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Experts: Airline may sell express since pact
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By Thomas Olson
TRIBUNE-REVIEW
Tuesday, March 16, 2004
US Airways' new, more-flexible loan agreement with lenders makes it more likely the struggling airline will sell an express carrier or other major asset, analysts said Monday.
But building cash is still the priority, they say.
US Airways struck a deal with the federal Air Transportation Stabilization Board on Friday, when the airline prepaid $250 million of $1 billion in loans. The board was created to help the airline industry recover from the effects of the Sept. 11, 2001, terrorist attacks.
In exchange, the government extended to 2005 the deadline for US Airways to return to profitability. And it allows the carrier to accept debt -- not just cash -- for assets US Airways might sell.
"I thought it was a pretty savvy move on their part, and the flexibility it gives is the key," said Darryl Jenkins, a professor at Embry-Riddle Aeronautical University, Daytona Beach, Fla.
"It also increases the likelihood US Airways will sell some assets because they are at the point where they need to sell some stuff," he said. Paying the $250 million left the carrier with $925 million in cash.
Jenkins said such a cash balance was "probably enough" to get them through the spring and summer quarters. Both are generally stronger revenue periods for the industry than the fall or winter.
"On balance, this is a plus," said William Lauer, a longtime US Airways observer and chairman of Allegheny Capital Management Inc., Tarentum. "But the real issue here is that in order to get that (credit) relaxation, it cost them a fair amount of liquidity."
Cutting into operating cash flow next quarter will be competition from low-fare carrier Southwest Airlines. It will start flights May 9 from Philadelphia, one of US Airways' three hubs. The airline currently has a 68 percent share of that market, which provides roughly 25 percent of US Airways' total revenue.
Lauer said US Airways, which had been renegotiating the loan for weeks, clearly sought more flexibility in return for the sizable prepayment. He also thinks the airline is most likely to sell one of its wholly owned express carriers.
US Airways owns PSA Airlines, Dayton, Ohio; Allegheny Airlines, Harrisburg; and Piedmont Airlines, Salisbury, Md., which is in the midst of absorbing Allegheny. US Airways also owns MidAtlantic Airways, a Pittsburgh-based express division scheduled to start flying April 4.
Turning an express carrier into an independent partner would still preserve feeder traffic and mainline revenue for US Airways, Lauer said.
"Lots of people are sniffing the tires, but I question who's got the cash," Jenkins said. Acquisition capital is tight for most potential buyers, he said, whether the target is express carriers or the airline's Northeast shuttle, which flies between Boston and Washington, D.C.
Despite some looser loan terms from the government, it roughly doubled US Airways' minimum cash-balance requirement to $700 million. It did so because the annual opinion letter from the airline's auditor KPMG expressed doubts about US Airways' ability to stay in business, said a securities filing Friday.
"The ATSB doesn't want their cash to fall another $200 million or so," Lauer said. "And if what happened in Madrid last week happens in Washington, that cash cushion would evaporate in a hurry."
Thomas Olson can be reached at [email protected] or (412) 320-7854.
Tools
Print this article
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Larger / Smaller Text
By Thomas Olson
TRIBUNE-REVIEW
Tuesday, March 16, 2004
US Airways' new, more-flexible loan agreement with lenders makes it more likely the struggling airline will sell an express carrier or other major asset, analysts said Monday.
But building cash is still the priority, they say.
US Airways struck a deal with the federal Air Transportation Stabilization Board on Friday, when the airline prepaid $250 million of $1 billion in loans. The board was created to help the airline industry recover from the effects of the Sept. 11, 2001, terrorist attacks.
In exchange, the government extended to 2005 the deadline for US Airways to return to profitability. And it allows the carrier to accept debt -- not just cash -- for assets US Airways might sell.
"I thought it was a pretty savvy move on their part, and the flexibility it gives is the key," said Darryl Jenkins, a professor at Embry-Riddle Aeronautical University, Daytona Beach, Fla.
"It also increases the likelihood US Airways will sell some assets because they are at the point where they need to sell some stuff," he said. Paying the $250 million left the carrier with $925 million in cash.
Jenkins said such a cash balance was "probably enough" to get them through the spring and summer quarters. Both are generally stronger revenue periods for the industry than the fall or winter.
"On balance, this is a plus," said William Lauer, a longtime US Airways observer and chairman of Allegheny Capital Management Inc., Tarentum. "But the real issue here is that in order to get that (credit) relaxation, it cost them a fair amount of liquidity."
Cutting into operating cash flow next quarter will be competition from low-fare carrier Southwest Airlines. It will start flights May 9 from Philadelphia, one of US Airways' three hubs. The airline currently has a 68 percent share of that market, which provides roughly 25 percent of US Airways' total revenue.
Lauer said US Airways, which had been renegotiating the loan for weeks, clearly sought more flexibility in return for the sizable prepayment. He also thinks the airline is most likely to sell one of its wholly owned express carriers.
US Airways owns PSA Airlines, Dayton, Ohio; Allegheny Airlines, Harrisburg; and Piedmont Airlines, Salisbury, Md., which is in the midst of absorbing Allegheny. US Airways also owns MidAtlantic Airways, a Pittsburgh-based express division scheduled to start flying April 4.
Turning an express carrier into an independent partner would still preserve feeder traffic and mainline revenue for US Airways, Lauer said.
"Lots of people are sniffing the tires, but I question who's got the cash," Jenkins said. Acquisition capital is tight for most potential buyers, he said, whether the target is express carriers or the airline's Northeast shuttle, which flies between Boston and Washington, D.C.
Despite some looser loan terms from the government, it roughly doubled US Airways' minimum cash-balance requirement to $700 million. It did so because the annual opinion letter from the airline's auditor KPMG expressed doubts about US Airways' ability to stay in business, said a securities filing Friday.
"The ATSB doesn't want their cash to fall another $200 million or so," Lauer said. "And if what happened in Madrid last week happens in Washington, that cash cushion would evaporate in a hurry."
Thomas Olson can be reached at [email protected] or (412) 320-7854.
