Us Air Posts Record Quarter

Surprising Earnings Won't Ease The Way To An Accord With Pilots

April 24, 1997|By Suzanne Wooton | Suzanne Wooton,SUN STAFF

US Airways reported yesterday record first quarter profits, in surprisingly strong results that are likely to make its negotiations with pilots for concessions even more difficult.

"It makes the company's job of arguing with the unions a little tougher," said Alex C. Hart, an airline analyst for Ferris, Baker Watts Inc. in Baltimore. "These results are pretty impressive."

The company said it earned $152.7 million for the three months ended March 31 on revenues of $2.1 billion, compared with a loss of $32.3 million on revenues of $1.9 billion in the first quarter of last year.

The news sent the company's shares soaring $5.25, or 18 percent, to $34.125 on the New York Stock Exchange, where it was one of the most actively traded issues.

While the carrier's $2-a-share earnings were three times Wall Street's expectations of 69 cents a share, US Airways said it suffered significant losses in key markets as a result of its uncompetitive cost structure and the rapid growth of low-cost carriers.

The Arlington, Va.-based carrier has been negotiating with its unions without progress, it says, for a year. Recently, US Airways Chief Executive Officer Stephen M. Wolf and President Rakesh Gangwal conducted series of meetings at key airports, telling employees that without a competitive cost structure the airline will be forced to downsize significantly.

In addition to ending its transcontinental and Florida service, US Airways is threatening to all but eliminate service at Baltimore-Washington International Airport where the carrier handles roughly 45 percent of the airport's 31,000 daily passengers.

The carrier has set no deadline for reaching an agreement with its pilots, which will provide a benchmark for deals with the company's other unions.

But yesterday, US Airways' board of directors stepped up the pressure, saying: "The lack of progress in reducing US Airways' costs to competitive levels leaves us no choice but to conclude that the company must promptly implement the appropriate steps to address the issue."

Representatives for the Air Line Pilots Association said yesterday the company's demands are still excessive, particularly in light of the latest earnings report.

"It is unfortunate that US Airways is publicly threatening its employees with this action," said Mark Thorpe, an ALPA spokesman. "Both the pilots and management believe the long term success of the airline is through growth."

"If we believed that the company intended to downsize, we would have signed onto management's deal already," he said. "We don't believe that so we're holding out for a much more appropriate level of participation by the pilots."

US Airways is asking its pilots for concessions so it can convert up to 40 percent of its flying into low-cost express flights.

The airline argues that pilots would offset pay cuts by flying more hours.

The union put forth a plan in November 1996 to respond to low-cost carriers, including pilot pay rates at Southwest Airline levels, it says. But the pilots want only 10 percent of the fleet and pilot work force to be used in the low-cost operation.

The airline said yesterday that its first-quarter results benefited from favorable economic and weather conditions as well as the performance of the carrier's 42,000 employees.

The company noted that, after allowing for a $20.9 million preferred dividend requirement, the net profit applicable to common shareholders was $131.8 million, or $2 a share.

That compared with a loss of $54.6 million, or 86 cents a share, a year ago.

During the first quarter, the operating profit was $175.6 million, compared with $10.8 million in the corresponding period last year. The airline's load factor -- percentage of the plane filled with paying passengers -- was 68.4 percent, also a record.

But Ferris Baker analyst Hart warned that, despite its impressive results, US Airways' costs are still the highest in the airline industry. And the healthy economy which boosted US Airways earnings also has favored other carriers.

"It gives the Southwests of the world more leeway to expand their markets and offer lower prices," Hart said. "If you're still the guy out with the highest costs, you're at a disadvantage. In order not to lose share market, you've got to get costs in line."

Pub Date: 4/24/97

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