Airlines Keep Fighting for Viability
Big U.S. Carriers Embark On Still More Cost Cuts; Pay and Pensions on Block

By Susan Carey
8 November 2004
The Wall Street Journal

Despite three years of shrinking and cutting costs, most big U.S. airlines haven't returned to profitability. Indeed, industry conditions have worsened recently in the face of high fuel prices, airfares at 12-year lows, overcapacity and rapid expansion of discount carriers.

As the goal posts have moved, airlines have been forced again to embark on a frantic campaign to cut expenses. If unsuccessful, some airlines face bankruptcy, and a few may even stop operating in the months ahead. But to get the cuts, they face increased tension with their heavily unionized work forces, which bore the brunt of previous cuts and now are being asked to work longer hours, take reduced pay and, in some cases, lose their lucrative pensions.

Two airlines in bankruptcy-court protection, US Airways Group Inc. and United Airlines parent UAL Corp., are asking their workers for a second round of big pay and benefit reductions. United also confirmed last week that it intends to terminate its four underfunded pension plans to reduce cash outflows, pushing those liabilities on the Pension Benefit Guaranty Corp., the national pension insurer in the U.S.. And US Airways, which has said it is considering freezing or terminating two pension plans, is going after retiree medical benefits as well.

AMR Corp.'s American Airlines, which narrowly averted a bankruptcy filing last year, plans to lay off 1,100 workers -- probably more -- in the coming months to reduce costs. Delta Air Lines' pilots are voting on a new contract that would cut their pay by 32.5%, and the carrier plans to eliminate 7,000 jobs in hopes it can avoid a Chapter 11 filing.

Northwest Airlines pilots Friday approved a new, interim contract that cuts their pay by 15%. But that saving, amounting to $265 million a year for two years, is expected to be augmented later, after the carrier's other unions agree to givebacks. Northwest is seeking $950 million a year overall in labor-cost reductions.

"Regrettably, even though we all thought back in December 2002 that things could not get worse, United and the industry are now facing their most challenging times ever," wrote Peter Kain, United's vice president of labor relations, in a letter last week asking its mechanics union to cough up an additional $100 million of annual concessions through 2010. The proposed cuts to all the groups include pay reductions, fewer holidays and vacation days, changes to health and welfare benefits, new work rules and profit sharing should UAL achieve $10 million in pretax earnings annually.

After UAL filed for Chapter 11 in December 2002, its workers agreed to $2.5 billion of annual givebacks, a huge sacrifice that the company thought would be more than adequate to allow it to attract new financing and emerge from court protection. But UAL has been unable to right itself and attract financing, so now it is asking workers for an additional $725 million a year in cuts, not counting the $650 million a year UAL will save by terminating the pension plans and creating cheaper, follow-on plans.

US Airways workers provided $1 billion of costs savings after their employer first filed for Chapter 11 in August 2002, and the pilots' pension plan was terminated. But US Airways was forced to return to court protection two months ago, and now is seeking $650 million in further savings from three big unions, on top of $300 million a year already agreed to by its pilots. So urgent is the carrier's liquidity position that the bankruptcy judge hearing its case authorized emergency 21% pay cuts through Feb. 15 on the three holdout unions while US Airways seeks to negotiate with them on permanent savings.

The industry's troubles even are extending to some of the discount airlines. ATA Holdings Corp., parent of ATA Airlines, filed for bankruptcy-court protection last month despite winning concessions from its pilots and flight attendants.

Nevertheless, workers at some of the big airlines aren't buying into the need to open their pocketbooks again or agree to new terms that could mean the loss of their jobs. Members of the Association of Flight Attendants at United are now being asked to pony up $137.6 million a year in contract concessions and "hundreds of millions" through the termination of their pension plan, on top of $314 million a year in givebacks agreed after the bankruptcy filing. The demands are "disastrous" and are not "fair, equitable or necessary for a successful reorganization," said Greg Davidowitch, the union president, vowing to fight the company "at the bargaining table . . . and in court." The Air Line Pilots Association at United called the proposed changes "dramatic." UAL seeks more than $191 million in extra savings from the pilots.

US AIRWAYS SEES SAVINGS OUTSOURCING MANY JOBS

Dan Fitzpatrick Pittsburgh Post-Gazette
12 November 2004

If US Airways survives its second bankruptcy, many of the jobs that keep the airline running may be done by someone else, somewhere else.

Needing desperately to shave costs, US Airways is planning to outsource the work of reservationists, mechanics, stock clerks and cleaners to lower-paid, non-union companies. The nation's seventh- largest airline views it as a way to become profitable again and compete with low-cost, discount competitors, some of which do not use union labor.

Airlines such as Northwest and Continental already send heavy maintenance work to Asia. United Airlines, bankrupt since 2002, is opening a telephone reservations center in India, where customer- service employees are replacing U.S. workers who earn as much as $40,000 a year more. Financially-troubled Delta Air Lines, which has been flirting with bankruptcy, also has outsourced 1,000 telephone-reservations jobs to India, saving the company about $25 million a year.

Delta has been exploring the idea of charging customers an extra fee for talking to a reservations agent in the United States.

"It is a risky strategy," said Kevin Mitchell, head of the Business Travel Coalition, a business traveler group.

Some industry analysts, including Mitchell, have questioned the overseas reservations trend, arguing that customer service could suffer with agents unfamiliar with U.S. geography. Delta's moves to India have prompted complaints from passengers, and in July it pulled a contract with one of its call centers there, leaving it with two.

US Airways already outsources engine repair, airplane electronics, hydraulics and wheel work throughout North America. Last year, it also contracted out heavy maintenance work on nine narrow-body Airbus jets to a non-union firm in Mobile, Ala.

The International Association of Machinists and Aerospace Workers fought the move, but were turned back by a U.S. Bankruptcy Court judge.

All told, US Airways now outsources about 50 percent of its maintenance work, according to information released last year by the U.S. Department of Transportation.

The only outsourcing work the airline currently sends overseas is tech support, and that is handled by Plano, Tex.-based Electronic Data Systems.

In bankruptcy for the second time, though, US Airways is desperate for ways to cut more. It is seeking $950 million in concessions from its unions, and as part of that campaign, it is asking labor officials to accept a more ambitious set of outsourcing initiatives that would leave the cleaning of planes, handling of parts, heavy maintenance and ticket reservations to outside firms.

Union officials, who are fighting the company's proposals, are convinced some of that work will end up overseas, where the pay is much lower.

The outsourcing of so many tasks at one time could result in the loss of at least 3,600 jobs, according to estimates provided by the company to union officials.

"What they are looking for is to outsource anything they want," said Joe Tiberi, spokesman for the IAM, which represents many of the workers who could lose their jobs.

The company's plan would have a "very dramatic effect on employment for thousands of people," Tiberi added.

Outsourcing maintenance work, domestically or internationally, is also risky, according to union officials and the Transportation Department's inspector general, who raised concerns about the oversight of such work in a 2003 audit. More than half of all maintenance work done for U.S. carriers is now done by outside contractors, and Back Aviation Solutions, a consulting firm, is predicting that number will grow to 60 percent by 2008.

The inspector general's office argued, in its 2003 audit, that Federal Aviation Administration inspectors did not always follow the maintenance work once it was no longer done in house and that it is more difficult to monitor the safety of work done overseas. The FAA, in response, is trying to strengthen its rules and oversight.

"Again, you are in risky territory," Mitchell said.

Chapter 11 Filing Possible, Flyi Says; Independence Air Parent Needs Cash
Bill Brubaker
Washington Post Staff Writer
10 November 2004

The parent of Dulles-based low-cost carrier Independence Air warned for the first time yesterday that it will be "forced to consider" a Chapter 11 filing for protection from its creditors if it cannot renegotiate aircraft lease payments of $83 million that it owes in January.

