Market welcomes US Airways news

Pilots may accept pay cut to keep company aloft

July 10, 2002|By Paul Adams | Paul Adams,SUN STAFF

Investors and analysts applauded news yesterday that US Airways' pilots have tentatively agreed to $465 million in annual pay reductions that could help the airline obtain new financing and avoid bankruptcy.

The Arlington, Va.-based airline's stock rose 23 cents, or 7 percent, to $3.52 a share yesterday after climbing 19 percent in early trading.

The pilot pay cuts of about 26 percent are contingent on a final agreement that includes job security provisions and an equity stake in the company for union members, among other things. The two sides continue to negotiate.

"The company will not have any of the cost reductions if we don't come to agreement on those issues," said Roy Freundlich, a spokesman for the US Airways unit of the Air Line Pilots Association.

US Airways officials declined to comment on details of the negotiations.

"We're still in discussions with the pilots on the remaining components of the agreement. We're making great progress and are hoping to have an agreement soon," said US Airways spokesman David Castelveter.

Labor concessions make up the bulk of $1.3 billion in cost savings the airline is trying to secure in order to avoid bankruptcy. US Airways, which lost $2 billion last year, is hoping the cuts will persuade the federal Air Transportation Stabilization Board to grant a $900 million loan guarantee that is critical to the carrier's survival.

The loan board, which was set up to help carriers hurt by the terrorist attacks of Sept. 11, is expected to ask for painful concessions and an equity stake in the airline in exchange for the loan guarantee. But analysts said a deal with the pilots might help convince the board that the airline is viable and worth saving.

"They would not become a low-cost carrier, but they will become competitive," said Ray Neidl, a New York-based airline analyst. "The pilots are the big expense item, and if they can get them cooperating, that goes a long way."

Kenneth Button, an expert in airline economics at George Mason University, said US Airways is making the right moves but needs to form an alliance with a major competitor to be viable. Last week, Continental Airlines broke off negotiations over a possible alliance, but US Airways officials are talking with other carriers about sharing passengers in a bid to increase revenue.

Darryl Jenkins, director of the Aviation Institute at George Washington University, agreed that concessions from labor leaders won't be enough. The airline needs to finish restructuring its routes and consider reducing the number of hubs it operates on the East Coast, he said.

"Right now their revenue is way down, and their costs are still very, very high even with all of these concessions," he said.

US Airways negotiators originally asked the airline's 4,800 pilots for $595 million in annual cost savings over 7 1/2 years. The airline agreed to reduce its request to $545 million for 6 1/2 years. Based on those numbers, the pilots say they are giving management 85 percent of their original request.

The airline's flight attendants questioned that claim yesterday, saying management and the pilots might be fudging the numbers. The issue is critical because pay concessions agreed to by the flight attendants union last week are contingent on the pilots' giving management at least 85 percent of the airline's original request.

The flight attendants tentatively agreed to provide the airline with $77 million in annual cost savings, 85 percent of management's original request of $90 million.

"They owe us some money," said Jeff Zack, a spokesman for the Association of Flight Attendants. The flight attendants are expected to vote on the agreement next month.

In related developments, US Airways said yesterday that it has reached an agreement on pay concessions with the Transportation Workers Union Local 546, which represents more than 40 flight simulator engineers. Details of the agreement were not released.

Castelveter said management is in discussions with the Machinists union, which represents 13,000 workers who are being asked to give up more than $260 million in pay and benefits annually. It was unclear yesterday whether significant progress had been made.

Talks with the Communications Workers of America, which represents 10,000 passenger service employees, appeared to be breaking down yesterday. The union issued a statement complaining about management's "unreasonable demands" in light of the union's past sacrifices. The union said it has made four salary proposals, all of which have been rejected by management.

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