When US Airways filed for bankruptcy in September — its second filing in two years — many experts wondered aloud whether the...
ALEXANDRIA, Va. — 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 when the airline during the Christmas holidays experienced what its own chief executive called “an operational meltdown” at its Philadelphia hub. He blamed it on surly workers staging a wildcat sickout, an allegation union leaders rejected.
But a flurry of good news in the past few weeks, ranging from new labor contracts to new financing, has airline management optimistic again. US Airways even took out full-page ads in major newspapers declaring “Clear Skies Ahead.”
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CEO Bruce Lakefield wrote to the airline’s frequent fliers, confidently stating, “We believe the most difficult days are behind us.”
Indeed, some of US Airways’ strongest critics have changed their tune. Terry Trippler, who runs the travel Web site TerryTrippler.com, had said the airline was a goner after the holiday fiasco: “Stick a fork in them, folks. They’re done.”
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 have been significant, US Airways still faces a huge hurdle: finding an investor to provide about $250 million in new finances.
Any investor who does so will take a sizable risk: The outfit that bankrolled US Airways’ last emergence from bankruptcy, the Retirement Systems of Alabama, could lose its entire $240 million investment depending on the final terms of the reorganization plan.
Still, there have been some key accomplishments lately. The most militant of the airline’s unions, the Machinists, agreed to new contracts that cut pay from 12 to 20 percent. The contracts were approved decisively, with more than 60 percent of members in favor.
The airline also obtained financing from its primary lenders that give it the cash to operate through at least June, by which time it hopes to have exited bankruptcy altogether.
On Sunday, the airline expanded operations at Reagan National Airport, near Washington, D.C., 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 the Machinist union 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.”
It has projected it won’t turn a substantial profit until at least 2008. When it does achieve that, some of the money will go to employees, an inducement used to get unions to accept steep pay cuts.
Thomas Boland, an airline-restructuring expert, said one of the biggest obstacles to attracting a new investor could be the federal government.
The Air Transportation Stabilization Board (ATSB) 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 loan, and the government enjoys a “superpriority status” as a creditor, meaning it stands first in line among creditors to get its money back.
Any new investor would likely expect certain privileges as a result of its investment that could conflict with the board’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 not just with cheaper labor, but with more profitable route networks and other efficiencies.
Southwest, for instance, is increasing its presence in Philadelphia and 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.”