US Airways, Without New Plan, Is Dead Man Walking: Doron Levin
2004-03-22 00:14 (New York)
(Commentary. Doron Levin is a Bloomberg News columnist. The
opinions expressed are his own.)
By Doron Levin
March 22 (Bloomberg) -- US Airways Group Inc. faces a
financial plight that recalls a bygone era in the early 1980s
when Chrysler Corp. couldn't stay in business without a
government loan guarantee.
Then, as now, the U.S. government had to decide whether to
step in. Then, as now, it had to decide when enough is enough.
The Air Transportation Stabilization Board agreed on March
12 to relax the terms of a $1 billion loan guarantee that helped
US Airways, the seventh largest U.S. airline, emerge from
bankruptcy protection last year. Now some competitors and free
marketeers are saying the government may be going too far to prop
up the Arlington, Virginia-based carrier.
``This should be US Airways' last stand,'' said Kevin
Mitchell, chairman of the Business Travel Coalition, an advocacy
group for large buyers of business travel services. ``If they
can't make it as a going concern, there are others who can.''
Faced with an auditor's report that raised doubts about US
Airways' ability to stay in business, the three-person
stabilization board voted 2-1 to relax loan covenants that might
have forced the airline into bankruptcy for a second time.
One airline heartened by that decision is UAL Corp., whose
plan to bring United Air Lines out of bankruptcy relies on a $1.6
billion government loan guarantee it is seeking.
``Without that loan, it's back to the drawing board,'' Steve
Miller, a UAL director, said. United is the world's second-
largest airline, behind AMR Corp.'s American Airlines.
Sept. 11
Recall that while the stabilization board was created to
keep airlines from failing in the wake of Sept. 11, 2001, US
Airways was faltering even before the terrorist attacks. So far,
the carrier isn't explaining publicly the details of how it plans
to reverse losses in the face of rising competition from low-cost
carriers, low ticket prices and high jet-fuel costs, its most
critical problems.
In Chrysler's darkest hour, the automaker that is now part
of Stuttgart, Germany-based DaimlerChrysler AG sought financial
help from the government, banks and the United Auto Workers
union.
It also needed a new vehicle to replace the aging gas-
guzzlers that weren't selling. The answer turned out to be the
fuel-efficient K car -- known as the Dodge Aries and Plymouth
Reliant -- that later became the basis of Chrysler's blockbuster,
the industry's first minivan.
Gerald Greenwald, former vice chairman of Chrysler and
former chief executive of United, thinks US Airways must quickly
try to transform itself into the next low-cost carrier, along the
lines of Southwest Airlines Co., the largest U.S. discount
carrier.
`Live Another Day'
``It would be their version of the K car, their chance to
live another day,'' said Greenwald, who is a managing director of
Greenbriar Equity Group LLC, in Rye, New York. The irony is lost
on no one that in May Southwest begins 14 flights daily from
Philadelphia, the most important hub of US Airways.
US Airways has begun negotiating with its pilots union for
wage concessions.
The plan is to lower costs 25 percent from about 10.5 cents
per available seat, flown one mile, compared with 6-7 cents per
seat-mile for Southwest, JetBlue Airways Corp. and other low-cost
carriers.
Becoming another Southwest, however, isn't in the cards,
said David Castelveter, a US Airways spokesman. The airline has
no intention of giving up overseas routes or abandoning the hub-
and-spoke model of collecting travelers from many small towns and
having them change planes at large airport-hubs.
`Something In-Between'
``We need to be something in-between,'' he said.
Investors and lenders have every right to be dubious, since
the business model Castelveter describes has no precedent. The
idea won't have a chance unless the pilots' union decides on a
big step toward a wage cut. Pilots are the biggest component of
labor costs, which are 40 percent of total costs.
The relaxation of financial covenants on US Airways loans
didn't buy much time. Unless it can show a narrowing of operating
losses by June and a return to profitability in 2005, the deal is
off, and the bankruptcy judge's gavel could fall.
Chrysler, with loan guarantees, did manage a turnaround in
the mid-1980s. Fortunately for it, competition by Japanese
automakers hadn't yet reached today's deadly pace. Lots of
investors made a fortune on rebounding Chrysler shares; even the
government profited on Chrysler warrants; yet the automaker
ultimately sold itself to Daimler-Benz AG in 1998.
Whatever US Airways pilots and other workers decide, they
may have less time than they think. The U.S. airline industry has
endured despite failed airlines - think Eastern, Pan Am, TWA.
There won't be much sympathy if the airline returns to Washington
with hat in hand.
