Airline's losses exceed fears

US Airways loses $766 million, $11.42 a share, in 3rd quarter

October 31, 2001|By Paul Adams | Paul Adams,SUN STAFF

Amid growing signs of recession and new terrorist alerts, US Airways Group Inc. reported yesterday a larger-than-expected third-quarter loss of $766 million, making it the latest major U.S. airline to report a staggering loss for the quarter.

The Arlington, Va.-based carrier, the nation's sixth-largest, has been hurt by a slowdown in business travel and a three-week shutdown of its lucrative shuttle operations at Washington's Reagan National Airport last month. The airline is currently operating about a third of its pre-Sept. 11 schedule at Reagan National and hopes to resume a full schedule by the year's end.

The loss, which factored in an estimated $331 million government aid payment, amounted to $11.42 per share, compared with a loss of $30 million, or 45 cents per share, in the third quarter of 2000. Before unusual costs - most related to the Sept. 11 terrorist hijackings - the airline's loss was $433 million, or $6.45 per share. The average estimate of analysts polled by Thomson Financial/First Call was for a loss of $3.94 per share.

While fearful travelers canceled bookings last month, US Airways' operating revenue slumped to $1.99 billion, down about 16.5 percent from $2.38 billion a year earlier. The airline's shares, down 88 percent this year, fell 2 cents to $4.65 per share.

Despite the unprecedented numbers, US Airways management sounded upbeat yesterday about the airline's chances for recovery after implementing a restructuring that will eliminate 11,000 of its 46,500 employees and 111 of its older and least-efficient aircraft, among other austerity measures.

Included in the cuts is US Airways' entire MetroJet fleet, which operates 49 daily departures from Baltimore-Washington International Airport. US Airways is the second-largest carrier at BWI behind Dallas-based Southwest Airlines, which is the only major airline to report a profit for the quarter. MetroJet will begin phasing out service in December.

MetroJet's future was uncertain even before Sept. 11, but US Airways President and Chief Executive Rakesh Gangwal said the terrorist attacks prompted the airline to speed up a sweeping restructuring plan unveiled in August.

Analysts say the plan otherwise might have taken years to implement and been fought bitterly by union leaders. But by implementing emergency provisions in its union contracts last month, the airline has been able to quickly trim its work force, close four reservation centers, shutter 39 city ticket offices and eliminate certain fleet maintenance facilities.

The airline is also pushing to add more regional jets to its fleet, but has yet to reach an agreement with its pilots union.

Aggressive moves praised

"The events of Sept. 11 triggered a number of cost reduction opportunities that would have been highly improbable, if not impossible, in the pre-Sept. 11 operating environment," Gangwal said in a conference call yesterday with analysts.

Analysts are still wary, but have praised management's aggressive moves.

"They certainly sound like they are more confident now than they did in the last conference call," said Raymond Neidl, an analyst with the investment firm ABN-Amro. " ... But this is still a very dangerous environment for airlines and there's still a lot of work to be done."

Though the loss was slightly higher than he expected, Neidl said the airline is taking the right steps to dig itself out.

"Under these circumstances, they've reacted in my opinion very well," he said, referring to the company's plans to eliminate unprofitable routes and aircraft.

US Airways and other airlines are expected to lose more than $5 billion this year as recession and travel fears continue to weaken an industry whose biggest problem a year ago was keeping up with demand.

American Airlines, the world's largest, reported last week a record $414 million loss for the quarter.

But some analysts note that $5 billion in direct aid as part of a government rescue plan will cover much of the cash losses. A significant portion of US Airways' losses are noncash, including the write-down of a portion of its fleet, analysts said.

The airline ended the quarter with $1.04 billion in cash reserves, down from $1.25 billion at the end of the second quarter this year. Gangwal said the airline is taking steps to raise more capital and will end the year with $800 million to $900 million in cash. That should be enough to sustain the airline through next year, analysts said.

US Airways is bleeding about $3 million a day, factoring in the deferral of certain federal tax payments. That's down from a daily cash burn rate of about $9 million in the first weeks after the Sept. 11 attacks.

"Given the situation, that's not bad," said Jon F. Ash of Global Aviation Associates, a Washington aviation consulting firm. Barring another major setback for the industry, Ash forecasts a gradual rebound in travel demand that could put US Airways at the break-even point by the end of next year's second quarter.

Unions not happy

But the airline's unions say the recovery will come at an unnecessarily high price. Pilots have criticized management for taking advantage of the crisis to implement a draconian restructuring plan without their input. Gangwal singled out the pilots yesterday for resisting moves to add more regional jets to the fleet - a step management sees as critical.

"We have a proposal on regional jets and they refuse to meet with us to discuss it," said Roy Freundlich, a spokesman for the US Airways unit of the Air Line Pilots Association.

Analysts say major airlines' cost-saving measures were necessary - especially for US Airways.

"It could very well be the opportunity that they've needed to restructure and to actually improve their market performance," said Barbara Beyer of AVMARK Inc., an Arlington, Va., aviation consulting firm. "The [changes] desperately needed to be done and they'd be fools not to."

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