British Airways says it may halt infusion of cash into USAir

March 08, 1994|By Suzanne Wooton | Suzanne Wooton,Sun Staff Writer

USAir Group Inc. said yesterday that its partner British Airways has warned USAir that it won't invest any more money in the beleaguered carrier unless USAir brings its soaring losses under control.

"British Airways has indicated that it will not pursue further investment in USAir until it is clear that an effective cost-reduction program is firmly in place and USAir's financial performance improves," USAir Chairman Seth E. Schofield said in a statement yesterday.

In the same statement, the airline also said it would lose $200 million in the first quarter of 1994, compared to $61 million for the same period last year.

Using the British Airways warning as a lever to pry further wage cuts and productivity concessions from its workers, USAir officials met with representatives of its four employee unions yesterday.

"Labor cost reductions are but one of many cost-cutting initiatives that we must take if USAir is to remain viable in a low-fare competitive environment," Mr. Schofield said yesterday.

The labor representatives were summoned to the airline's Crystal City headquarters in Arlington, Va., after a special board of directors meeting last week, which was attended by the nTC British Airways chairman, Sir Colin Marshall.

About half of USAir's 46,000 workers are represented by unions. None of the union representatives could be reached for comment after yesterday's daylong meeting.

In what could be its fifth straight year of staggering losses, USAir also said it expects its 1994 pretax loss to exceed the $350 million in red ink it posted in 1993. That would put its losses since 1989 at nearly $3 billion.

The airline said losses so far this year result largely from competition with low-cost, discount carriers who are forcing USAir to lower its fares to money-losing levels.

"The principal cause of our unacceptable loss is the requirement to sharply lower fares in response to the steady expansion of low-cost carriers into many of our East Coast markets," Mr. Schofield said.

So far, the most visible battle ground for those fare wars has been Baltimore-Washington International Airport, where USAir has lowered its fares as much as 70 percent to compete with Continental and Southwest airlines.

The airline yesterday also cited the unusually severe winter weather, which resulted in millions of dollars in losses in January and February when USAir was forced to cancel 8 percent of its flights.

Because of its losses, British Airways' infusion of cash is seen as critical to USAir's viability, even though the next stage of the investment, another $200 million, is not scheduled to be made for two years.

The British carrier's commitment is also an important signal to U.S. financial institutions who will be asked to loan USAir money in the meantime.

In 1993, British Airways and USAir entered an alliance under which British Airways invested $400 million in USAir in return for 24.6 percent of its voting stock and the opportunity to hook up its trans-Atlantic service with USAir's extensive East Coast market.

At that time, the British carrier promised to invest another $450 million in USAir by 1998 if the U.S. government decides to permit foreign companies to own greater shares of U.S. airlines' voting stock.

The decision over foreign ownership, however, has been caught up in turbulent negotiations between the two countries.

The United States has been insisting that Great Britain provide more access to London's Heathrow Airport at peak times.

To put pressure on the British, U.S. Secretary of Transportation Federico Pena is threatening not to extend a "code sharing" arrangement that allows the two airlines to sell seats on each other's flights.

The agreement is set to expire March 17.

U.S. carriers are pressuring Mr. Pena to kill the code-sharing alliance unless they are granted better landing rights at Heathrow.

The British Airways warning about future investment in USAir merely introduced a new wrinkle in the aviation dispute between the two countries.

According to some analysts, British Airways is telling the United States that if it doesn't permit the code sharing to continue, that USAir may be left without a source of badly needed cash.

But a spokesman for British Airways yesterday denied that there was any connection.

"Bilateral negotiations is a separate issue and we've always said that," said John Lampl, a spokesman in New York. "We want them to stem these losses but what USAir does to implement the reduction of those kinds of losses is something they have to do," he said.

Others say USAir may be using the British Airways warning to send a message to USAir unions, who may believe that a sure source of cash exists across the Atlantic.

"This is an industry that is not noted for great labor relations and both sides sometimes resort to scare tactics or threat tactics," said Alex Hart, an airline analyst for Ferris, Baker Watts Inc. in Baltimore. "It could be part of a strategy."

But David Shipley, a spokesman for USAir, denied that it was a "tactical move."

Because of its extensive route structure, its work rules and wages, USAir has the highest costs among all domestic airlines and far higher than discount carriers.

During its most recent contract negotiations, USAir received one-year wage concessions from its major unions in exchange for no-layoff clauses. Those wage cuts expired last year, however.

"They've got no choice in this kind of competitive environment but to go back to the unions," Mr. Hart said. "I don't think they're presenting it as a possibility of layoffs. They're probably presenting it as either cost restructuring or bankruptcy."

Despite the losses, most analysts say USAir is not in danger of bankruptcy any time soon. At the end of last year, the carrier had access to nearly $1 billion in cash and credit.

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