--Editors: Wiegold, Wolfson
2004-03-22 00:14 (New York)
(Commentary. Doron Levin is a Bloomberg News columnist. The
opinions expressed are his own.)
By Doron Levin
March 22 (Bloomberg) -- US Airways Group Inc. faces a
financial plight that recalls a bygone era in the early 1980s
when Chrysler Corp. couldn't stay in business without a
government loan guarantee.
Then, as now, the U.S. government had to decide whether to
step in. Then, as now, it had to decide when enough is enough.
The Air Transportation Stabilization Board agreed on March
12 to relax the terms of a $1 billion loan guarantee that helped
US Airways, the seventh largest U.S. airline, emerge from
bankruptcy protection last year. Now some competitors and free
marketeers are saying the government may be going too far to prop
up the Arlington, Virginia-based carrier.
``This should be US Airways' last stand,'' said Kevin
Mitchell, chairman of the Business Travel Coalition, an advocacy
group for large buyers of business travel services. ``If they
can't make it as a going concern, there are others who can.''
Faced with an auditor's report that raised doubts about US
Airways' ability to stay in business, the three-person
stabilization board voted 2-1 to relax loan covenants that might
have forced the airline into bankruptcy for a second time.
One airline heartened by that decision is UAL Corp., whose
plan to bring United Air Lines out of bankruptcy relies on a $1.6
billion government loan guarantee it is seeking.
``Without that loan, it's back to the drawing board,'' Steve
Miller, a UAL director, said. United is the world's second-
largest airline, behind AMR Corp.'s American Airlines.
Sept. 11
Recall that while the stabilization board was created to
keep airlines from failing in the wake of Sept. 11, 2001, US
Airways was faltering even before the terrorist attacks. So far,
the carrier isn't explaining publicly the details of how it plans
to reverse losses in the face of rising competition from low-cost
carriers, low ticket prices and high jet-fuel costs, its most
critical problems.
In Chrysler's darkest hour, the automaker that is now part
of Stuttgart, Germany-based DaimlerChrysler AG sought financial
help from the government, banks and the United Auto Workers
union.
It also needed a new vehicle to replace the aging gas-
guzzlers that weren't selling. The answer turned out to be the
fuel-efficient K car -- known as the Dodge Aries and Plymouth
Reliant -- that later became the basis of Chrysler's blockbuster,
the industry's first minivan.
Gerald Greenwald, former vice chairman of Chrysler and
former chief executive of United, thinks US Airways must quickly
try to transform itself into the next low-cost carrier, along the
lines of Southwest Airlines Co., the largest U.S. discount
carrier.
`Live Another Day'
``It would be their version of the K car, their chance to
live another day,'' said Greenwald, who is a managing director of
Greenbriar Equity Group LLC, in Rye, New York. The irony is lost
on no one that in May Southwest begins 14 flights daily from
Philadelphia, the most important hub of US Airways.
US Airways has begun negotiating with its pilots union for
wage concessions.
The plan is to lower costs 25 percent from about 10.5 cents
per available seat, flown one mile, compared with 6-7 cents per
seat-mile for Southwest, JetBlue Airways Corp. and other low-cost
carriers.
Becoming another Southwest, however, isn't in the cards,
said David Castelveter, a US Airways spokesman. The airline has
no intention of giving up overseas routes or abandoning the hub-
and-spoke model of collecting travelers from many small towns and
having them change planes at large airport-hubs.
`Something In-Between'
``We need to be something in-between,'' he said.
Investors and lenders have every right to be dubious, since
the business model Castelveter describes has no precedent. The
idea won't have a chance unless the pilots' union decides on a
big step toward a wage cut. Pilots are the biggest component of
labor costs, which are 40 percent of total costs.
The relaxation of financial covenants on US Airways loans
didn't buy much time. Unless it can show a narrowing of operating
losses by June and a return to profitability in 2005, the deal is
off, and the bankruptcy judge's gavel could fall.
Chrysler, with loan guarantees, did manage a turnaround in
the mid-1980s. Fortunately for it, competition by Japanese
automakers hadn't yet reached today's deadly pace. Lots of
investors made a fortune on rebounding Chrysler shares; even the
government profited on Chrysler warrants; yet the automaker
ultimately sold itself to Daimler-Benz AG in 1998.
Whatever US Airways pilots and other workers decide, they
may have less time than they think. The U.S. airline industry has
endured despite failed airlines - think Eastern, Pan Am, TWA.
There won't be much sympathy if the airline returns to Washington
with hat in hand.
--Editors: Wiegold, Wolfson
