Smoother flying for US Airways: Costs down, cash up, sell-off talk subsiding
Wednesday, February 18, 2004
By Dan Fitzpatrick, Pittsburgh Post-Gazette
Despite the talk of financial turbulence over the past few months, US Airways is actually doing better than advertised. It has more cash than expected, its revenues are rising and its costs are shrinking.
Talk of selling off pieces of the airline to raise cash has eased, and its unions have warmed to the idea of granting more concessions to help take on low-cost giant Southwest Airlines.
US Airways' top officers and shareholders "are a lot closer to getting out of the woods than common lore gives them credit for," said Michael Boyd, an Evergreen, Colo., aviation consultant. He and other observers believe the carrier's ability to meet a series of federally backed loan milestones looks a lot more likely than just months ago.
While US Airways is not yet clear of trouble, local airline analyst Bill Lauer said, its failure to wring even more concessions from unions during bankruptcy a year ago "will not result in the immediate demise of the company, contrary to the sense that had been generated by the company and a lot of followers."
Lauer and Boyd base their more optimistic appraisal on US Airways' fourth-quarter performance. The results, despite $98 million in net losses, were better than expected when unveiled early this month. Even with higher fuel prices, cash flow -- money on hand after paying immediate bills -- was running $200,000 a day, revenue was up and costs were down.
In a Feb. 6 conference call with Wall Street analysts to discuss the results, US Airways officials called the fourth quarter their best performance of the year. Chief Executive Officer David Siegel, while candid about the challenges still facing the airline, said those "challenges are not insurmountable."
Southwest is scheduled to begin flying six routes out of Philadelphia in early May.
US Airways spokesman David Castelveter yesterday played down the upbeat assessments from Lauer, Boyd and others, and contended the fourth-quarter results suggest "we did not make enough progress."
Siegel also told analysts that the airline still was saddled with the highest per passenger costs in the business and must slash expenses 25 percent over the next 12 to 18 months to survive.
But the way Lauer sees it, the worst for US Airways is over. He noted that the airline ended the October-December quarter with $1.3 billion in cash on hand, and entered 2004 with only $132.4 million in immediate debt maturities -- a small portion of its $2.98 billion in long- and short-term debt.
Its strong cash position means it has a good chance of meeting the covenants imposed by $900 million in government-backed loans it received while emerging from bankruptcy. The covenants are tied to the carrier's amount of total cash, its cash flow (income minus non-cash expenditures) and its ratio of debt to cash.
What's more, the airline is heading into a period -- the second quarter -- that is typically the strongest travel season of the year, that should boost its numbers even more. The airline in recent months has reported rising traffic, up 8.2 percent in January from a year ago and 4.1 percent in December from the prior December.
"The effect of the cost-cutting during the past two years is clearly evident," said Lauer, who referred to the company's cash on hand as "stunning." The unions, in a series of givebacks, have granted the company $1 billion a year in annual wage-and -benefit cuts, and those cuts appear to be helping it recover its footing.
Certainly, US Airways still could encounter more turbulence. If fuel prices continue to rise or if the second quarter does not turn out as expected, the loan covenants come back into question, potentially triggering a default. If that happens, its credit rating could drop further, endangering the financing for its regional jets and thus its post-bankruptcy restructuring plan.
Because the situation is still fluid and dependent on some factors beyond US Airways' control, some analysts remain convinced the airline is doomed unless it can get its labor costs down further. "The long-term future is difficult," said Standard & Poor's airline analyst Phil Baggaley.
In recent meetings with its unions, the company has been stressing those negatives in hopes of making its case for more cuts.
One recent presentation to the flight attendants began with a discussion of US Airways' "conservative outlook" in the fourth quarter of 2002, when it predicted no war in Iraq, an unchanged regulatory environment, "modest" improvements in industry revenue, "gradual" inroads from low-cost carriers over the next five years, a drop in fuel prices and a prediction that other large carriers would not be able to "quickly match or beat our costs."
Contrast that with what actually happened in the intervening 12 months, and what began as a "conservative" forecast now looks "unattainable," the airline said. The reasons, it said, are many: industry revenue is not meeting expectations and prices remain "weak," the war in Iraq persists, low-cost carriers continue to expand, other large carriers are matching or exceeding US Airways' cost reductions and fuel prices are rising.
Although skeptical of the company's claims, the pilots union and the flight attendants have been listening to its pleas. The pilots have agreed to open up their contract on the use and deployment of smaller regional jets. For their part, the flight attendants union, after meeting with Siegel last week to hear plans to defend Philadelphia and restructure the airline, are meeting this week to consider more formal talks with the airline.
"I am glad the company seems to be going on the right track," said Teddy Xidas, president of the flight attendants' Pittsburgh Local 41. She and others were particularly impressed with the plan's goals to reduce high fares, use aircraft more efficiently and market the carrier more aggressively.
The improved relations with the unions, which refused for months to even consider the idea of more concessions, is dampening talk of selling chunks of the airline to raise cash.
New York investment bank Morgan Stanley was hired in December to pursue potential buyers for the airline's Northeast shuttle, slots, gates, hubs and US Airways' affiliate carriers. Bids have ranged from $250 million to $400 million, according to a person familiar with the situation, and came from a collection of the industry's biggest players and low-fare upstarts Air Tran and JetBlue.
But US Airways' board has yet to take any immediate action on the bids. Instead, it appears that the asset sales are now being considered as a last resort, in case unions do not provide concessions or if the company is not able to meet the terms of its government-backed loans. In all, "The trends are good," said US Airways pilots spokesman Jack Stephan.