Flyi Inc. said unexpectedly high fuel costs and "fierce competition" from larger rivals United Airlines, US Airways, Delta Air Lines and Northwest Airlines caused Independence Air's revenue to fall "significantly below anticipated levels."

United responded to Independence's June debut by increasing service from Washington Dulles International Airport, by matching fares and by offering special frequent-flier incentives, Flyi said in its quarterly filing with the Securities and Exchange Commission.

And the other rival carriers either increased or began service to markets that Independence was serving, the filing said.

Flyi said it "cannot sustain" the losses it projects for the fourth quarter and for 2005 without raising more cash. "We expect to have substantial cash needs as we continue to establish ourselves . . . as a low-fare carrier," the filing said.

In one possible sign of a cash crunch, Flyi said it recently failed to pay $8.7 million it owed on the new Airbus A319 jets it is acquiring. Independence has been flying 50-seat regional jets but planned to add Airbus service to Florida this fall. But on Monday, Airbus said it may cancel the delivery of future jets if Flyi doesn't pay up, the filing said. Flyi said the acquisition of Airbus jets is "critical" to its business plan to serve larger markets with longer-haul flights. Further complicating matters, the Federal Aviation Administration hasn't yet certified Flyi to operate Airbus jets.

Flyi is a new face on a 15-year-old Dulles company that, until this summer, was known as Atlantic Coast Airlines Holding Inc.

Atlantic operated regional feeder jets for United and Delta. Under that arrangement, it assumed relatively little financial risk. Atlantic received a fixed fee for operating the flights, leaving the reservations, marketing and customer service duties to the larger carriers.

After filing for bankruptcy protection in December 2002, United tried to reduce the payments it made to Atlantic Coast, whose management responded last fall by announcing plans to start a full-service, stand-alone airline.

Independence began operations from Dulles with one-way fares as low as $29. And the airline budgeted about $30 million for a marketing campaign that included celebrities such as comedian Dennis Miller and singer Chuck Berry.

But Independence has been selling less than half of its seats -- far fewer than the average airline, which flies about 70 percent full. Flyi reported last month that it had lost $82.7 million in the third quarter, compared with a $21.3 million gain in the third quarter of 2003, when the company was still Atlantic Coast.

Flyi finished the third quarter with $198 million in cash and short-term investments, down from $345.4 million at the end of the second quarter.

Some Wall Street analysts predicted last month that Flyi may be forced to file for Chapter 11 bankruptcy protection as early as January. But Flyi Chairman Kerry B. Skeen said last month that his company had a plan to improve its liquidity by the end of the year. "We are working very hard to see that we have the resources to weather this storm," he said.

Flyi said yesterday it is trying to raise cash by negotiating with creditors to delay or reduce payments it owes on aircraft leases. The company also said it is trying to sell five of its regional jets and some spare parts.

But if the lease negotiations are unsuccessful, Flyi "believes that its cash balances and cash flow from operations . . . will be insufficient to enable the company to meet its working capital needs" and other financial commitments, the filing said.

Flyi also disclosed that it paid a $1.25 million civil penalty to settle an FAA allegation that as Atlantic Coast Airlines it had "failed to have a properly functioning aircraft inspection program and failed to keep appropriate maintenance records." The FAA, in a June 7 news release, had proposed a $1.5 million penalty, noting the airline had taken immediate remedial action, the filing said.

Flyi said the settlement with the FAA "did not involve any findings of violations." The airline said the FAA is continuing to review its maintenance-records program. "The outcome of this review cannot be predicted at the time, but could result in additional fines or actions by the FAA," the filing said.

Rougher Times Amid Higher Costs at JetBlue
By JEREMY W. PETERS
11 November 2004
The New York Times

Time may have finally caught up with JetBlue, the airline that Wall Street once thought could do no wrong.

Since JetBlue Airways was founded in 2000, its fortunes have strikingly risen, with the carrier more than tripling its revenue and passenger traffic. Its fleet of sleek new Airbus A320's, outfitted with individual DirecTV monitors, are the envy of the industry. Cities across the country clamor to get onto the JetBlue flight network.

In April, David Field, the Americas editor of Airline Business magazine, gave airline executives and corporate travel industry representatives his view of JetBlue's seemingly Teflon image. ''There seems to be a 'JetBlue Is a Great Airline' story once a week,'' Mr. Field remarked, drawing a few chuckles from the audience.

What a difference two quarters can make. JetBlue surprised investors last month with third-quarter earnings that did not meet Wall Street expectations. Compared with the third quarter of last year, profit fell 71 percent, and its executives told investors to brace for another dip this quarter.

JetBlue's stock is worth about half what it was a year ago, and last month Standard & Poor's lowered its outlook on the airline's debt to negative from stable, indicating that it might lower its credit ratings. To make matters worse, short-sellers on Wall Street have been taking aim at JetBlue's stock with increasing frequency since September, betting that the price will fall further. JetBlue closed yesterday at $22.66, down from a high of $46.84, adjusted for a 3-for-2 split, in October 2003.

''It's a different market this year versus last year, obviously,'' JetBlue's chief executive, David G. Neeleman, said in a telephone interview. ''We had 81-cent fuel and today we have $1.50 fuel, so it's almost double the price. And the revenue environment is tough.''

Not all airlines are feeling the pinch in the same way. Southwest, the largest of the low-fare carriers, did much better than expected in the third quarter. Its earnings were up 12.3 percent compared with a year earlier, something the company achieved in part by aggressively hedging fuel prices in its futures purchases. Southwest said last week that it expected similar results this quarter.

Several factors have converged in the last few months to slow JetBlue's rapid growth. ''You have the wild card that very few people predicted well, called fuel,'' said Michael Allen, chief operating officer of Back Aviation Solutions, a domestic and international consultant. Fuel costs represented 23 percent of JetBlue's operating expenses in the third quarter. The airline paid an average price of $1.08 a gallon, compared with 81 cents a gallon a year earlier.

Each penny increase in the cost of aviation fuel has meant an increase of $643,000 a quarter, or roughly $2.6 million a year, in JetBlue's operating costs, according to Eclat Consulting, which advises airlines.

Mr. Neeleman, who told investors in a recent conference call that JetBlue was ''rabidly focused on fuel costs,'' said the company did not do as well as it could have when purchasing hedging contracts, which allow it to buy fuel at prenegotiated prices. ''We should have hedged more, obviously,'' he said.

JetBlue, based at John F. Kennedy International Airport in New York, also lost passenger traffic and revenue after four hurricanes struck sections of Florida in August and September. Forty percent of the airline's seat-miles are on flights to or from Florida, and the company estimated it lost $8 million to $10 million from the storms.

JetBlue canceled 464 flights in the third quarter, about 20 times the usual number, Mr. Neeleman said, and the hurricanes cost it $1 million in overtime and other expenses.

Another factor complicating JetBlue's financial outlook is pricing, an area where it has typically held an advantage over most larger carriers. Early this year, it caused a stir in the industry by offering $79 one-way fares across the country.

Betsy Snyder, a credit analyst at Standard & Poor's, said JetBlue's revenue had been hurt by an industrywide glut of passenger-seat capacity. ''They continue to have low unit operating costs, but the problem has been on the revenue side,'' Ms. Snyder said. ''There's too much capacity and that's resulted in low fares. And many times the fares are even lower than JetBlue's, so they have to match those fares.''

Mr. Neeleman agreed. ''We have some absolutely crazy competitors that are going through tough times,'' he said. ''We have to react to the competition.''

