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[LearLove]

UPDATE 4-US Airways posts loss, sees major changes ahead
April 27, 2004 6:16:00 PM ET


(Adds US air wants cost cuts soon, stock symbol)

By Meredith Grossman Dubner

CHICAGO, April 27 (Reuters) - US Airways posted a big quarterly loss on Tuesday and said it is looking everywhere to cut costs and quickly overhaul its business to survive challenges from low-cost rivals -- including the arrival of Southwest Airlines in Philadelphia next week.

Bruce Lakefield took over as chief executive after the abrupt resignation of David Siegel last week and ruled nothing out in his austerity drive. The company has already approached labor groups about negotiating givebacks and could seek concessions from lenders, debt holders and other groups.

"This is a hard road we have to go down. Collectively, we need to work together to survive in this competitive environment," Lakefield told Wall Street analysts.

But US Airways (UAIR) shares rose 35 cents, or 14.7 percent, to $2.74 on the Nasdaq as the carrier predicted higher unit revenue and lower unit costs in the second quarter.

Lakefield did not say whether Siegel's 25-percent cost-cut goal was his target but left the door open to more savings.

"We're looking at everything," Lakefield said. The company wants to negotiate cost cuts soon.

Siegel's downfall was mainly due to tension between management and labor over the appeal for more concessions. Workers agreed to nearly $2 billion in givebacks to help the company out of bankruptcy a year ago.

Analyst Ray Neidl of Blaylock & Partners predicted the next round of cost cuts at US Airways would exceed 25 percent to survive the toughest challenge since emerging from Chapter 11 -- the threat posed by low-cost competitors.

"If you're (talking to your bondholders), you're really taking the old model apart and trying to reconstruct it. So there's a lot of work ahead of them," Neidl said.

BIG CHANGES AHEAD

Costs at US Airways are among the highest in the industry despite its bankruptcy reorganization that ended last April.

Costs per available seat mile -- a unit for measuring an airline's competitive position -- were 10.02 cents excluding fuel. Unit costs at low-cost rivals are in the 6-cent range.

Lakefield disclosed other planned changes. These include use of more 70-seat regional jets, simpler routes, and spreading more flights through the day in Philadelphia to accommodate an expected growth in passenger volume due to lower fares.

Southwest's entrance into Philadelphia has shaken US Airways as it struggles to survive. Before he left, Siegel said that Southwest was going there to "kill" US Airways.

Adding regional jets and strengthening its network boosted revenue in the first quarter but low-cost competition translated into lower yields.

US Airways said its quarterly loss was $177 million, or $3.28 a share. It reported a net profit a year ago of $1.63 billion after a series of unusual items stemming from completing its reorganization. Excluding those items, its year-earlier pretax operating loss was $282 million.

The company also said it ended the quarter with a cash balance of $1.64 billion, including $978 million in unrestricted cash.

Lakefield also said he was talking with Chief Financial Officer Neal Cohen about his future. The company confirmed Cohen has a contract option, similar to the one exercised by Siegel, that would permit him to leave soon with certain benefits. The unions have also been unhappy with Cohen. (Additional reporting by John Crawley in Washington) REUTERS

© 2004 Reuters

 

[LearLove]

Private equity firm TPG sees airline risk, reward
April 27, 2004 4:06:00 PM ET



By Kathy Fieweger

NEW YORK, April 27 (Reuters) - Texas Pacific Group, a private equity firm that has taken stakes in three airlines successfully, sees opportunities for investment in the sector but said picking winners is tough as pricing and labor issues remain sticking points.

TPG in the 1990s took stakes in Continental Airlines (CAL), America West Airlines (AWA) and Ryanair , investments which all "turned out fine," according to Richard Schifter, a partner at the firm.

The group also had intended to take a stake in US Airways Group (UAIR) until its offer was superseded by an Alabama pension fund during the bankruptcy process.

Following a presentation at the Airfinance Journal conference here, Schifter declined to comment on whether TPG would once again consider investing in US Airways as it continues to struggle financially.

US Airways on Tuesday reported a $177 million loss and said it is looking at ways to change its business model to operate more like its profitable low-cost rivals.

"Successful restructuring requires radical change in the business model. Restructuring is no longer a simple financial phenomenon," said John Luth, chief executive of Seabury Group, an investment banking and corporate restructuring firm.

Luth said the industry changes are permanent, adding that low-cost carriers by 2008 will represent at least one third of the U.S. market.

Schifter also said the low-cost model has obvious benefits.

"Airline performance has always been cyclical and certainly as an industry will continue to be," Schifter told conference participants. "From our perspective, we've felt that low-cost is the key."

Despite capacity reductions that have taken place since the Sept. 11 attacks -- with available seats running at about 88 percent of the level seen in 2000 -- "this time it's a lot worse than it was then," he said, referring to the airline downturn of the early 1990s.

While the airline industry is recovering and traffic is improving, Schifter said a major problem, particularly for legacy carriers, is that the revenue environment remains weak.

"The real challenge has been labor ... In our view, that becomes the primary challenge," he said, for investors looking to enter the sector.

Echoing many executives and financiers speaking at the conference, Schifter said the emergence of low-cost carriers and their pressure on air fares means "we won't see a return to the heady days of the early 1990s."

To TPG, the right way to get involved in airline companies as a controlling investor is to make sure the price is right and that costs can be attacked. In every deal, TPG looks for the right capital structure, a strong management team and the ability to either take a controlling stake or a significant position.

He said airlines right now are presenting challenges, but the timing might be right for investment.

"This is a risky business, and we look at making investments on a risk/reward perspective," Schifter said.

He added there are many private equity firms right now looking at the airline sector. "For us, it's unclear whether we'll have another opportunity," to invest in the airline sector. REUTERS

© 2004 Reuters

 

[UpNDownGuy]

So....??

Someone else might have a different opinion, but these numbers don't sound that bad to me. They're not good, but not quite the catastrophe everyone was predicting. Am I wrong????