Concern looms at US Airways

Possible shutdown over a job action is a threat to recovery

Airlines

March 19, 2000|By Robert Little | Robert Little,SUN STAFF

Executives at US Airways have tied down almost every loose thread in the company's previously-unraveled operation.

The airplanes are getting fixed on time. The new computer system works. Most employees have long-term contracts, fewer flights are canceled and Wall Street thinks the carrier might return to profitability in the next three months.

Yet, as everything seems healthy again for the Arlington, Va.-based carrier, a $20 million-a-day hemorrhage is afoot.

Executives are threatening a complete shutdown of the $8.6 billion airline March 25, if talks over its last unsigned union contract aren't resolved. Rather than subject the airline to sporadic strikes by flight attendants, company officials plan to suspend the whole corporation -- leaving 170,000 passengers a day on the ground and paying $20 million or more in daily expenses with no revenue to cover them.

The threat is costing the airline customers, as travelers book with competitors to avoid possible cancellations.

But if the shutdown comes and lingers for a week, analysts say it could have effects so vast and so expensive that it could drain off cash equivalent to the annual profit for the corporation in 2000.

"Neither side can really afford to have this airline shut down, especially with the type of year they had last year," said Raymond F. Neidl, an analyst for ING Barings in New York.

"Strikes are extremely expensive for airlines -- they can bleed cash very quickly. And this airline was just getting things into shape."

Airline officials won't discuss the potential effects of a shutdown, saying they are "singularly focused" on reaching an agreement with the Association of Flight Attendants to avoid one. But in a filing last week with the Securities and Exchange Commission, the airline said it expects a "material adverse effect" on performance, and it can tap a $500 million credit line to cover expenses.

US Airways warned Wall Street in January that it would record its third straight quarterly loss in the first three months of the year. After posting a profit of $538 million in 1998, the company earned $197 million last year because of flight cancellations, computer glitches and high fuel costs. Most analysts expect the airline to return to profitability in the second or third quarter of 2000 and post a modest profit for the year.

But analysts' estimate that a shutdown would cost US Airways $15 million to $20 million a day, while alienating the customers who would be needed to restore that revenue once operations resume. The flight attendants union estimates the daily expense higher -- closer to $35 million, with the cost of a weeklong stall approaching $300 million.

Standard & Poor's plans to place the company on credit watch if the shutdown takes place, and travel agents say they are telling customers to avoid the airline in late this month and early next month.

"You have to assume there won't be a shutdown because that's how these things usually work -- they pull back from the brink of the abyss," said Goldman Sachs analyst Glenn D. Engel. "But if there's a strike, it would probably wipe out any chance of a profit for the full year."

The company won't say how long it can last without earning any money. It plans to continue paying its 44,000 employees -- except the 9,800 flight attendants -- "for as long as financially feasible." US Airways executives told Maryland officials to brace for 2,300 layoffs.

"The economic impact of such a shutdown would be devastating," wrote Pennsylvania Gov. Tom Ridge last week to President Clinton, asking him to personally intervene. US Airways employs 16,500 people in Pennsylvania.

Airline President Rakesh Gangwal has called the decision to shut down a "tough, very painful" one, reached as a last resort.

The flight attendants union has called threats of a shutdown a ploy to encourage intervention from a Presidential Emergency Board, which could order employees back to work. But since the decision was announced, other industry watchers also have questioned whether the airline is bluffing.

The shutdown would take place during what is typically the busiest, most profitable period for airlines in the United States.

And unlike pilots and mechanics, flight attendants can be replaced quickly. Few flight attendant strikes in the past two decades have been successful.

But realizing this, the Association of Flight Attendants has trademarked a job action called CHAOS -- Create Havoc Around Our System -- that calls for unannounced, last-minute walkouts on random flights. Union officials consider the tactic more disruptive than a general strike, while also less likely to lead to the hiring of replacement workers.

Gangwal and Chairman Stephen M. Wolf wrote in a letter to employees: "If US Airways were to try to operate a schedule under such conditions, in which we would not know from hour to hour which flights the AFA would strike, our customers would lose all confidence. -- It would risk losing large numbers of customers permanently."

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