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Without concessions or a government loan guarantee, the airline warns it may have to reorganize in bankruptcy court.
By STEVE HUETTEL, Times Staff Writer
© St. Petersburg Times, published May 11, 2002
US Airways may resort to bankruptcy court to reorganize its finances unless employees agree to a cost-cutting plan in the next few weeks and the federal government provides loan guarantees, the company said Friday.
Earlier this year US Airways executives said bankruptcy wasn't an option for the nation's No. 7 carrier.
But Friday, chief executive David Siegel gave his most detailed explanation of the financial woes at US Airways, which lost $2-billion in 2001 and $269-million in the first three months of this year. Siegel took over the top job two months ago.
"US Airways has never lost so much in such a short period of time," he said in a telephone message and letter to employees. "In the past, we have had the ability to sell assets to tide us over. Today, we have none left to sell."
Once investors heard the word "bankruptcy," they began to sell. US Airways' shares closed Friday at $3.60, down $1.35, or 27 percent.
Burdened with the industry's highest costs and relentless competition from low-fare competitors, US Airways was bleeding red ink even before Sept. 11.
The downturn in travel after the terrorist attacks on New York and Washington, D.C., hit US Airways harder than any other airline, Siegel said.
US Airways' flights are concentrated on the East Coast, where travel plummeted most sharply. Because it flies so many short routes, US Airways is suffering more from customers choosing to drive or take trains instead of flying. The closure for weeks of Reagan National Airport in Washington, where US Airways is the dominant carrier, sapped revenue from high-paying business travelers.
"The events of Sept. 11 and the ensuing deep-rooted problems to our industry have put into jeopardy the short- and long-term financial health of US Airways," Siegel said.
The airline is on a tight time frame. Siegel pledged to share his restructuring plan with labor union leaders next week and all employees the following week.
The airline will apply to the federal Air Transportation Stabilization Board for loan guarantees "well in advance" of its June 28 deadline for applications, Siegel said.
The plan will undoubtedly demand concessions from US Airways employees, aircraft suppliers and other vendors.
US Airways officially raised the possibility of bankruptcy in a Securities and Exchange Commission quarterly filing Friday. A bankruptcy judge can break union contracts and impose new ones to help a failing business recover.
Officials of unions represeting US Airways' workers criticized Siegel for waiting so long to discuss specifics of the recovery strategy.
"If he wants to negotiate, he's got to negotiate with the representatives of the employees," said Jeff Zack, spokesman for the Association of Flight Attendants. "That's usually a months-long endeavor."
The pilot's union was even more more blunt about prospects for a deal in time for the loan guarantee deadline. "It seems undoable," said Roy Freundlich, a first officer and spokesman for the Airline Pilots Association.
US Airways cut its schedule more than 20 percent and eliminated 11,000 jobs after Sept. 11.
At Tampa International, US Airways has cut its flying dramatically. The airline had 42 daily departures before Sept. 11. That fell to 24 flights after US Airways eliminated its low-fare division called MetroJet. The airline will cut five more flights June 16.
US Airways ended 2000 as the airport's biggest carrier. But in Tampa International's most recent statistics, for the year ending Feb. 28, US Airways fell to No. 3, with 16.2 percent of all customers, behind Delta Air Lines (20.4 percent) and Southwest Airlines (20.2 percent).
-- Steve Huettel can be reached at huettel@sptimes.com or (813) 226-3384.