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US Airways to file for loan guarantees

Washington Post

When US Airways' new president and chief executive, David Siegel, opens his first shareholders meeting at the Capitol Hilton Wednesday, he begins what is likely to be a critical week in his attempt to keep the Arlington-based airline alive.

Since announcing Friday that the company might file for bankruptcy protection if it does not get concessions from its employees and new loan guarantees from the government, US Airways has been in a financial free fall. Its share price has fallen 42 percent, to yesterday's close of $2.85. Standard & Poor's even dropped the airline from its bellwether 500-stock index, making the carrier's shares less attractive to many investors.

Siegel, 40, hopes to soothe antsy shareholders Wednesday. Then, on Thursday, he goes before the company's labor leaders to begin selling his proposals for restructuring the airline.

Unless Siegel gets major concessions from employees, the airline probably won't survive more than two years, said Jim Corridore, an S&P transportation analyst, who has an "avoid" rating on the company's stock.

"I question whether they can stay in business long enough to make some real changes at the company," he said. "It would take a year or more for the company to restructure."

Analysts said the airline is paying he price of having some of the industry's highest labor costs. In the past, the company could afford those costs because it clientele largely was high-paying business travelers making shorts hops on the East Coast.

But the dynamics changed. In January 2001, business travel began to decline as the economy weakened. It fell even more after the Sept. 11 terrorist attacks.

US Airways attempted to merge with United Airlines but the deal fell apart last summer because of antitrust concerns.

Now, as US Airways tries to make it on its own, it is battling stronger forces. Low-cost carriers such as AirTran, Southwest and JetBlue have gradually increased the number of their flights on some of US Airways' most coveted routes. Other carriers, such as Delta Air Lines, have boosted the number of regional jets on routes where they compete with US Airways' turboprop planes. And traffic on one of US Airways' most lucrative services -- its New York shuttle -- has gone down 30 percent since last year, in part because of the increased popularity of Amtrak's Acela high-speed train.

To become more competitive, said a former senior airline executive who spoke on the condition of anonymity, US Airways probably would have to reduce labor costs by as much as $750 million a year, on top of the 11,000 jobs that have already been cut. US Airways' lenders also would have to make concessions. "If these cost reductions don't come into place, the ability to make something happen will largely go away," said the former airline executive, who is familiar with US Airways' finances.

According to the monthly industry report Airline Monitor, US Airways -- the nation's seventh-largest carrier -- had labor costs of $87,000 per employee in 2001, highest of the top nine U.S. airlines. Northwest Airlines -- the nation's fourth-largest carrier -- had the second-highest per-employee cost, $78,087.

"Their cost problems have existed for years, but now that bubble is about to burst," said Morton Beyer, an airline consultant with Morten Beyer & Agnew.

Labor leaders said they are waiting to see what executives propose.

"We don't know how much we have to give up because we haven't seen the restructuring plan," said Roy Freundlich, a spokesman for the pilots union. "As any stakeholder, we want to make sure this plan for US Airways work for the pilots."

Joe Tiberi, spokesman for the airline's machinists union, said restructuring has to go beyond asking employees for concessions. "Saving money on the cost of their labor will not increase the revenue that is putting the airline in the postion they're in in the first place," Tiberi said.

In addition to lower labor costs, the airline says it needs government-backed loan guarantees.

To qualify, Siegel must win support from several quarters for his restructuring plan. The agency that would approve the loan guarantees, the federal Air Transportation Stabilization Board, looks at more than just an airline's financial need and long-term operational plan. It also takes into account whether the airline's employees, executives, creditors and even cities and airports served by the airline, have offered any payment deferrals or givebacks.

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Star Alliance looks to expand

Air Transport World

Star Alliance CEO Jann Albrecht says the alliance is strong but wants to be stronger.

Noting numerous "white spots" on the globe where Star has little or no coverage--including China, India, Africa, parts of Asia and domestic Australia since the demise of Ansett--Albrecht said the group is in talks with "several carriers" about joining the alliance but declined to name them. ATWOnline reported in Feb. that Asiana intends to join Star.

The next meeting of alliance CEOs at which a new member might be announced is June 1 in Shanghai in conjunction with the IATA AGM. After that, the next opportunity, Albrecht said, is the Nov. meeting.

Addressing the value Star brings his carrier, Air Canada VP-Sales and Product Distribution Marc Rosenberg noted that in 1997 the partnership with United Airlines was worth C$50 million ($32 million) to AC, while today it puts the "value" of its Star association at C$730 million. He noted, though, that of the 8% of Air Canada travelers who connect to or from a Star partner, 50% go to United. And UAL Senior VP-International Graham Atkinson said 8% of United's 75 million annual passengers travel on Star partners as well. He also said UAL's interline revenue has grown 100% in the five years of Star's existence.