Although JetBlue is having its own share of financial difficulty, executives and analysts point out that unlike most other airlines, it is still making a profit, one of only three to do so in the third quarter. Besides Southwest, Alaska Airlines was in the black.

''At a time when you have all these big airlines hemorrhaging millions of dollars a day, that puts it in a little perspective,'' said Barbara Peterson, the author of ''Blue Streak,'' a book on JetBlue that will be published this month. ''They've had a string of profitable consecutive quarters, which in this business is unheard of.''

Ms. Peterson said that while JetBlue is in for some short-term problems, it is in position to bounce back because of its plans to expand into regional markets in the Midwest, Southwest and Florida.

The company has agreed to buy as many as 200 new planes over the next 11 years and plans to add as many as 10 cities to its route in 2006. This week, it said it would raise nearly $500 million through the sale of debt to finance the purchase of 15 Airbus jets.

Mr. Neeleman said the future at JetBlue is anything but doomsday. ''Relative to the industry,'' he said, ''we're doing fantastic.''

Photos: David G. Neeleman, JetBlue's chief, with passengers on an inaugural flight late this summer from LaGuardia Airport to Fort Lauderdale, Fla. (Photo by Justin Lane for The New York Times)(pg. C1); A JetBlue employee at LaGuardia Airport helping a passenger booked on a flight to Florida. Much of the airline's business is on Florida routes. (Photo by Emile Wamsteker/Bloomberg News)(pg. C10)

Chapter 11 Filing Possible, Flyi Says; Independence Air Parent Needs Cash
Bill Brubaker
Washington Post Staff Writer
10 November 2004

The parent of Dulles-based low-cost carrier Independence Air warned for the first time yesterday that it will be "forced to consider" a Chapter 11 filing for protection from its creditors if it cannot renegotiate aircraft lease payments of $83 million that it owes in January.

Flyi Inc. said unexpectedly high fuel costs and "fierce competition" from larger rivals United Airlines, US Airways, Delta Air Lines and Northwest Airlines caused Independence Air's revenue to fall "significantly below anticipated levels."

United responded to Independence's June debut by increasing service from Washington Dulles International Airport, by matching fares and by offering special frequent-flier incentives, Flyi said in its quarterly filing with the Securities and Exchange Commission.

And the other rival carriers either increased or began service to markets that Independence was serving, the filing said.

Flyi said it "cannot sustain" the losses it projects for the fourth quarter and for 2005 without raising more cash. "We expect to have substantial cash needs as we continue to establish ourselves . . . as a low-fare carrier," the filing said.

In one possible sign of a cash crunch, Flyi said it recently failed to pay $8.7 million it owed on the new Airbus A319 jets it is acquiring. Independence has been flying 50-seat regional jets but planned to add Airbus service to Florida this fall. But on Monday, Airbus said it may cancel the delivery of future jets if Flyi doesn't pay up, the filing said. Flyi said the acquisition of Airbus jets is "critical" to its business plan to serve larger markets with longer-haul flights. Further complicating matters, the Federal Aviation Administration hasn't yet certified Flyi to operate Airbus jets.

Flyi is a new face on a 15-year-old Dulles company that, until this summer, was known as Atlantic Coast Airlines Holding Inc.

Atlantic operated regional feeder jets for United and Delta. Under that arrangement, it assumed relatively little financial risk. Atlantic received a fixed fee for operating the flights, leaving the reservations, marketing and customer service duties to the larger carriers.

After filing for bankruptcy protection in December 2002, United tried to reduce the payments it made to Atlantic Coast, whose management responded last fall by announcing plans to start a full-service, stand-alone airline.

Independence began operations from Dulles with one-way fares as low as $29. And the airline budgeted about $30 million for a marketing campaign that included celebrities such as comedian Dennis Miller and singer Chuck Berry.

But Independence has been selling less than half of its seats -- far fewer than the average airline, which flies about 70 percent full. Flyi reported last month that it had lost $82.7 million in the third quarter, compared with a $21.3 million gain in the third quarter of 2003, when the company was still Atlantic Coast.

Flyi finished the third quarter with $198 million in cash and short-term investments, down from $345.4 million at the end of the second quarter.

Some Wall Street analysts predicted last month that Flyi may be forced to file for Chapter 11 bankruptcy protection as early as January. But Flyi Chairman Kerry B. Skeen said last month that his company had a plan to improve its liquidity by the end of the year. "We are working very hard to see that we have the resources to weather this storm," he said.

Flyi said yesterday it is trying to raise cash by negotiating with creditors to delay or reduce payments it owes on aircraft leases. The company also said it is trying to sell five of its regional jets and some spare parts.

But if the lease negotiations are unsuccessful, Flyi "believes that its cash balances and cash flow from operations . . . will be insufficient to enable the company to meet its working capital needs" and other financial commitments, the filing said.

Flyi also disclosed that it paid a $1.25 million civil penalty to settle an FAA allegation that as Atlantic Coast Airlines it had "failed to have a properly functioning aircraft inspection program and failed to keep appropriate maintenance records." The FAA, in a June 7 news release, had proposed a $1.5 million penalty, noting the airline had taken immediate remedial action, the filing said.

Flyi said the settlement with the FAA "did not involve any findings of violations." The airline said the FAA is continuing to review its maintenance-records program. "The outcome of this review cannot be predicted at the time, but could result in additional fines or actions by the FAA," the filing said.

Airlines take holiday action on finances
By DAN ROBERTS
26 November 2004
Financial Times

United Airlines and Delta Air Lines both took further steps to tackle the US aviation industry's crippling financial crisis, in spite of the normally quiet Thanksgiving holiday period.

United, which is in bankruptcy protection, has asked a Chicago judge to allow it to scrap previous pay and benefit agreements with six unions if it fails to agree further voluntary cutbacks.

More than Dollars 2.5bn in concessions have been agreed with unions, and executives have also agreed to take pay cuts, but United said "urgent financial needs" meant it must negotiate more savings.

This follows continued losses at the bankrupt carrier, high fuel prices and concerns that it was poised to breach covenants on its debtor-in-possession financing. The proposed cuts form part of a new business plan it is finalising with its creditors committee. A hearing on the latest court motion is expected in January.

Meanwhile, Delta, the third largest US carrier, announced progress in its efforts to stave off bankruptcy. The airline said enough investors had agreed with terms of a planned financial restructuring to allow a debt exchange.

Delta has signed agreements with aircraft lessors and lenders under which the company expects to receive average annual concessions of about Dollars 57m between 2005 and 2009. In exchange for these concessions, the company issued about 4.3m shares of its common stock.

The company said: "Delta is continuing to work towards a closing and funding of its previously announced financing commitments from GE Commercial Finance and American Express Travel Related Services Company."

Despite achieving crucial agreements with its creditors and unions, challenges remain for the airline in achieving the cost cuts needed to restore profitability.

US Airlines had better stay in business - I've booked to fly with them next April.

US Airlines had better stay in business - I've booked to fly with them next April.

Which one are you flying?

^ US Airways - I thought it was called US Airlines.

^ it is but commonly called USAir

^ I'm worried. It sounds like they are close to going under. I hope they stay afloat for long enough for me to take my flights.

Sunday November 28, 2:49 AM
Creditors Blocked From Seizing United Jets

(AP) A federal bankruptcy court judge has blocked a group of creditors from repossessing up to 14 airplanes from United Airlines, saving the bankrupt carrier tens of millions of dollars.

Judge Eugene Wedoff issued a temporary restraining order Friday barring the group, represented by the Chicago-based law firm Chapman and Cutler LLP, from seizing up to eight Boeing 767s and six 737s.

