US Airways' Numbers May Not Fly

Even if the carrier strikes a last-minute deal with its pilots, it could still be forced back into Chapter 11

By Lorraine Woellert

It looks like the sky is falling down around US Airways -- again. Late on Sept. 6 -- Labor Day -- a sharply divided panel of negotiators for the pilots union refused to forward the carrier's latest offer to its rank and file for a vote. The next day, US Airway's (UAIR ) 3,000 pilots descended into heated infighting over their next move. And when the markets closed on Sept. 7, the stock was down almost 15%, to $2 a share, as talking heads uttered dire predictions of the carrier's second bankruptcy in two years.

Brinkmanship is the modus operandi when it comes to airline-union bargaining. But this is different. Why? Because even if US Airways can pull off a last-minute deal with its pilots, a Chapter 11 filing still may not be far behind.


  Just look at the numbers. The company has a $110 million pension payment due on Sept. 15. On Sept. 30, it must show its creditors that it's maintaining about $725 million in unrestricted cash, as required by the terms of a $900 million federal loan guarantee. US Airways reported $975 million in cash as of June 30, but the outlook isn't good -- it has lost $317 million since emerging from bankruptcy in April, 2003 (see BW Online, 9/8/04, "S&P Cuts US Airways Group Rating").

An agreement with the pilots, while important for symbolic and political reasons, would provide only $295 million of the $800 million in cuts US Airways is seeking from all of its unions -- flight attendants, gate agents, and mechanics. Labor leaders have told management that the concession window is closed.

"When they went through the first bankruptcy, we gave them everything they wanted," says Robert Roach Jr., vice-president of the International Association of Machinists. Even if Roach & Co. are crying wolf, not one of the unions will budge until a pilots' deal is done.


  In the highly unlikely event that labor collectively reaches a deal between now and Sept. 30, the savings would account for only about half of the $1.5 billion in total cost cutting the carrier is trying to achieve.

US Airways is working to close that budget gap -- on Sept. 7, it imposed a $5 fee on passengers making reservations by phone and a $10 fee for buying a ticket at airport counters. But the airline's execs continue to hold the airline's broad transformation plan close to the vest.

One wild card remains. In the neck-and-neck race for the White House, the state of Pennsylvania remains in play. And with hubs at airports serving Pittsburgh and Philadelphia, US Airways is a huge employer in the Keystone State, which is home to the carrier's largest concentration of pilots.

If President George W. Bush wants to stave off a bankruptcy filing until after Election Day, the Air Transport Stabilization Board might take the hint and give US Airways another reprieve. Indeed, it was Pennsylvania's four union representatives to the Air Line Pilots Assn. council who vetoed the latest deal with management.


  Both sides deserve a little sympathy. Labor has already made significant concessions over the last few years. And airline economics are in a constant state of turmoil -- no one could have predicted a year ago, for example, that the price of oil would hit $49 a barrel this summer. Amid the chaos, low-cost carriers are nibbling away at the legacy carriers' networks by adding more and more city pairs.

When the dust settles at US Airways, pilots and management will likely be on speaking terms again. They may have no choice. "I am not prepared to throw in the towel or conclude that we cannot reach an agreement," CEO Bruce Lakefield said in a Sept. 7 memo to cockpit crews. But more turmoil is likely to come first.

Woellert is a correspondent in BusinessWeek's Washington bureau

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