Air Transport World

Back from the brink: under CEO David Siegel, US Airways has surprised the skeptics by completing a whirlwind bankruptcy reorganization when many expected it to perish. Profitability, however, remains elusive.(Profile)(Company Profile)

If life were a fairy tale, then US Airways Group and its 28,000 remaining employees would be living in happily-ever-after-land. Not only did they survive the trauma, heartbreak and disappointments of the past two years, they also accomplished the fastest large-scale bankruptcy reorganization in the history of corporate America while achieving heretofore undreamed--of levels of reliability in the operation.

Unfortunately, the airline industry is no fairy tale, at least not if you're a legacy airline. Since 9/11, US Airways has released some 18,000 employees representing 39% of the workforce and cut its annual labor bill by an average or $1 billion, mainly through concessionary agreements with its unions that were negotiated during the eight-month bankruptcy process. It has reduced its mainline fleet from 420 jets to 279 and signed new leasing and financing deals on the remainder that will trim an estimated $500 million per year through 2009. All told, it used Chapter 11 to eliminate $1.9 billion in operating expenses plus more than $2.8 billion of pre-bankruptcy aircraft lease and debt obligations.

Yet to a surprising degree the company still confronts the same cost and revenue pressures that existed when it entered bankruptcy 13 months ago. Low-fare carriers are in markets that account for 40% of its revenues and network rivals continue to nibble away at its spoke cities with regional jets that until now it has been unable to operate in large numbers. Continuing operations are not profitable and officials will not predict when the red ink will turn black. For the three months ended June 30--its first quarter since exiting bankruptcy at the end of March--US Airways posted a pre-tax loss of $154 million excluding the impact of $214 million in federal security rebates that left it with a small net profit of $13 million.

Viewed from that perspective, it's almost as if the carrier's whirlwind reorganization was the easy part. Now President and CEO David Siegel, who took over in March 2002 and guided the airline swiftly and firmly through the process, has got to demonstrate to employees that there is an endgame to the sacrifices. They will own 30% of the company when all the stock has been distributed, but as yet it isn't liquid. (In July, US Airways said it was "exploring liquidity options" to permit employees and unsecured creditors--who have 10.5% as a class--to dispose of some or all of their holdings.) There will be profit-sharing, but as yet there are no profits.

In particular, Siegel has some fence-mending to do with the pilots, who are deeply alienated over the termination of their pension plan, one of the final steps in US Airways' financial reorganization. In July, the Air Line Pilots Assn. blocked a plan to operate the 75-seat CRJ705 with nonmainline crews as a violation of their contract, even though it would have meant more jobs for furloughed pilots and ALPA already had agreed to the airline's Regional partners flying the bigger Embraer 170. …

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