The group of financiers, which controls about one-third of United's fleet, had threatened to seize the planes as early as Dec. 1 because of an impasse over their leases.

United, the nation's No. 2 airline, is seeking to lower aircraft operating costs by renegotiating its leases with creditors. However, it argued that the Chapman group was violating antitrust laws by renegotiating as a bloc instead of as individual leaseholders, forcing United to accept higher lease rates.

"We believe the court rightly prevented this attempt to pressure United into accepting above-market rates for our aircraft leases," said Jean Medina, spokeswoman for the airline.

A message left Saturday for attorneys representing members of the Chapman group was not immediately returned.

The Chapman group is the only group of creditors that has threatened to seize aircraft, Medina said.

United, which has cut $5 billion from annual expenditures since filing for Chapter 11 bankruptcy in December 2002, has said it needs $2 billion more to emerge from bankruptcy.

___

^ I'm worried. It sounds like they are close to going under. I hope they stay afloat for long enough for me to take my flights.

Unfortunately I think they will be the first ones to go under, whether it be in a month or in a year. But its demise will be good for the US airline industry, because it would mean less capacity, hence higher prices and thus profits.

^ It looks like they've been thrown some kind of lifeline here:
http://news.bbc.co.uk/1/hi/business/4045689.stm

I don't mind them going out of business so long as it happens after I return. ;)

I think more mergers should be allowed. I see three legacy airlines (AA, UA-US Airways, Delta-NWA-Continental) in not too long. We already see that alignment in the one World, Star Alliance, and SkyTeam airline alliances. And maybe three or four low-cost carriers (Southwest, AirTran, AWA, JetBlue).

Sunday, December 5, 2004
Can mergers keep airlines flying?
Combining forces could be last option; Washington's aid uncertain
By James Pilcher Enquirer staff writer

The airline industry has been struggling since the 9/11 attacks. Yet, since helping carriers weather the immediate impact, the Bush administration and Congress have taken a hands-off approach to the major airlines' financial troubles.

Now, three of the nation's 10 biggest airlines are in bankruptcy (one for the second time in three years), and a fourth (Delta Air Lines) is still near the brink. But industry insiders and key members of Congress say not to expect any major shifts or further financial aid.

"To sum it up pretty succinctly, there's not much that can be done," says U.S. Rep. John Mica, R-Fla., chairman of the House aviation subcommittee. "We do plan to take a look at the financial condition of the industry early next year ... and talk with airline industry leaders to see what suggestions they have. ... But one problem is that not all the airlines agree on what they want to do."

But one thing the industry has been begging for in a pretty unified voice has been the ability to consolidate, which could remove unneeded flights from the national system.

On this issue, there may be some wiggle room, say industry and Washington insiders such as Delta senior vice president of government relations Scott Yohe.

Congress and the administration would like to see the industry work out its own problems, which could mean a lessening of restrictions on the mergers and acquisitions that many think are necessary for the airlines to survive, Yohe says.

Any possible merger or acquisition would still be viewed on its own merits, "but clearly there is a recognition that the industry is going through a restructuring, and mergers and acquisitions could be a part of that restructuring," says Yohe, whose company operates its second-largest hub locally. "There is an inclination politically and philosophically here in Washington right now to let the market play all of this out."

The last major consolidation was in 2001 when American bought struggling TWA just before the 9/11 attacks.

Delta and Continental also came close to merging in the late 1990s.

Still, industry consolidation has slowed considerably since the 1980s, when deregulation led to many mergers and buyouts.

In fact, Justice Department regulators killed a possible merger between United and US Airways two months before 9/11, and after the attacks many airline executives to lobbied Congress and the administration to free up the ability to merge.

Both United and US Airways are now in Chapter 11, with the latter under bankruptcy protection for the second time in three years.

Officials with the Justice Department, which oversees such mergers, did not return calls seeking comment. The department will soon have a new head with the resignation of Attorney General John Ashcroft last month.

In the past two years, however, Justice and Transportation department officials have allowed more sharing of passengers between airlines. Delta has one such "code-sharing" alliance with Continental and Northwest, while United and US Airways also have a similar deal. And Delta has anti-trust immunity in its dealings with Air France.

Marc-David Seidel, an assistant marketing professor at the Sauder School of Business at the University of British Columbia, believes that mergers may not be the answer, however.

"When the airlines talk about this, they are telling financial stories about economies of scale, when what they really need is a culture shift," says Seidel, who has studied the evolution of the airline industry. "That mentality needs to change, since they need to change their cost structure and just doing it on a bigger scale is not going to cut it."

Still, Mica says that it would be a good idea to let "the market settle itself out."

"It might get just like anything else, going from the old corner stores to the Office Depots and Home Depots - it's just the changing nature of business and certainly the aviation industry is changing, too," he says.

But Rep. Peter DeFazio, D-Ore., disagrees, warning that such consolidation could lead to less competition and higher fare prices.

DeFazio, who also sits on the aviation subcommittee, adds that stronger governmental action may be needed to protect not only airlines but also passengers. He accuses the Bush administration of not having a clear policy for aviation and energy, key since ongoing high fuel costs are also pressuring carriers' bottom lines.

"I do not have a lot of confidence that they would do what it would take to maintain the system for the benefit of all Americans," DeFazio says.

Other issues


A lot of future aviation policy could also be determined by what happens to Transportation Secretary Norman Mineta. The lone Democrat in the Bush Cabinet has not given any indication that he is ready to leave as the rest of the Cabinet gets an overhaul. As Transportation Department spokesman Brian Turmail says, "He serves at the pleasure of the president, and we have not yet heard if there are any changes planned."

Turmail says the department's main goal is continuing to keep the system safe and opening new international markets to U.S. carriers, much as it did with new routes to China this fall.

Delta is one of six airlines making a heated pitch to serve that route, although the Atlanta-based carrier would fly initially out of its largest hub and not Cincinnati.

Seidel says this could actually help the major airlines survive, because long-haul international routes are the only place they can remain profitable.

"The average domestic traveler is no longer looking for all the bells and whistles and the majors can't compete with the low-cost carriers," he says. "But when it comes to international flights, they can make money there, so it would make sense for the administration to work to make that happen."

Turmail also says the agency would pretty much stay out of any policy-making decisions when it comes to financial aid or taxes on the industry.

Apart from freeing any perceived barriers to industry consolidation, the top priority for the Air Transport Association seems to be what it believes is an unfairly high tax burden.

The Washington-based trade group, which represents major carriers, says lowering ticket taxes and other security fees is its top goal with Congress and the White House.

"We are paying more than our fair share of security costs, and our tax burden is much higher than other forms of transportation," says ATA spokesman Doug Wills, whose group included a breakdown of tax costs in its annual Thanksgiving holiday travel forecast.

But traction could be hard, especially since Mica calls claims of over-taxation "bogus, bogus, bogus."

"If anything, the aviation industry has one of the fairest user-fee systems we've got," Mica says.

Foreign ownership


There is one area of apparent agreement, however. Late last week, a top Transportation Department official said the Bush administration was actively studying whether to allow up to 49 percent foreign ownership in a U.S. airline, up from 27 percent, which could infuse the industry with desperately needed capital.

Mica also welcomes the idea, as does the ATA. The congressman even favors opening routes not served by domestic carriers to full-fledged foreign carriers.

Whether such a move would help the industry out of its slump remains to be seen, but the debate over this and other issues could be fierce.

"We need to raise these really important and alarming public policy questions, such as whether small and medium-sized communities will continue to get services they have now," says Yohe.

US Airways' troubles date to 1977 and Carter's deregulation czar
The path of Kahn
Sunday, December 12, 2004
By Dan Fitzpatrick, Pittsburgh Post-Gazette

US Airways' struggle to survive began 27 years ago, with a visit from economist Alfred Kahn.

