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Postal Service Drain Leaves Week’s Pay as Paltry Cushion

The U.S. Postal Service has cash on hand equal to about a week’s pay for its 525,000 employees, in the best cash-flow environment it expects to have this fiscal year.

That shows how close to the edge the mail and package agency is, as it appeals to Congress to allow major cost cuts it can’t implement on its own.

“It’s a pretty dire situation,” said Kevin Sterling, a BB&T Capital Markets analyst who follows freight-delivery companies including FedEx Corp. and United Parcel Service Inc. that compete with the Postal Service.

“Even under the rosiest scenario, they have a hard time meeting their current obligations,” Sterling said. “Congress or something’s going to have to happen in order for them to just pay the bills.”

The service needs about $250 million per day to pay its workers, fuel its vehicles, and keep the lights on at its plants and post offices. Come October, it expects it won’t have that much cash on hand, Chief Financial Officer Joe Corbett said yesterday.

The service’s current ratio, a measure of cash relative to liabilities, is no higher than 0.579 when excluding $11.1 billion in missed payments to the U.S. Treasury for health benefits costs of future retirees and non-cash liabilities of $5.6 billion. A ratio under 1 suggests a company may struggle to pay its short-term obligations as they come due.

When including the other liabilities, the ratio is 0.105, David Partenheimer, a Postal Service spokesman, said.

Oct. 15

At the highest ratio, the service would be among the lowest 60 out of 2,847 companies in the Standard & Poor’s 500 Index or traded on the Nasdaq Stock Market, according to data compiled by Bloomberg. The lower number would be the third-worst among those companies.

Without action by Congress, the service said yesterday, it will run out of cash on Oct. 15, 2013. That’s about the day it must make a required workers-compensation payment to the U.S. Labor Department, and holiday mailing revenue probably won’t be coming in at that point, Corbett said yesterday.

The service was close to zero cash last month after making the same payment for 2012, according to a presentation to the postal board yesterday. One difference this year is that the service in October had revenue coming in from campaign mailings tied to the November elections.

“We’ll be running at a cash balance of somewhere near an average of just over $1 billion for the first half of this year, which is four days of operating cash,” Corbett said yesterday on a conference call with reporters. “We ought to have cash balances of close to $5 billion.”

Record Loss

The cash situation has worsened, with about $1 billion less available cash on average than at any given point last year, he said.

The Postal Service yesterday said its loss for fiscal 2012 widened to $15.9 billion, a record and more than the $15 billion it had projected. It blamed the loss on mail volume that fell 5 percent and a law that requires it to pay about $5.5 billion a year for future benefits costs. The Postal Service has defaulted on the last two years’ of those payments, a total of $11.1 billion.

Labor accounts for about 80 percent of costs at the postal service, compared with 61 percent at UPS and 41 percent at FedEx. Its payroll is $1.8 billion every other week for the workforce that would be second only to Wal-Mart Stores Inc. if the service were a U.S.-based publicly traded company.

No Borrowing

Hugh Cannon, a marketing professor at Detroit’s Wayne State University, characterized the Postal Service as “far worse” off financially than the U.S. auto industry was when General Motors Corp. and Chrysler LLC filed for bankruptcy protection in 2009 and were bailed out by the U.S. government.

“They’re not even in the same ballpark when you’re losing $15 billion a year,” he said in an interview.

The Postal Service, as an agency of government that is supposed to be self-supporting, doesn’t have the option of filing for bankruptcy like the auto companies did. The service tapped out its $15 billion credit line with the Treasury on Sept. 28 and can’t by law borrow from any other source.

The service is asking Congress to enact legislation before adjourning this year that would allow future retirees’ health-benefit payments to be spread over more years, which could preserve billions a year in cash. The service also wants to stop Saturday mail delivery, and more easily close post offices and processing plants.

The Senate passed a postal overhaul measure in April while House leadership hasn’t promised any time on the floor for a bill approved by the House Oversight and Government Reform Committee, led by California Republican Darrell Issa.

Fiscal Cliff

Without congressional action, the Postal Service is left to preserve cash by inducing employees to retire early; raising postage prices, though it can do so only at the rate of inflation; and closing facilities when it can after following a process that can include congressional intervention and reviews by its regulator.

“They need to act in the lame duck and do the right thing and get this legislation passed,” Postmaster General Patrick Donahoe said on a conference call with reporters. “We and the industry will get back into good shape and then they can focus on the fiscal cliff and all the other issues facing this country.”

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