US Airways uncertainty worrisome to riders

More than $800 million a year in union concessions demanded

2nd bankruptcy filing in 2 years looms

September 07, 2004|By THE BOSTON GLOBE

US Airways is dangerously close to its second Chapter 11 filing in two years, a bankruptcy that could cripple the airline and its frequent fliers if the carrier fails to cut costs severely.

The airline says it needs nearly $800 million in annual labor concessions by the end of this month to satisfy its creditors and avoid the bankruptcy filing. Its chairman, David G. Bronner, has said that if it fails to win the cuts after filing for bankruptcy protection, the airline would probably face liquidation.

That drastic step is still avoidable; US Airways' pilots union is considering a proposal for $295 million per year in concessions. Other unions are pressing for concessions from the pilots before they will negotiate.

But the possibility that the airline would not survive a second bankruptcy has some passengers wondering whether to cash in their frequent-flier miles and head for less turbulent skies.

"The decision I made was that if they don't make an agreement with the pilots union, I would go ahead and book a flight overseas for me and my family on one of their partner airlines," said Dave Rivard, a software engineer from Cumberland, R.I., who has racked up about 200,000 Dividend Miles.

In the meantime, he is asking other carriers if they will honor his miles if US Airways stops operating.

US Airways is not the only airline in peril. United Airlines has been trying to reorganize itself under Chapter 11 protection for nearly two years, and Delta Air Lines is fighting to win concessions from its unions that executives say are needed to avoid a bankruptcy filing.

But US Airways' situation appears more dire, because it is in danger of defaulting on about $700 million in government loan guarantees, and because of Bronner's comment that failing to win concessions would probably lead to a liquidation.

The carrier also faces a $110 million pension payment and the expiration of interim finance agreements with three aircraft makers at the end of this month.

"All of our financial partners have expectations that by Sept. 30 we will have implemented a new financial structure, and their continued support is based upon those expectations," said Chris Chiames, US Airways' senior vice president of corporate affairs.

In the meantime, the airline is working to convince fliers that they have nothing to worry about. They received e-mail last week explaining that the union talks "have no direct impact on our ability to professionally serve you, nor do they affect your ability to earn or redeem Dividend Miles."

"The message to the passenger is that this process shouldn't impact them," Chiames said. "It shouldn't impact their vacation plans."

Some passengers don't buy that argument. Patrick Springer, a frequent flier from Watertown, Mass., said he has redeemed about 800,000 US Airways miles in the past year, mostly through giving airline tickets as gifts.

"I know this is counterproductive for them because I'm using their seats and they're not getting any revenue for it," Springer said. "It's analogous to using a grocery store coupon; you want to use it before it expires."

Experts following the US Airways drama said they doubt the airline would fold immediately but added that Springer's thinking is not entirely wrongheaded.

"There's nothing you need to worry about right now. The risk is: Will US Airways be in business in a month?" said Henry Harteveldt, vice president at Forrester Research in San Francisco.

If the Arlington, Va.-based airline were forced to liquidate, passengers holding tickets or mileage awards would not necessarily be out of luck, he said.

First, the carrier is a member of the Star Alliance, a collective of 15 airlines around the world that honor each other's frequent-flier miles. It has a similar partnership with United and Lufthansa.

Some of US Airways' partner airlines would probably accept its tickets or miles in the event the carrier folded, Harteveldt said. Still, he cautioned that airlines would honor tickets and miles on a very restrictive basis.

One strategy travelers could use would be to book tickets now using US Airways miles for travel on one of its partner airlines, Harteveldt said. For example, US Airways and United operate so-called code-share flights, where either carrier's passengers can book seats through the other airline.

In that scheme, a previously booked ticket on United using US Airways miles would still be valid, even if one carrier disappeared, Harteveldt said.

Long term, though, the best protection may stem from being careful about how you pay for tickets. The Fair Credit Billing Act requires credit-card companies to refund money to consumers for services they did not receive, including airline tickets.

Consumers, though, have to file a claim with their credit-card issuer within 60 days of the date they received the bill for the purchase.

If you pay with cash or a check and an airline goes out of business, "you're just an unsecured creditor," Harteveldt said.

Another way to protect yourself is to book through a travel agent or an online booking service because they will often help to make alternative arrangements. They're not obligated to help or give refunds, though.

"You have to be proactive," Harteveldt said. "Orbitz is not your mother."

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