The country's chief airline regulator, Kahn controlled where carriers could fly and what they could charge. US Airways -- then called Allegheny Airlines -- was a short-hop carrier to towns in the Northeast, frequently passing over the Appalachian and Allegheny mountains. The federal government protected its routes from rivals and set fares high enough for Allegheny to cover its costs.

But as Kahn visited in the summer of 1977, all that was about to change.

Against the opposition of Allegheny and many of the nation's major airlines, President Jimmy Carter wanted to erase five decades of government involvement in the airline business, hoping it would increase competition, lower prices and allow more Americans to fly.

Kahn, the chairman of the Civil Aeronautics Board, was asked to win over the airlines. He touted the freedom that would result from it, urging them to consider what was unprofitable about their routes. Whatever they found, Kahn, now 87, remembers saying at the time, "I'll let you drop it,"

Figure out where in the country you would like to expand, he also told them, and "you will be free to do so."

How US Airways reacted to Kahn's advice and to the competitive forces unleashed by deregulation would bring the airline to the brink of collapse a quarter-century later.

No one foresaw it at the time.


Rise and fall
In the years after Congress deregulated the airlines in 1978, it appeared that US Airways had pulled off the most "dramatic" transformation in the industry, Kahn said in a recent interview.

It shed its provincial roots and adopted a new name befitting its national ambitions: USAir. It purchased planes that could carry passengers across the continent, bought two successful regional carriers serving the West and Southeast and ramped up a "hub-and-spoke" system designed to pick up passengers in smaller cities, assemble them at larger "hubs" across the United States and then deliver them to their final destinations.

The strategy pushed revenue from $373 million before deregulation to $6.6 billion by 1990, making it the nation's sixth-largest airline. With the growth, USAir -- which renamed itself US Airways in 1997 -- solidified its position as the region's dominant carrier. Pittsburgh served as its largest hub and the region as a cash machine for the airline.

Moreover, USAir was the most profitable airline in the United States by the mid-1980s and a darling of Wall Street.

In retrospect, however, the 1980s transformation did little to change a fundamental problem already exacerbated by US Airways' expensive operations in the dense Northeast: high costs.

The $2 billion it spent acquiring California carrier Pacific Southwest Airlines and North Carolina carrier Piedmont Aviation only saddled US Airways with higher labor expenses, debt, an array of fleet types and a clash of cultures. Upon acquiring both companies in the late 1980s, it raised wages in an attempt to maintain labor peace -- a move it is still trying to undo.

Edwin Colodny, the airline's chief executive officer at the time, believes that if US Airways had not acquired those companies, it would have been swallowed by another airline. Just weeks after his Piedmont bid, for example, Trans World Airlines Chairman Carl Icahn launched a surprise takeover bid for USAir.

But with costs so high, US Airways was not able to compete in California against low-cost pioneer Southwest Airlines or against United's Los Angeles-San Francisco shuttle, forcing it to soon abandon the routes it acquired from PSA for $385 million. US Airways also was slow to respond when Southwest launched service in 1993 from Baltimore, a then-US Airways hub that it eventually abandoned, too.

The airline acknowledged in the early 1990s that it had to reduce its costs to survive, but fundamental changes never happened. Executives did not want to risk a fight with labor, so they looked elsewhere for temporary fixes -- to the hub system, frequent-flier programs, reservations systems, alliances.

Stephen Wolf, who ran the airline in the late 1990s, wrested some concessions from unions in exchange for a pledge to grow the carrier and buy new Airbus jets, but his exit strategy was an attempt to merge with United Airlines, believing that US Airways would not survive on its own.


'The jig is up'
All that only delayed a reckoning now sweeping through the industry. The 9/11 attacks, which came roughly two months after the United-US Airways merger collapsed, exposed the underlying weaknesses of large carriers. Relics in some ways of the regulated era, they quickly realized they could no longer rely on exorbitant fares to cover their high costs.

The soaring popularity of fare-shopping on the Internet, combined with the increasing market share of Southwest, JetBlue Airways and other low-cost carriers, have conspired to bring an end to complicated, confusing fare structures. And because they operate without cumbersome work rules and costly hub-and-spoke systems that require lots of gates and personnel, low-cost airlines also are bringing an end to the way US Airways and many other so-called legacy carriers have operated for decades.

To stay competitive and keep customers, the big carriers have been forced to slash fares, but that has meant bigger losses. Since 2001, airlines have lost a combined $23 billion and are expected to lose another $6 billion this year and $2 billion in 2005.

Three of the 10 largest carriers -- US Airways, United Airlines and ATA Airlines -- are in bankruptcy and Delta has flirted with going that way. Others, including Continental, Northwest, American, are losing money and trying to cut more costs.

The only big carrier making money is Southwest.

US Airways and other legacy carriers "used every advantage they could, every trick in the book" to hold off lower-cost rivals over the last quarter century, said Frank Lorenzo, former chief executive officer of Continental Airlines. "They should have anticipated that whatever they were doing, they were just buying time.

"Now," Lorenzo said, "the jig is up."

Lorenzo, the first airline executive to void union contracts in bankruptcy court, acknowledges that such dramatic change is painful for employees losing pay, benefits and retirement money. But he blames management for not addressing the hard choices sooner.

"What we have tended to see are short-term decisions because unfortunately, if management makes longer-term decisions, they get the hell beaten out of them and they lose their jobs," he said.

At Continental, Lorenzo earned the scorn of employees by convincing a bankruptcy judge to throw out his union contracts in 1983 and then hiring new employees at half their old salaries. He said he did that because he was worried about the success of Southwest, and he decided not to wait "for the sheriff to come to the door."

Some employees still have not forgiven him for that.

"You don't get popular," Lorenzo said. But "there was no way to sugarcoat it."

Now US Airways is trying to make the same unpopular decision, asking a federal bankruptcy judge in Alexandria, Va., to abrogate several union contracts, arguing it has no other choice if it wants to survive and preserve jobs.

Trying to match the more efficient Southwest, JetBlue and America West Airlines, all of which have descended on its mainstay East Coast markets with abandon this decade, US Airways is going after pay, benefits, retiree health care and pensions. It is pulling down its hub in Pittsburgh, rerouting connecting traffic to Philadelphia and Charlotte, N.C., and concentrating on the Caribbean as an area of growth.

It, in short, is trying to become a low-cost carrier.

"History is littered with the ashes of companies that failed or refused to change," the airline said in a recent bankruptcy filing. US Airways, it went on to say, intends to "avoid that fate."


The regulated era
It is hard to believe, given the current crisis facing US Airways, that there was a time when airlines did not have to worry about making money.

It was a period that lasted for more than 50 years, and it began with help from Pittsburgh.

In the years after World War I, delivering mail on airplanes had been the job of the U.S. Post Office. Clyde Kelly, a congressman from McKeesport and chairman of the House Post Office Committee, knew from his industrial constituents in the Pittsburgh area that mail delivered by plane was a threat to railroads.

So he listened when influential Pittsburgher Alan Scaife talked to him about opening air mail to private contractors. Scaife got the idea from an old Yale University classmate, Juan Trippe, who would go on to start Pan American Airlines.

In 1925, Kelly introduced and helped pass the Air Mail Act, a bill that allowed the federal government to contract with private carriers, set their rates and provide them with cash subsidies. Among the first to win air mail contracts were the predecessors to United Airlines, Eastern Airlines, American Airlines and TWA, and aviation experts now credit Kelly's legislation with the start of commercial aviation in the United States on a large scale.

