US Airways Could Fail Next Month
Firm's Report Says 2nd Bankruptcy Imminent Without Labor Accords

By Sara Kehaulani Goo
Washington Post Staff Writer
Friday, August 13, 2004; Page E01

US Airways faces a possible second bankruptcy filing next month and even liquidation if it fails to reach a new agreement with its unions, according to a report by a consultancy firm that advised the airline's pilots union.

The report, prepared by Glanzer & Co., said the Arlington-based carrier will "fail within the immediately foreseeable future" and set out the few choices left for the company's employees as they face an additional $800 million in cuts the company is seeking. Other analysts have said US Airways is headed toward bankruptcy, but not as soon as the Glanzer report predicts.

Pilots must either agree to a lower compensation package or be prepared to accept possibly worse terms imposed by a bankruptcy judge or, more likely, the company's liquidation, according to the report. The chances of the airline going out of business are higher now than during the previous bankruptcy because creditors have found ways to place claims on the carrier's cash to lower their risk.

A spokesman for the US Airways' Air Line Pilots Association said the union agreed "in principle" with its consultants' conclusions. A US Airways spokesman said the company also concurs with the report's findings.

If the company is unable to extract new concessions from workers, the report concludes, US Airways has 180 to 270 days left of operation, because next month it must make several large payments to a pension fund and creditors. On Sept. 30, it also faces a crucial review by the federal government, which gave the company $900 million in federally backed loan guarantees.

"It is in the best interests of the company and employees that we quickly reach consensual agreements with all of our labor unions so that we achieve the necessary cost reductions and can fully implement our Transformation Plan," US Airways said in a written statement yesterday.

Raymond Neidl, an airline analyst at Blaylock and Partners LP, said he had projected that US Airways would file for bankruptcy by the end of September unless it reaches a new labor agreement. He agreed with the Glanzer report's findings that if US Airways files for bankruptcy, it will likely cease operations. "You're facing a situation where the company may not survive," Neidl said. "If they go [into bankruptcy] this time, they may never come out."

The Glanzer report criticized the company's business plan since emerging from bankruptcy. Although the company was able to make steep cuts in its cost structure, it had unrealistic expectations for revenue and operating expenses such as fuel costs, according to the report. "The company's business model is not sustainable," the report said.

US Airways spent about seven months in bankruptcy after the terrorist attacks in 2001 and struggled to shrink its operations, reduce its costs and redefine itself to compete against growing low-fare carriers. The airline's chief executive, David N. Siegel, stepped down in April after relations with the unions broke down as the carrier was seeking more cuts. The new top executive, Bruce R. Lakefield, is trying to transform the carrier from a traditional hub-and-spoke service to a low-fare airline modeled after JetBlue Airways, which serves higher-yield, point-to-point destinations.

As part of its transformation plan, US Airways said yesterday it would end service on 20 routes from Pittsburgh, including international service to London and Frankfurt as well as many other, smaller cities.

The route cuts were inevitable, aviation consultant Doug Abbey said, because Pittsburgh did not have enough of a local market to support a hub for US Airways. "Pittsburgh has become eclipsed by growth in Philadelphia, so it was seen as redundant," Abbey said. The end of the Pittsburgh hub has "been a long time coming."