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Tuesday, December 10, 2002

By Frank Reeves and Jim McKay, Post-Gazette Staff Writers

United Airlines' decision to go into bankruptcy protection highlights the uncertain and dangerous future facing US Airways it struggles to get out of it.

Unless Pittsburgh's dominant carrier can coax additional concessions from workers and lenders in the next 10 days, according to analysts, there is a good chance the company will be forced to liquidate.

And even if US Airways should beat the odds and emerge healthy from bankruptcy next year, it will likely face a revamped industry in which it will have to compete not only with low-fare carriers such as Southwest and JetBlue but also with United and other major carriers that have been able to cut their costs.

US Airways has said it intends to file a restructuring plan with the federal bankruptcy court no later than Dec. 20, a week from Friday. The plan will be the basis for its final application to the federal Air Traffic Stabilization Board for $900 million in loan guarantees -- guarantees that the panel already has conditionally approved.

It was the stabilization board's decision last week to reject United's application for $1.8 billion in guarantees that gave management at the nation's No. 2 carrier little choice but to file for bankruptcy protection.

US Airways management is seeking an additional $200 million in annual concessions from its employees, on top of nearly $900 million in concessions it's already obtained, as part of its reorganization plan. Allegheny County Chief Executive Jim Roddey yesterday said that workers, some of whom are bristling at the latest request, need to understand that the fate of their company rests in their hands.

US Airways employees "have a choice -- change their work rules so they are competitive with the rest of the industry and they will have a job and a pension. Or turn down the proposal and have no job and no pension," he said.

Roddey talked yesterday with US Airways Chief Executive Officer David Siegel in anticipation of a meeting on Dec. 19 -- the day before US Airways is expected to file its restructuring plan. "We'll either be talking out about US Airways' plans to go forward or lamenting the end of the company," Roddey said.

The collapse of the airline could have a devastating impact on the state and the Pittsburgh region, where it employs just under 9,000 and had a local payroll of $1 billion before post-Sept. 11 cutbacks cut its work force from 11,700.

The impact of a slimmed-down US Airways is already being felt locally, not only through layoffs but also at the airport. The Allegheny County Airport Authority reported yesterday that the number of passengers using Pittsburgh International Airport fell 10 percent in October from a year ago, to 1,357,000 from 1,508,000 the year before,.

US Airways resumed discussions yesterday with unions representing pilots, mechanics, fleet service workers and customer service employees -- talks already fueled by the comments from the airline's primary lender even before United filed for bankruptcy.

David G. Bronner, head of the Retirement Systems of Alabama, last week told The New York Times that without additional labor concessions, "we'll pull the [interim financing the company is using to continue operations while it is in Chapter 11] and they're gone."

The tough stance taken by Bronner, who would control the US Airways board if the carrier successfully reorganizes, caught the attention of the airline's unions.

"We all know the history. TWA, PanAm, Eastern Airlines and Braniff are no longer in existence," wrote Scotty Ford, president of IAM District 141-M in a letter to members. "More than enough airlines have folded, abandoning workers and their families."

Yesterday's discussions also involved the Communications Workers of America, which represents reservations, ticket and gate agents whose ranks at US Airways have been trimmed by nearly a third, or 2,800, since Sept. 11. CWA leaders say they oppose one of management's productivity improvements -- the use of outside contractors to do work now done by their members.

The pilots' union has been asked for an additional $101 million in annual concessions on top of $465 million in annual wage-and-benefit cuts they've agreed to over the next 6 1/2 years. Bronner's comments, pilots union spokesman Roy Freundlich said, exposed what labor leaders have long suspected -- that US Airways' "labor-friendly attitude is really a facade."

Perry Hayes, president of the Association of Flight Attendants US Airways chapter, only said he found it interesting that the "CEO of the Alabama state pension fund wants to rape our pensions."

Now that United has filed for bankruptcy protection, analysts expect it will move quickly to trim its costs, among the highest in the industry. Once in Chapter 11, the company can abrogate or renegotiate labor contracts and shed millions of dollars in debt by renouncing aircraft leases.

If it accomplishes these goals, United could emerge from bankruptcy a stronger, more competitive carrier, not only against low-fare carriers such as Southwest, but also against other network carriers such as US Airways.

United has flights out some US Airways hubs, including 10 flights a day from Pittsburgh. United's flights from here connect with Washington, D.C., and Chicago, where passengers can access the carrier's transcontinental and overseas' routes.

Bill Oliver, an aviation analyst with the Evergreen, Colo.-based Boyd Group, said US Airways still has a slight advantage since it is already in bankruptcy protection and, if successful, could emerge from Chapter 11 early next year. United, by contrast, could be in Chapter 11 for up to 18 months. during which time US Airways could be up and running.

Still, United's filing puts pressure on all carriers, including US Airways, to further cut costs, said Stephen Morrison, an economist at Northeastern University in Boston with expertise in the airline industry.

He said United's filing marks a milestone in the 25-year history of airline industry deregulation. He noted that the major carriers have tried to hold off competition from low-fare carriers by a variety of strategies without lowering wages or changing work rules.

But Morrison said a combination of the Sept. 11 attacks and the nation's weak economy has shown how ineffective their strategies have been. "The time may have come when the only way to deal with competition from low fare carriers is to cut wages and improve productivity," he said.