Other carriers not regulated by the government began carrying people, not mail, and they often competed on price. Worried about the low profits and safety of these carriers, the federal government decided in 1938 to regulate all airlines. A newly created Civil Aeronautics Board set routes and fares while making sure airlines recovered from bad years with federal subsidies. Regional monopolies were protected from new entrants.

The airlines liked the arrangement.

Though they did not make lots of money, carriers that got in early enjoyed the protection from new competitors. Unionized employees were well paid and benefited from generous work rules. The costs were passed on to well-heeled passengers.

Still, there were signs of what was to come.

Before deregulation, one of the few opportunities for cheap, upstart carriers was to fly short distances within state borders, thus avoiding the restrictions on price established by the federal government. PSA Airlines did that in California and Southwest Airlines did it in Texas, both holding their own against larger carriers.

Both proved "there was another way you could run airlines and be profitable," said Elizabeth Bailey, a former commissioner of the Civil Aeronautics Board and now a professor at the University of Pennsylvania.


Winners and losers
Free market proponents knew that deregulation would be messy.

Bailey, a member of the federal airline board from 1977 to 1983, said, "It is much harder than you think to move to a market way of doing things if you haven't been used to it." She said she knew "there would be winners and losers because there always are in a competitive situation."

Perhaps the biggest winners have been airline consumers. Fares are as low as they have been in 16 years. Travelers can fly anywhere in the country and do so at a low price.

The number of domestic passengers this year is expected to top 685 million, up from 250 million the year of deregulation. The average number of occupied seats is higher than 70 percent, up from 55 percent the year before deregulation.

The losers are the big airlines and employees. Both fought the proposal before it passed. Airline executives were afraid of what could happen to their business in an unregulated environment, and union officials worried about a drop in wages and a loss of jobs.

But Kahn, now known as the "father of deregulation," said he tried not to predict what would happen. In a speech before deregulation passed, Kahn told a group of New York financial analysts that there were two business models that could be successful -- one with many plane models and a large, integrated route network or one that sends a single plane type back and forth, like Southwest.

"I said, 'I don't know what is going to emerge,' " he said. "That is exactly why regulation is ridiculous."

Some of the nation's biggest carriers did not make in through the years immediately following deregulation, including some of the best-known names in the business: Eastern Airlines, Pan American and Braniff Airlines. Many low-fare carriers and upstarts either failed or were acquired: New York Air, Reno Air, People's Express.

"Everyone disappeared except America West," Kahn said.

Another group of low-cost carriers entered the market in the mid-1990s and buckled under price wars with large carriers such as US Airways, which fended them off by matching fares on certain flights and establishing large hubs that dominated traffic in certain cities. The hub-and-spoke model, pioneered in Atlanta by Delta Air Lines, also opened up travel to people in smaller cities and allowed airlines to fill more seats on each plane.

"It looked like a very successful operation," Kahn said. "We were warned that the big hub-and-spoke carriers were dominating the whole industry."

Kahn now is surprised so many low-fare carriers failed in the 1980s and 1990s. But he is also mystified by the rapid demise of several large carriers in recent years, including US Airways and United. Several are dismantling hubs -- such as US Airways in Pittsburgh, American Airlines in St. Louis and Delta in Ft. Worth, Texas -- while low-cost carriers grab the extra planes and airport space that became available after 9-11.

"Deregulation took place 25 years ago, but we still live with it every day," said Lorenzo, the former chief executive of Continental.

"It's like it happened yesterday."

But Kahn suspects the industry will experience another cyclical change that cannot be predicted. When asked if US Airways will survive, he said, "I don't know. That's why I don't try to run an airline."

US Airways, AmWest deal?
Dawn Gilbertson
The Arizona Republic
Apr. 9, 2005 12:00 AM

America West Airlines CEO Doug Parker has repeatedly said the Tempe airline wants to be a player in the expected consolidation of the troubled industry.

One industry analyst said Friday that America West may have bankrupt US Airways in its sights.

JP Morgan airline analyst Jamie Baker said in a report that there is "early speculation" on a proposed America West/US Airways "linkage." He provided no details.

This is not the first time America West's name has come up as a possible partner for the struggling East Coast carrier, but Baker's wording and the fact that he included the speculation in his report seem to suggest it's more than just idle chatter.

America West spokeswoman Elise Eberwein reiterated Parker's comments that a shakeout is inevitable for the industry's long-term survival. But she said that at this point any talk of an America West deal with US Airways is "only speculation," and that the company does not comment on speculation. US Airways did not return calls for comment.

America West made a run at another struggling airline, ATA Airlines, late last year but decided against making a formal bid for the because it couldn't put together a deal that made financial sense. A big obstacle was the cost of acquiring the Indianapolis carrier's planes. ATA ended up in a deal with Southwest.

At the time of the America West-ATA talks, one analyst who was opposed to that deal said a merger with US Airways would make more sense.

A key attraction, observers say, is the marriage of America West's West Coast-heavy operations and US Airways' East Coast emphasis.

Given the industry's fuel price and airfare woes, however, most see more challenges than benefits to any significant deal at this stage.

The most immediate obstacle is money. America West and most other airlines are losing millions right now and need every penny for their operations. In the same report, Baker says America West will face a crash crunch by the end of the year. He said America West, which ended 2004 with unrestricted cash and investments of $306 million, could be down to as low as the $60 million range. It needs to raise a minimum of about $100 million, but Baker added it should be able to do that.

Robert Mann, an airline industry consultant in Port Washington, N.Y., said the economics don't seem right at this point. If anything, a code-sharing deal would seem to make more sense. Under code sharing, airlines link their networks and feed each other passengers. It enables them to increase their business without the added costs of new cities or the hefty expenses of a merger.

Another possible player in any deal could be Phoenix-based Mesa Air Group and its chairman, Jonathan Ornstein. Mesa is best known locally as America West Express, but it also flies as US Airways Express.

In the wake of recent large investments in US Airways by two of its other commuter partners, Mesa has said it is considering an investment in the airline. Mesa has about $300 million in cash.

Despite analyst reports this week suggesting Mesa is no longer a player on that front because of developments involving the other players, Ornstein said Friday the company still is considering ways to help US Airways return to profitability.

US Airways' dominance at airport dwindling


Saturday, April 09, 2005
By Mark Belko, Pittsburgh Post-Gazette





While US Airways is still Pittsburgh International Airport's dominant airline, its share of the market is eroding, largely a result of its decisions to drop Pittsburgh as a hub and eliminate hundreds of daily flights over the last four years.

For the first time since the midfield terminal opened in 1992, US Airways is carrying less than 70 percent of the passenger traffic out of the airport.

At one time, US Airways carried 89 percent of traffic. But in the latest statistics released by the Allegheny County Airport Authority, the airline is flying 63.1 percent of all travelers. Other carriers account for 36.9 percent.

In March, US Airways scheduled 884 fewer flights on a weekly basis than it did in the same month in 2004.

The cutbacks have opened the door for other carriers. Southwest Airlines, the nation's largest discount carrier, starts service to Philadelphia, Chicago, Las Vegas, and Orlando next month. Hooters Air, which started service with three flights to Myrtle Beach in February, plans to add a fourth flight next month.

Combined, other carriers have increased their weekly departures by 155 since March 2004. Northwest has added 50 departures, United 26, Delta 22, Continental 15, and AirTran, 14.

While other carriers have profited from the cutbacks, they have not been able to generate nearly enough traffic to offset the US Airways losses. Overall, airport traffic was down 28.2 percent in February, compared with the same month last year.

To offset the losses, the authority has closed the airport's commuter terminal and part of one main concourse. Yesterday, its board approved an amended contract with BAA Pittsburgh, manager of the Airmall, the collection of airport retailers and restaurants. Amendments were sought because of traffic reductions.

