USAir bond prices drop as talks fail

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

USAir's stock and bond prices dropped yesterday, the latest sign that investors are growing increasingly uneasy about the Arlington, Va.-based carrier after a breakdown in crucial talks between the company and its pilots to cut costs.

The Air Line Pilots Association broke off negotiations with the airline Thursday after USAir said it planned to sell about 7 percent of its fleet, including all of its Boeing 767s, and reduce or eliminate its trans-Atlantic service.

Grounding of the aircraft would mean pilots assigned to those jets would be moved to lower-paying jobs flying smaller planes.

Yesterday, the price of USAir's 10 percent senior notes due 2003 fell about 8 percent from Thursday, traders said. That issue of bonds, USAir's most actively traded, were selling for 59.5 cents on the dollar late yesterday. The price of its stock, which reached a record low last week, closed yesterday at $4.375, down 37.5 cents a share.

USAir's bonds have declined about 40 percent this year as the airline's financial problems continued to mount. Last week, the company said it would suspend dividend payments on $1 billion of preferred stock to save $77 million annually.

"I think the market has reacted as adversely as it can," said Alex C. Hart, airline analyst with Ferris, Baker Watts in Baltimore. "It's probably saying, not we think they're going [into bankruptcy], but there's a real possibility that they could.

"The common [stock] is as low as it's ever been. The preferred was sliced in half, and now bonds are getting whacked," he said. "What have you got left?"

The airline's negotiations with its major unions, representing more than 22,000 workers, is seen by most analysts as the carrier's only hope for avoiding bankruptcy.

Yesterday, there appeared to be no movement on resuming talks. Officials of the pilots union could not be reached for comment. But USAir toughened its stance.

"We look forward to getting back to the negotiating table when they're prepared to present us with a meaningful response to our proposal," said Andrea Butler, spokeswoman for USAir. "We're not going back to the table until we get one."

In a letter to USAir chairman Seth Schofield, the chairman of the USAir branch of the Air Line Pilots Association, Peter Gauthier, said the proposed sale of aircraft was "nothing more than a blatant attempt to avoid negotiating. . . . The pilot group cannot negotiate in the face of these tactics," according to the Associated Press.

The company's announcement about plans to sell the aircraft was not unexpected. In September, it had warned its three major labor unions, representing pilots, flight attendants and machinists, that it would sell planes to raise money unless it could quickly cut its labor costs.

"We have said before that if we can't get our operating costs down, we would look at reducing our aircraft ownership costs," Ms. Butler said.

In a tape recorded message on its hot line Thursday, the pilots union said the airline's plan is unlikely to help restore profitability.

"We are extremely disappointed in the company's attempt to downsize the airline. . . . No airline has downsized into profitability," said Bob Gaudioso, a pilots' spokesman.

The proposed aircraft sale includes a total of 37 aircraft in two phases next year. Among the planes USAir plans to sell is the Boeing 767 it leases to British Airways for service between Baltimore and London. It leases two other planes to British Airways for service between Charlotte and Pittsburgh and London.

If USAir sells those planes, British Airways would continue operating the routes with its own 767s, according to a spokesman for the carrier.

"We would not scrap those routes," John Lampl said yesterday.

Since 1989, USAir has lost nearly $2.5 billion. While other carriers are slowly recovering, USAir's losses this year are expected to exceed last year's loss of $350 million.

In its latest offer to the pilots union, USAir proposed giving pilots a 10 percent equity stake in the company in exchange for $500 million a year in labor-cost savings.

The union had asked for a 25 percent equity stake for all workers and $670 million in preferred stock in exchange for the concessions.

While other unions agree that the airline needs concessions from its workers, its approach to the cuts are apparently different from the pilots. Talks are continuing between USAir and those unions but neither side has publicly discussed details.

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