=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/n/a/2005/02/06/financial/= f211044S61.DTL --------------------------------------------------------------------- Sunday, February 6, 2005 (AP) US Airways Becoming Optimistic Again By MATTHEW BARAKAT, AP Business Writer (02-06) 21:10 PST Alexandria, VA (AP) -- 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 unt= il 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 i= ts 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: www.usairways.com ---------------------------------------------------------------------- Copyright 2005 AP