As part of the deal, the authority will lose a $3.3 million payment that was due this year under a contract renegotiated three years ago. BAA was to pay the authority $10 million in exchange for a contract extension until 2017. With the amendment, the authority will keep $6.7 million of that, and its percentage of gross revenues from concessions will increase to 59 percent from 56 percent starting in 2006.

"As a partnership, we sat down and modified the agreement to reflect a neutral rate of return for both parties," authority Executive Director Kent George said. "We did not want BAA to go anywhere. They do a tremendous job for us."

Despite the drop in traffic, Airmall sales total more than $12 per passenger, the best in the world, according to the authority.

The authority board also agreed to an amended lease with airline caterer LSG Sky Chefs, lowering the rent for a company whose gross revenues have gone from $14 million a year to $6 million and whose work force has been cut from 450 employees to 80 because of cutbacks by airlines. Many airlines have dramatically scaled back or eliminated in-flight meals.

Also, AirTran has agreed to a long-term airport lease that commits it to Pittsburgh until 2018. AirTran will cut its overall airport costs by 20 percent.

Talk about America West, US Airways link heats up
Tuesday, April 12, 2005
By Dan Fitzpatrick, Pittsburgh Post-Gazette

Talk about some sort of a combination between US Airways and America West Airlines, the seventh and eighth largest carriers in the United States, continues to surface despite refusals by either company to lend credence to the speculation.

JP Morgan airline analyst Jamie Baker fueled the latest round of rumors in a research note Friday that referred to "early speculation" about a proposed "linkage" between Phoenix-based American West and Arlington, Va.-based US Airways.

He did not elaborate, and Baker could not be reached yesterday. But he joins a list of industry observers who have raised the possibility of a deal marrying America West's stronghold in the West with US Airways' large East Coast presence.

There is "very little overlap" between the two carriers, local airline analyst Bill Lauer said yesterday.

What's more, America West Chief Executive Officer Doug Parker suggested in February that he would "look aggressively" to purchase a rival carrier and that he wanted to add new routes on the East Coast. He said the number of low-cost carriers in the United States would shrink from seven or eight to two or three, and he expected America West to be one of the survivors.

One link between America West and US Airways is John Luth, chief executive officer of New York consultancy Seabury Group, a specialist in airline finance and airline restructurings.

Luth helped US Airways through its first bankruptcy and he is doing the same in its second, making at least $15 million in fees for his firm.

Luth also was a close adviser to America West in the days after 9/11, when the airline nearly collapsed. Luth helped the airline restructure its debt and win financing backed by the federal government.

But Lauer said a combination between US Airways and America West is not possible without the intervention of a third party willing to put up enough money to carry the relationship forward and protect against a continued rise in fuel prices.

Baker said in his research note Friday that America West's cash could fall as low as $60 million by the end of the year without a new infusion of capital. US Airways also has little left in the till, despite a $125 million investment from commuter carrier Air Wisconsin Airlines and $125 million commitment from Republic Airways.

"You can play all the mind games you want," Lauer said. But until a third party steps forward, "this is just so much gamesmanship."

Neither carrier cared to address the speculation directly yesterday.

"That is a market rumor," America West spokesman Carlo Bertolini said of the speculation linking it with US Airways. The company is "unable to comment on market rumors. We are focused right now on running the best airline we can here in Phoenix."

With record-high fuel prices and weak revenues pummeling the industry, "we would expect that all airlines are exploring ways to remain competitive," said US Airways spokesman David Castelveter. "We will not, however, begin responding to rumors or speculation regarding possible conversations with potential business partners or investors."

April 20, 2005
US Airways and America West in Merger Talks
By MICHELINE MAYNARD

US Airways, which is operating in bankruptcy protection, and America West, a low-fare airline, are in serious discussions about a merger, a combination that would create the nation's sixth-largest airline, supplanting Southwest Airlines..


People close to the talks characterized them as well along and said that a conclusion could be reached within a few weeks.


America West's chief executive, W. Douglas Parker, has been a loud proponents of the need for consolidation within the industry, while US Airways has been viewed by many analysts as ripe for a takeover once it emerges from bankruptcy. US Airways, which is based in Arlington, Va., is the seventh-largest airline and America West, based in Phoenix, the eighth largest.


The talks come amid wide calls for consolidation as a tool to lead many airlines out of billions of dollars in losses. Many chief executives, including Mr. Parker at America West, Glenn F. Tilton at United and Gary C. Kelly at Southwest have argued that the industry is awash in too many seats, driving down prices at a time when the airlines are struggling with high costs and stiff competition.


America West declined to comment on whether discussions were taking place. But the chairman of US Airways, David G. Bronner told The Associated Press late last night that the airline had approached several carriers about a merger, but discussions with America West had progressed the farthest. Mr. Bronner is also chief of Alabama's pension fund, which invested $240 million in the US Airways before its more recent bankruptcy filing.


Any agreement faces several hurdles. It would need the approval of the Federal Bankruptcy Court in Alexandria, Va., near where US Airways is based. Last September, US Airways filed for its second round of court protection in two years.


US Airways would also need the support of its creditors. And, under the provisions of the bankruptcy reorganization, a competing bidder could enter the picture with a higher offer, either for US Airways or its assets. Further, the two airlines collectively owe more than $1 billion on packages of federally backed loans, and government approval would be necessary for the two to combine.


The two airlines have different types of operations. Although it has used low-fare airlines as a model for cutting its costs, US Airways is a traditional hub-and-spoke carrier, serving a variety of cities large and small, primarily on the East Coast. It has hubs in Philadelphia and Charlotte, N.C., as well as significant operations in Pittsburgh and in Fort Lauderdale, Fla., and an East coast shuttle connecting New York to Boston and Washington.


While America West has hubs in Phoenix and Las Vegas, it also offers a wide variety of direct flights, which are favored by low-fare airlines.


Talk of the US Airways-America West discussions floated in aviation circles in the last few weeks. According to people close to the talks, America West executives met in Washington on Friday with staff members and advisers to the Air Transportation Stabilization Board, which oversees the loan guarantees of the two airlines. US Airways owes $717 million on its package, while America West owes about $300 million.


The federal government holds warrants on America West stock, and it holds the assets of US Airways, including its cash, as collateral on its loan package.


The talks call into question whether US Airways would continue to seek investors so that it could emerge from bankruptcy as an independent player.


In recent weeks, two regional airlines, Air Wisconsin and Republic Airlines, reached agreements with US Airways on investments totaling $250 million. US Airways had said it needed about $350 million to emerge from bankruptcy, meaning it needed to find another $100 million.


Industry analysts said it was difficult to put a value on the combination of US Airways and America West. Nonetheless, an agreement would be a coup for Mr. Parker, who is the only chief executive among those of the eight biggest airlines to have been in place since before the September 2001 terrorist attacks.


Last fall, America West tried to buy ATA Airlines, a rival carrier that had filed for bankruptcy protection. Instead, ATA reached a tentative deal to sell some assets to AirTran, only to be outbid by Southwest.

It seems like there are so many U.S. airlines in trouble? is that correct?

Yes, many traditional US carriers are having a lot of financial problems due to the high cost of fuel and the aftermath of 9/11 on air travel.

Airline Industry Focuses on US Airways
By RACHEL BECK
AP Business Writer
26 April 2005

NEW YORK (AP) - Whatever happens to US Airways Group Inc. in the coming months matters -- for its employees, shareholders and customers, and the rest of the airline industry as well.

With much of the airline business plagued by expensive fuel, low fares and excess capacity, US Airways' competitors are closely watching to see if the struggling carrier emerges from bankruptcy as a healthier entity, merges with someone else or eventually goes out of business.

