USAir loses less, may borrow

Pilots to allow airline to double regional jets

April 19, 2002|By Paul Adams | Paul Adams,SUN STAFF

US Airways Group Inc. reported a smaller-than-expected $269 million first-quarter loss yesterday and said it will likely apply for a government-backed loan to shore up its shrinking cash reserves.

The news came on a day of disappointing earnings results for the airline industry, which is projected to lose more than $2 billion this quarter.

US Airways is among the most threatened of the nation's major carriers, but is counting on its new management team to deliver a restructuring plan that will lower costs in time to save the struggling airline from bankruptcy.

The plan got a boost late yesterday when the airline's pilots union agreed to allow management to increase the number of regional jets it uses on short-haul routes to 140, up from a contractually limited 70.

The agreement is considered critical to the restructuring effort and came after months of difficult negotiations over job protections for the pilots.

"We are very focused on formulating and implementing a restructuring plan that's going to get us to a situation where we can fully capitalize on the strengths of this company and at the same time address some of the structural weaknesses we've identified," said David N. Siegel, US Airways' chief executive officer.

The loss amounted to $3.97 per share, compared with a loss of $171 million, or $2.55 per share, in last year's first quarter. Excluding one-time items, the company lost $286 million, or $4.22 per share. Analysts surveyed by Thomson Financial/First Call had projected a loss of $6.08 per share.

The carrier's shares closed down 28 cents to $5.92 per share in trading yesterday.

Sales for the quarter were $1.7 billion, down from $2.2 billion in the same period in 2001. Airline executives blamed the decline on a sluggish economy, competition from low-fare carriers and a 23 percent cut in capacity after the Sept. 11 terrorist attacks.

US Airways, which halved its service to Baltimore-Washington International Airport, continued to burn through about $3.5 million a day during the quarter, ending the period with $561 million in reserves. That's down significantly from the $1.08 billion on hand at the end of 2001 and heightens the carrier's need to seek a loan under a $10 billion federal program created after Sept. 11 to help airlines obtain financing.

"It [$561 million] sounds like a lot of money at first blush, but in truth it's not," said Darryl Jenkins, executive director of the Aviation Institute at George Washington University. "They can run through that very, very rapidly."

US Airways would be the second major carrier to seek a loan guarantee, but would likely have to cut labor costs and give the government an equity stake in the airline to obtain the financing.

America West received a $429 million loan under the program, but had to give the government the option to buy up to a third of the airline's stock over 10 years.

Ray Neidl, a New York airline analyst, said US Airways is likely to get better terms than America West but will still have to persuade its unions to make wage concessions as part of the deal.

The airline has warned employees that wage concessions may be necessary. The airline has some of the highest operating costs in the industry, though labor is only partially to blame.

US Airways executives declined to give specific details of a restructuring plan expected to be revealed within a month. However, they said the plan would include sacrifices from unionized employees, vendors, manufacturers and lenders.

The airline, which is based in Arlington, Va., said it expects to be cash-positive in the second quarter, but could begin to bleed cash again late in the year absent a successful restructuring.

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