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US Air aims to fly solo
August 15, 2001: 3:09 p.m. ET
No. 6 airline's plan includes smaller jets, lower wages, deferred purchases
NEW YORK (CNNfn) - US Airways Group Inc. disclosed plans its executives say will allow it to survive as a stand-alone airline, including greater use of smaller regional jets, the delayed purchase and retirement of some traditional narrow-body jets, and new wage agreements with its unions.
Executives of the nation's No. 6 airline said the moves are necessary because there does not appear to be a potential merger partner on the horizon, and because the carrier needs to trim costs and refocus its business in order to survive.
The Justice Department last month blocked the proposed $4.3 billion purchase of much of US Airways by UAL Corp. (UAL: down $0.67 to $34.08, Research, Estimates), owner of United Airlines, saying such a move would reduce competition and raise fares for passengers on too many routes.
Analysts generally praised the US Airways plan as a realistic approach to stem losses at the carrier, although they were quick to say that the turnaround is still uncertain and will take a long time even if it does succeed. The airline's pilots union issued a statement saying that management's position is a hostile and unworkable attack on employees.
Shares of US Airways (U: down $0.74 to $16.91, Research, Estimates) were off about 4 percent following Wednesday's announcement.
Ray Neidl, analyst with ABN Amro, and Jim Higgins, the Credit Suisse First Boston airline analyst, both said they believe the company's plans could stem losses and give it time to get on its feet. But both also said that a complete turnaround will take support of the airlines' union that appears to be lacking at this point.
"Their labor is in real denial," said Higgins. "From a political standpoint things have to get worse before labor comes around. It's very clear they choose not to get it or they don't get it."
Neidl told CNNfn's The Money Gang that the third phase of management's three-step plan, winning wage concessions from unions, can't even be attempted for two-to-three years because reopening current contracts is too difficult.
"Phase three is going to be the really tough one," he said. "They need phase three to make this a viable company." But he said management's short-term plans are realistic and give it the best chance of making it as a stand-alone carrier. Both Neidl and Higgins said the carrier does not face any liquidity problems that could prompt an immediate financial crisis. (269KB WAV) (269KB AIFF)
US Airways said phase one of a three-step plan unveiled to analysts Wednesday would save $432 million in annual costs without needing new labor agreements. They include the use of 50- to 69-seat regional jets in its mainline operations rather than just on its U.S. Airways Express feeder airline unit. Rakesh Gangwal, the airline's CEO, said the smaller planes are the only economical option given the smaller size of U.S. Airways' hubs and the lack of growth opportunities due to competition in their markets.
"We are actually flying empty seats when there are no passengers and it cost the company a lot of money to do that," he said. "We've got to fix that problem."
But the pilots union, which agreed only Monday to enter negotiations on increasing the airlines' use of the smaller regional jets, attacked the new proposal Thursday.
"If they are planning to replace mainline aircraft with small jets � in addition to replacing mainline flying � then management is on the path to declaring war on the US Airways pilot group," said a statement from Chris Beebe, a captain with the airline and the head of the Air Line Pilots Association's US Airways group.
It also plans to defer purchases of single-aisle jets from European aircraft maker Airbus Industrie by two-to-three years, and plans to retire its older MD-80 single-aisle jets by the end of next year.
Those two moves combined could threaten some pilots jobs, said Roy Freundlich, a spokesman for ALPA and a US Airways 737 pilot.
"Those jobs (flying the MD-80s) were suppose to be preserved by the Airbus order," said Freundlich. "It's very unclear what they intend to do. They can order the smaller jets and can for a small amount of time impose pay raise and work rules on us. But if we do not come to an agreement on small jet pay rates, we can strike over the issue."
The airline did announce plans to close two facilities, a San Diego reservation center and an overnight maintenance facility in Albany, N.Y. But the company said the 579 employees affected by those moves would be offered new positions elsewhere with the company.
The carrier hopes to join one of the major alliances of international carriers, to deploy more aircraft to Florida, and to begin service to new destinations in Texas and Oregon. Neidl said he believes that any of the major alliances would be happy to have US Airways and that it is a good fit for the United-led Star Alliance now that the merger has fallen through.
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US Airways executives told analysts that the controversial third phase of the plan, which would seek new labor agreements with the unions, would save about $700 million annually if it had the same wage structure as No. 5 carrier Continental Airlines, and could save about $900 million annually if it matched growing discount carrier Southwest Airlines, now the No. 7 carrier.
The pilots union vowed that the airline won't win any wage concessions when its contract comes up for renegotiation in 2003.
"We gave this management team concessions in 1998 that made us competitive with other major airlines," said Captain Beebe. "Management squandered our contributions and neglected our airline during their 17-month pursuit of the failed merger agreement with United. The pilots are done backfilling for a management team that is incapable of delivering on their promises to employees."
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