While the group is pursuing further joint activities such as joint purchasing, integration is far from achieving a common frequent-flier program, the officials said.

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DIA's sixth runway getting off the ground

Denver Post

Next week, Denver International Airport will begin pouring concrete for one of the largest runways in the world.

The 16,000-foot-long and 200-foot-wide runway will enable DIA to operate more efficiently during winter storms, allow long-haul flights to carry more weight, handle the next generation of super-jumbo jets and possibly even lure more international airlines.

And with a $166 million price tag, experts say, DIA's sixth runway is a huge bargain. Some other U.S. airports are spending up to $1.1 billion apiece on new runways.

After the Sept. 11 terrorist attacks, airports nationwide shelved many construction projects, such as terminal expansions. However, all continue to push forward with the costly runway projects, mainly because they take so long to build and face massive amounts of environmental review.

Still, officials say DIA's new runway is overdue. DIA was supposed to have six runways when it opened in early 1995, but the number was pared to five to save money.

Yet while final construction of the runway was delayed, airport officials took preliminary steps years ago, including the banking and grading of millions of cubic yards of dirt, that will help get the new runway operating sooner.

"Denver is a unique case because it's got more potential (runway) capacity than anybody ever dreamed of," said Richard Marchi, senior vice president for technology and environmental affairs at Airports Council International, which represents U.S. airports in Washington.

Denver Mayor Wellington Webb on May 23 will start the engine of a runway paver that will begin the process of laying nearly 1 million square yards of 17-inch-deep concrete for the runway and taxiways.

The sixth runway, due for completion late next year, is being constructed northwest of the airport's concourses, parallel to an existing north-south runway. The project is so massive DIA is buying 59 four-wheel-drive pickups for $800,000 so inspectors can monitor the work.

DIA's five runways each are 12,000 feet long and 150 feet wide.

The benefits of the new runway will be apparent when winter storms move in from the north, said DIA's chief planner, Rick Busch.

At such times, DIA's east-west runways often are unusable, with planes able to take off and land only to the north, into the wind, according to airport officials.

For safety reasons, air-traffic controllers often favor arrivals over departures during such storms, leaving the airport without an active departure runway at times, Busch said.

But with the sixth runway, DIA will be able to land planes simultaneously on three north-south runways while using the new runway for departures, he said.

A big frustration for air travelers is to be in a plane that's been de-iced and then sit on a taxiway waiting for takeoff so long that the aircraft must return for another de-icing, said Hank Appleby, chief pilot for Frontier Airlines.

"It provides more options for us," Appleby said.

Ken Bostock, general manager for United Airlines at DIA, agreed.

"It will give us more capacity in irregular, winter operations. We can get off the gate and out of the airport faster," he said.

While Denver has faced little opposition to building another runway, in other cities it's been highly contentious, triggering legal attacks aimed at delaying or defeating the projects.

In Boston, opponents of a new runway for Logan International Airport have been fighting it for more than 20 years. And the Massachusetts Port Authority, the operator of Logan, wants to build only a 5,000-foot runway for smaller jets.

The Port of Seattle, which operates Seattle-Takoma International Airport, is close to clearing its last legal hurdle to build a new 8,500-foot runway, said port spokesman Bob Parker.

The runway, designed to help the airport handle traffic in low visibility, was expected to cost $773 million. Because of delays caused by environmental challenges, the price tag "will probably increase," Parker said.

Lambert-St. Louis International Airport and Minneapolis/St. Paul International also have traveled long, expensive roads to get new runways.

Lambert officials are about halfway through the process of acquiring 2,000 homes and businesses for the site of its new 9,000-foot runway, said St. Louis airport spokesman Michael Donatt.

The cost of acquiring nearby land: $490 million. The runway itself will cost $370 million, and there are $250 million in additional costs, including relocation of a Missouri Air National Guard base, Donatt said.

The total price tag of $1.1 billion is worth the expense, Donatt said, because bad weather reduces Lambert's operation to one runway.

Savings generated by the reduction of aircraft delays "will pay for the runway itself," he said.

At the Minneapolis airport, officials also acquired neighboring homes to build a new runway. It will cost at least $800 million and is scheduled to open in 2004.

DIA is fortunate because it's merely paying the cost of building a runway and not the added expense of buying homes and mitigating noise like other airports, said Marchi, the Airports Council International official. But DIA officials don't know if the sixth runway will create more noise over key Adams County communities.

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KJC

Thanks for posting this stuff--quite informative and enjoyable to read!

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Romania is #1

Good article, very intresting.

Scott

Very informative and thought-provoking summaries, Gabby! Thanks.

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uniTED takes wing Feb 12, 2004