USAir on the edge of Chapter 7
Every January, Vaughn Cordle, chief analyst with Airline Forecasts of Washington, D.C., issues his prediction of the industry's 10 biggest stories of the year.
No. 1 on his 2005 list: the liquidation of US Airways.
"I think we're on the verge of the collapse of US Airways," Cordle said.
Aviation analyst Michael Boyd, of Evergreen, Colo., agrees. "Stick a fork in them. They're done," he said.
Fare wars, high fuel prices and bitter labor relations that resulted in an operational meltdown that stranded thousands of customers over Christmas have financially weakened the nation's seventh largest airline beyond recovery, experts said.
Even if US Airways succeeds in securing $1 billion a year in labor savings, it most likely will be too little, too late, they said, to save one of Western Pennsylvania's largest employers, with more than 6,000 local workers.
An unofficial dead pool has begun.
Cordle predicted that US Airways, which filed for bankruptcy protection in September, will run out of cash and shut down in March, typically the airline's low point in cash flow.
Boyd said it will collapse next month.
William Lauer, who follows the airline for Tarentum-based Allegheny Capital Management, heretofore had been somewhat of a maverick, refusing to predict US Airways' demise. But now he acknowledges that the airline's days may be short.
The "kill shot," he said, is not Southwest Airlines' decision to launch service at Pittsburgh International Airport in May. It was the Christmas fiasco, a sign of US Airways' seemingly intractable labor problems that has spooked customers and creditors alike.
"Clearly," Lauer said, "there has been a lot of damage" to the brand.
Boyd said that Southwest's decision to begin service in Pittsburgh is a sign that the low-cost carrier believes US Airways, which operates 225 flights a day at Pittsburgh International Airport, is on the verge of closing.
"What they are saying is that, by the time they begin service in May, they believe US Airways will be a non-entity in Pittsburgh,'' Boyd said, "either through flight reductions or going out of business. Most likely, the latter."
Their comments contrast sharply with those of US Airways Chief Executive Officer Bruce Lakefield, who told employees Friday that he was "upbeat" about the future. He said that the flight attendants' ratification of a $94-million-a-year cost-saving contract and a forthcoming ratification vote on $300 million a year in labor savings by mechanics, baggage handlers and fleet-service workers are major developments that help move the airline forward in its transformation plan.
"We're pulling together and getting things done," Lakefield said.
US Airways is trying to stay afloat through cuts in labor costs, cooperative creditors and vendors, and access to about $700 million worth of federally guaranteed loans backed by the Air Transportation Stabilization Board. Most of its assets are pledged as loan collateral.
The ATSB agreement expires Jan. 15. If the ATSB refuses to grant an extension, US Airways will be forced to shut down immediately.
US Airways also must make $260 million in aircraft lease payments in January and February.
If many customers shun the airline in coming months because of the Christmas catastrophe and fears that the airline is going out of business, US Airways won't have enough to cash to continue operations and make the lease payments, forcing it to default on the ATSB loans.
In another sign that it was struggling, US Airways asked a bankruptcy judge for an additional six weeks to file a reorganization plan. The plan is expected to be filed in late February.
Boyd said he had heard reports that, contrary to initial fears, January bookings did not drop precipitously immediately after the Christmas breakdown. (US Airways refuses to discuss advance bookings.)
Cordle, however, said that the Christmas travel disruptions rattled some creditors, including at least one aircraft lessor he declined to identify.
Another jolt to the system, such as a labor strike, could kill US Airways immediately, Cordle said.
The International Association of Machinists and Aerospace Workers, which represents almost 9,000 mechanics, baggage handlers and fleet-service workers, is conducting a strike authorization vote.
IAM-represented employees may go on strike by Jan. 22 if the rank and file refuses to approve a new contract calling for more than $300 million a year in wage and benefit cuts.
Cordle said a major labor disruption could spook creditors and vendors into demanding immediate payments from US Airways, triggering a financial run on the airline. "If one (creditor) pulls, they all will pull, and the company will collapse," he said.
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