half its capacity and 80 percent of its departures on the East Coast. Its hub at Ronald Reagan National Airport in Washington was shut for three weeks; even after the airport reopened, flights among all airlines were down 56 percent from October through February, compared with the period a year earlier. Shares of US Airways, at $11.62 on Sept. 10, fell by half when the market reopened after the attacks. They rose as high as $8.60 in November, but then dropped again. The stock slipped 11 cents yesterday to close at $5.47 a share. Despite those financial woes, the stabilization board, just by granting the US Airways application, would irk those in and outside the industry who think that the government's interventions after Sept. 11 are leading to overregulation and a stifling of market forces. Such critics say that the government is offering life support to businesses that would otherwise fail in a Darwinian marketplace. In turn, they argue, that puts off industry consolidation, which might help the airlines return to profitability. "It is not appropriate in my view for governments to use the current situation to get into the business of propping up failing businesses," said Rod Eddington, chief executive of British Airways, "and thus distorting competition across our markets." http://www.nytimes.com/2002/04/27/business/27AIR.html?ex=1020946356&ei=1&en=4412592ebf8246b6 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company