As Delta Air Lines struggles to avoid going into bankruptcy, United Airlines strives to get out of it and US Airways tries to avoid a second trip into court protection.
The mere fact that over one-third of US airline capacity is in such straits has served to focus minds greatly at labour unions and at boardrooms throughout the industry. However, this stage of the industry's restructuring will have to take place without any government support or direction after the federal air transport stabilisation panel rejected United's final request for a loan guarantee. Delta has not sought such aid and, although US Airways won a loan guarantee last year, it cannot seek further support.
At Delta, new chief executive Gerry Grinstein raised the possibility of a bankruptcy filing unless pilots made concessions and, although many interpreted his widely reported statements as little more than a big stick to shake at labour, investors are listening.
A group of Delta creditors has formed a committee to co-operate with the company and hired a New York legal powerhouse - Skadden, Arps, Slate, Meagher & Flom - plus Jonathan Rosenthal of Saybrook Capital. Rosenthal, a veteran of the United Airlines reorganisation, says the committee is "unique in terms of the sheer breadth of constituencies represented", including unsecured and secured creditors.
Delta pilots have also taken the talk seriously, finally agreeing to set a date to discuss concessions this month. The union had balked at setting a date and John Malone, chairman of the Delta union, insists the company cannot solve its problems simply by cutting pilot wages. Analysts expect talks to go to the brink of bankruptcy.
At United, however, the airline pilots association is resisting talks on further pay cuts, having already agreed to $6.6 billion in savings over six years starting in May 2003.
Following the rejection of the loan guarantees by the stabilisation board, union chairman Mark Bathurst says he expects a solution "will be found without the company again turning to employees who already have provided significant financial relief". Other unions expressed similar reluctance, saying they have given enough.
Mechanics and baggage handlers have given up about $4.7 billion over the six years, flight attendants about $1.9 billion and non-union workers and those in smaller unions about $2.2 billion for total savings of $15.4 billion through May 2009.
Analysts say that after loan guarantee rejection, United will have to find about $500 million more in annual savings to attract further private investment. It already had about $2 billion on bank financing lined up. JP Morgan analyst Jamie Baker expects United to shed capacity at one of its hubs and thinks Washington Dulles, with estimated revenues of $1.4 billion compared with $3 billion at Chicago O'Hare and $2.2 billion at Denver, is the most likely victim.
US Airways, squirming to find a response to rapid low-cost carrier growth in its territory - especially that of Southwest at its Philadelphia hub - won tentative agreement from its pilots for yet another round of wage cuts, although machinists and clerks resisted.
Chief executive Bruce Lakefield said in a phone message to employees that it might break even in the second quarter, for which it reports in late July. However, he also said that, without dramatic cost reductions, its third and fourth quarter losses would be similar to its first quarter deficit of $177 million.
Baker estimates the cuts proposed at US Airways would bring a Boeing 737 captain's rate down from $158 an hour to $138 an hour.
DAVID FIELD WASHINGTON
Source: Airline Business