Wednesday, February 18, 2004
By Dan Fitzpatrick, Pittsburgh Post-Gazette
Despite the talk of financial turbulence over the past few months, US Airways is actually doing better than advertised. It has more cash than expected, its revenues are rising and its costs are shrinking.
Talk of selling off pieces of the airline to raise cash has eased, and its unions have warmed to the idea of granting more concessions to help take on low-cost giant Southwest Airlines.
US Airways' top officers and shareholders "are a lot closer to getting out of the woods than common lore gives them credit for," said Michael Boyd, an Evergreen, Colo., aviation consultant. He and other observers believe the carrier's ability to meet a series of federally backed loan milestones looks a lot more likely than just months ago.
While US Airways is not yet clear of trouble, local airline analyst Bill Lauer said, its failure to wring even more concessions from unions during bankruptcy a year ago "will not result in the immediate demise of the company, contrary to the sense that had been generated by the company and a lot of followers."
Lauer and Boyd base their more optimistic appraisal on US Airways' fourth-quarter performance. The results, despite $98 million in net losses, were better than expected when unveiled early this month. Even with higher fuel prices, cash flow -- money on hand after paying immediate bills -- was running $200,000 a day, revenue was up and costs were down.
In a Feb. 6 conference call with Wall Street analysts to discuss the results, US Airways officials called the fourth quarter their best performance of the year. Chief Executive Officer David Siegel, while candid about the challenges still facing the airline, said those "challenges are not insurmountable."
Southwest is scheduled to begin flying six routes out of Philadelphia in early May.
US Airways spokesman David Castelveter yesterday played down the upbeat assessments from Lauer, Boyd and others, and contended the fourth-quarter results suggest "we did not make enough progress."
Siegel also told analysts that the airline still was saddled with the highest per passenger costs in the business and must slash expenses 25 percent over the next 12 to 18 months to survive.
But the way Lauer sees it, the worst for US Airways is over. He noted that the airline ended the October-December quarter with $1.3 billion in cash on hand, and entered 2004 with only $132.4 million in immediate debt maturities -- a small portion of its $2.98 billion in long- and short-term debt.
Its strong cash position means it has a good chance of meeting the covenants imposed by $900 million in government-backed loans it received while emerging from bankruptcy. The covenants are tied to the carrier's amount of total cash, its cash flow (income minus non-cash expenditures) and its ratio of debt to cash.
What's more, the airline is heading into a period -- the second quarter -- that is typically the strongest travel season of the year, that should boost its numbers even more. The airline in recent months has reported rising traffic, up 8.2 percent in January from a year ago and 4.1 percent in December from the prior December.
"The effect of the cost-cutting during the past two years is clearly evident," said Lauer, who referred to the company's cash on hand as "stunning." The unions, in a series of givebacks, have granted the company $1 billion a year in annual wage-and -benefit cuts, and those cuts appear to be helping it recover its footing.
Certainly, US Airways still could encounter more turbulence. If fuel prices continue to rise or if the second quarter does not turn out as expected, the loan covenants come back into question, potentially triggering a default. If that happens, its credit rating could drop further, endangering the financing for its regional jets and thus its post-bankruptcy restructuring plan.
Because the situation is still fluid and dependent on some factors beyond US Airways' control, some analysts remain convinced the airline is doomed unless it can get its labor costs down further. "The long-term future is difficult," said Standard & Poor's airline analyst Phil Baggaley.
In recent meetings with its unions, the company has been stressing those negatives in hopes of making its case for more cuts.
One recent presentation to the flight attendants began with a discussion of US Airways' "conservative outlook" in the fourth quarter of 2002, when it predicted no war in Iraq, an unchanged regulatory environment, "modest" improvements in industry revenue, "gradual" inroads from low-cost carriers over the next five years, a drop in fuel prices and a prediction that other large carriers would not be able to "quickly match or beat our costs."
Contrast that with what actually happened in the intervening 12 months, and what began as a "conservative" forecast now looks "unattainable," the airline said. The reasons, it said, are many: industry revenue is not meeting expectations and prices remain "weak," the war in Iraq persists, low-cost carriers continue to expand, other large carriers are matching or exceeding US Airways' cost reductions and fuel prices are rising.
Although skeptical of the company's claims, the pilots union and the flight attendants have been listening to its pleas. The pilots have agreed to open up their contract on the use and deployment of smaller regional jets. For their part, the flight attendants union, after meeting with Siegel last week to hear plans to defend Philadelphia and restructure the airline, are meeting this week to consider more formal talks with the airline.
"I am glad the company seems to be going on the right track," said Teddy Xidas, president of the flight attendants' Pittsburgh Local 41. She and others were particularly impressed with the plan's goals to reduce high fares, use aircraft more efficiently and market the carrier more aggressively.
The improved relations with the unions, which refused for months to even consider the idea of more concessions, is dampening talk of selling chunks of the airline to raise cash.
New York investment bank Morgan Stanley was hired in December to pursue potential buyers for the airline's Northeast shuttle, slots, gates, hubs and US Airways' affiliate carriers. Bids have ranged from $250 million to $400 million, according to a person familiar with the situation, and came from a collection of the industry's biggest players and low-fare upstarts Air Tran and JetBlue.
But US Airways' board has yet to take any immediate action on the bids. Instead, it appears that the asset sales are now being considered as a last resort, in case unions do not provide concessions or if the company is not able to meet the terms of its government-backed loans. In all, "The trends are good," said US Airways pilots spokesman Jack Stephan.