A liquidation of US Airways, the nation's seventh-largest airline by traffic, would no doubt receive a collective cheer from other carriers that are having difficulties operating in this tough business climate. But the same won't likely hold true should all or parts of US Airways stay alive.

It's just the latest chapter in what has been a turbulent ride for US Airways, whose Chapter 11 bankruptcy filing in September was the second in as many years.

Even with major cost cutting that has come largely through job cuts and labor concessions, the Arlington, Va.-based company continues to struggle and has acknowledged it does not expect to turn a substantial profit until at least 2008.

The airline industry overall has had a terrible run in recent years. After booming in the 1990s -- when fuel prices were reasonable and planes were full of high-paying passengers -- business slumped after the 2001 terrorist attacks and many of the airlines have never been able to regain their profitable momentum.

The fate of US Airways could be decided in the coming months. At least that is what is being anticipated as a result of the carrier's talks with America West Holding Co., the nation's eighth-largest carrier, to unite their operations. Also, an end of April deadline looms for US Airways to submit its reorganization plan with the U.S. Bankruptcy Court.

"We are now seeing the appearance of increasing desperate measures on the part of US Airways," said Robert W. Mann, owner of an airline consulting firm based in Port Washington, N.Y., who added that something has to happen for US Airways to "avoid getting the plug pulled on it."

That may just be what its competitors want. While Mann estimates that US Airways only holds about 5 percent of U.S. airline business' system capacity, a US Airways shutdown could give big relief to its rivals, especially those operating in East Coast markets like Charlotte, N.C., Philadelphia and Pittsburgh where US Airways has a stronghold.

A US Airways liquidation could also be particularly helpful to United Airlines by giving it a better chance of securing financing so it could emerge from bankruptcy protection, which it has been operating under since December 2002, Mann said.

And by removing US Airways from the competitive landscape, that would ease up some pricing pressures across the board. "The fewer players you have, the more likely that you will see more pricing stability and fewer price cuts," said Philip A. Baggaley, managing director at Standard & Poor's credit ratings services.

Views differ, however, on the potential industry effect should US Airways sell off its parts or team up with another carrier. It does hold some highly coveted airport facilities in some large markets, which could be attractive to competitors.

While US Airways and America West have confirmed that they are in talks, no specifics of the potential deal have been released. Such a marriage could potentially create a stronger, bigger airline that has presence nationwide, with US Airways' East Coast routes linked with America West's network in the West. But the combined company could also scale back capacity on some routes where the airlines' businesses overlap.

No wonder that the rest of the business is watching to see the outcome of this potential deal as well as others that might come along.

Gerard Arpey, chairman and CEO of American Airlines' parent AMR Corp., weighed the good and bad that could come from industry consolidation.

"If it takes capacity out of the industry, I think that would improve the revenue environment and improve industry conditions," he said during a conference call after the American Airlines reported earnings last week. But he added that "if on the other hand it preserves capacity that might otherwise go away, that would be a bad development."

It makes sense why US Airways is on its competitors' minds. Its fate has to be.

I don't know how this would work, but:
_____________
Air Canada has AmWest, US Airways merger ties


Dawn Gilbertson
The Arizona Republic
Apr. 30, 2005 12:00 AM
Another airline has been linked to a possible America West merger with US Airways.

The latest speculation focuses on Air Canada. The Toronto Star this week quoted a "Wall Street source" as saying the carrier may be in talks with both US Airways and America West Airlines in a deal that may see Air Canada take on international traffic while a combined US Airways-America West handles domestic U.S. traffic. It did not mention how such a deal would be structured.

Air Canada's chairman didn't rule out a possible merger for the airline on a conference call, the newspaper reported, but he seemed to be commenting on its role in industry consolidation in general. The discussion was a footnote in a story about the airline's $6 billion order for Boeing jets this week.

"Consolidation in the North American industry is inevitable," said Robert Milton, chairman of the airline's parent company. "To the extent Air Canada is or isn't part of that is yet to be determined."

The airlines are not strangers to each other.

Air Canada and US Airways are both members of the same airline alliance, the Star Alliance, a network of airlines that feed passengers to each other globally. They also have both used Seabury Group for investment banking.

On the America West side there's a Texas Pacific Group connection. The private equity firm brought America West out of bankruptcy a decade ago and, together with Air Canada, invested in Continental Airlines to bring it out of bankruptcy in 1993.

TPG still owns a controlling interest in America West and is seen as a key player in any merger. The extent of its role is unclear.

Rick Schifter, managing partner of TPG, wouldn't comment at an airline conference in Phoenix this week. But his overall comments on industry consolidation seemed to suggest that the airline is lukewarm on any further investments at this point.

He said the industry is "still sucking wind" because the success of low-cost carriers have brought about dramatic change in the rest of the industry.

"That gives us some pause as we look at the industry today," he said.

He also said the firm, a legendary bargain hunter, doesn't see a lot of steals out there because there is so much capital chasing few deals. That drives prices up.

He said they continue to keep an eye on the industry, "but we're fairly cautious at this stage."

Delta CEO Calls For Comprehensive US Aviation Policy -NYT
6 May 2005

NEW YORK (Dow Jones)--Delta Air Lines (DAL) Chief Executive Gerald Grinstein called on U.S. federal officials to establish a comprehensive aviation policy to give companies guidelines for areas such as bankruptcy, mergers, fuel prices and taxation, the New York Times reported on its Web site Friday.

Grinstein said in an interview that he didn't support reregulating the airlines, which union officials raised after travelers faced widespread delays over the Christmas holidays, the Times reported.

But, the airline industry was too important to the nation's welfare for government agencies, Congress and the White House to ignore it, Grinstein said, according to the Times report.

"There ought so be some understanding of what may have to take place in the industry" so major airlines can become successful again, he said, according to the Times.

FAA: Crowded Skies to Get More Crowded
15 March 2007

WASHINGTON (AP) - Airline passengers can expect more delays as airplanes crowd the skies, the Federal Aviation Administration said Thursday.

The agency expects an average of 1.4 million more takeoffs and landings -- the equivalent of traffic at two Dallas-Fort Worth International Airports -- every year until 2020. In 2006, air traffic controllers handled 61.1 million takeoffs and landings.

"Delays are mounting due to congested airspace and congested airports," said FAA administrator Marion Blakey. "The congestion is really becoming a chronic thing."

Blakey said 2006 was the worst year ever for delays, and 2007 isn't looking any better. Last year, more than 490,000 flights departed or arrived late, she said.

This year, domestic airline ticket prices are expected to increase by 0.4 percent before dropping an average of 0.9 percent annually, the FAA said as part of its annual aviation forecast.

The agency predicts airline traffic will grow faster at hub airports than at smaller ones.

Washington's Dulles International Airport will experience the most growth -- 68 percent by 2020. Air traffic at New York's John F. Kennedy International Airport will grow by 59 percent, followed by Los Angeles International Airport at 54 percent and Hartsfield-Jackson Atlanta International Airport at 38 percent.

Blakey said the nation's aging air traffic control system must be replaced to avoid gridlock in the skies.

To pay for a new system that would rely on satellite-based navigation, the FAA proposes to replace the ticket tax now paid by airline passengers with a combination of fees and taxes. That would force people who fly corporate jets to bear more of the cost of the air traffic control system.

The real problem with air traffic is that more airlines are flying more frequent flights with smaller craft. As much as I understand teh controversies surrounding free competition, I think nothing is going to get better until realistic slot control comes into place. We are going to see more and more of those Jet Blue incidents happening, and pretty soon the customers are going to start demanding that they compensated for it instead of being simply out of luck in that case.