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Watch the trailer at: http://www.foxsearchlight.com/theclearing/index_nyt.html \----------------------------------------------------------/ US Airways Warns of Consequences if Costs Aren't Cut May 8, 2004 By MICHELINE MAYNARD US Airways, pressing its labor unions to grant a third round of contract concessions, warned yesterday that it might have to seek bankruptcy protection a second time or sell assets if it is unable to cut its costs. The projection, in a quarterly filing with the Securities and Exchange Commission, came as Southwest Airlines prepares to begin service tomorrow from Philadelphia, one of US Airways' three hubs, a challenge that US Airways has said threatens its survival. In its S.E.C. filing, US Airways noted that it had continued to lose money since emerging from bankruptcy in March 2003 and that it faced pressure from low-fare airlines along with rising jet fuel prices. It said that it hoped to begin making cost reductions by midyear but that it could not guarantee it would, because that would require changes to labor agreements. US Airways has not disclosed the amount of concessions it is seeking from labor groups but has said they would be required to contribute roughly half the 25 percent savings it is trying to achieve. Failure to get the cuts "will force the company to re-examine its strategic options, including but not limited to asset sales or a judicial restructuring," the airline said. It has weighed selling one of its hubs, its East Coast shuttle and its US Airways Express regional carrier, as well as gates in New York and Boston. The development was the latest in a series of events that have rocked US Airways, the nation's seventh-largest carrier, in the last three weeks. Both its chief executive and chief financial officer stepped down, and the airline warned of plans to cut service to its hub in Pittsburgh. This week, the new chief executive, Bruce R. Lakefield, met with unions to discuss the prospective cuts. Industry analysts said yesterday that there was little chance that US Airways would file for bankruptcy protection in the near future. Airlines are approaching the summer travel season, generally the strongest of the year, providing ample cash. Bookings fall off drastically after Labor Day, however, meaning the likelihood of a second bankruptcy filing would arise then if US Airways has not been able to address its challenges, said Robert W. Mann Jr., an industry consultant based in Port Washington, N.Y. But the chance that US Airways would disappear also increases, he said. "The real issue is, Do they have a business plan? If they don't, it goes right to liquidation," Mr. Mann said. Indeed, a deterrent to a second filing is that "they might not come out if they go in again," said Philip A. Baggaley, an airline industry analyst with Standard & Poor's. This week, S.& P. downgraded US Airways' debt from BBB- to C+, with a negative outlook. That is the bleakest credit rating of any major airline, with the exception of United Airlines, which filed for bankruptcy protection in December 2002 and has yet to emerge. By contrast, Southwest's debt carries an A rating with a stable outlook, by far the best among the airlines. Earlier this year, US Airways technically defaulted on the covenants of $900 million in federal loan guarantees that provided the platform for its emergence from bankruptcy. Under a renegotiated package, US Airways promised it would significantly cut its losses this year and become profitable in 2005. The S.& P. downgrading, however, puts US Airways out of compliance with its contract with GE Capital Aviation Services, which is financing the airlines' purchase of 170 regional jets. GE Capital has the right to withdraw from the deal but said it was in talks with the airline on a solution. http://www.nytimes.com/2004/05/08/business/08airways.html?ex=1085031828&ei=1&en=27ce59da4ec6a9ac --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! Click here: http://homedelivery.nytimes.com/HDS/SubscriptionT1.do?mode=SubscriptionT1&ExternalMediaCode=W24AF 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@xxxxxxxxxxx or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@xxxxxxxxxxxx Copyright 2004 The New York Times Company