US Airways CEO hints that he'll seek wage concessions

Siegel talks of `sacrifices' to be made by everyone if carrier is to survive

May 16, 2002|By Paul Adams | Paul Adams,SUN STAFF

US Airways Chief Executive Officer David N. Siegel told nervous shareholders and labor leaders yesterday that the airline's survival will be paid for in part with sacrifices from employees, suppliers and lenders.

His statement was the strongest indication yet that the Arlington, Va.-based airline's plan to avoid bankruptcy will include significant wage concessions from management and other employees, who made similar sacrifices when the carrier suffered severe losses through much of the 1990s.

It also came on the eve of Siegel's plan to reveal a comprehensive restructuring strategy to labor leaders, who have complained about being shut out of the process.

"Everybody will be asked to make sacrifices," Siegel said yesterday in Washington at the company's annual shareholders meeting. "I need to feel the pain, too. It's appropriate that we all share."

Siegel avoided specifics but said the airline's recovery plan also includes obtaining a government-backed loan, flying more regional jets, seeking concessions from suppliers and lenders, and creating partnerships with domestic and international carriers. Siegel said he will seek employee involvement in the plan starting today.

Once the dominant carrier at Baltimore-Washington International Airport, US Airways said Friday that it might have to file for bankruptcy unless it could obtain a government-backed loan to cover operating costs while the company restructures.

Loan guarantees are part of a $15 billion bailout of the airline industry approved by Congress after the terrorist attacks of Sept. 11.

US Airways lost a record $2 billion last year, and its cash reserves have fallen from about $1.08 billion at the end of last year to $561 million as of March 31. The airline was widely considered a bankruptcy candidate before Sept. 11, which might make it more difficult for it to win government support for a loan.

Analysts said labor concessions will be key to winning government approval for a loan guarantee. Without such a guarantee, the airline will not be able to persuade a lender to give it more money, they said.

"There's no amount of restructuring that's going to help the company unless they get those wage concessions, or at least work-rule concessions," said James Corridore, an airline analyst with Standard & Poor's.

Labor leaders are skeptical. Some argue that the airline's problem is not expensive labor but a flawed business structure that relies too heavily on short-haul flights in the crowded East Coast market.

Previous managers have tried repeatedly to overhaul the airline by cutting costs and launching MetroJet to compete with low-fare carriers such as Southwest Airlines. But the BWI-based MetroJet unit failed, and US Airways continues to have high operating costs.

"Our airline's business plan is the problem," said Karen Lascoli, chairwoman of the US Airways unit of the Association of Flight Attendants. "That needs to be restructured first before any case can be made that labor costs need to be cut."

The airline's pilots warned that any change in their contract will require union support.

"Our pilots do not doubt that a guaranteed loan is needed, nor do we doubt that the company's financial situation requires immediate attention," said Chris Beebe, chairman of the US Airways unit of the Air Line Pilots Association. "However, if we are asked to invest in a plan that shapes our future, we must believe in it."

If it is to obtain the loan, management will need to prove to the government that it has a workable business plan and will be able to repay the loan within seven years. Industry officials say that will require a major change in the way US Airways does business.

Jonathan Ornstein, chief executive of Phoenix-based Mesa Air Group, said US Airways' board should free Siegel to make bold moves to save the company. Mesa operates as a US Airways Express carrier and is the company's largest shareholder.

"I would like to encourage the board to give David the ability to think freely and implement the kind of what may be very brash moves and bold moves that will be necessary to get this company fixed," Ornstein said during yesterday's meeting.

The carrier has the highest operating costs in the industry, prompting low-fare carriers such as JetBlue, Southwest Airlines and AirTran Airways to go after its most lucrative customers on the East Coast.

Some question whether US Airways can restructure fast enough to avoid bankruptcy. But analysts said the company deserves to get a government loan guarantee.

"Yanking the government bailout package at this point would be a mistake," said Robert Mann, a New York aviation consultant. "I think at the end of the day, they get a deal."

US Airways shares rose 7 cents to $2.92 yesterday.

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