NYTimes.com Article: US Airways Warns of Consequences if Costs Aren't Cut

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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


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