KAREN WALKER / WASHINGTON DC
American doubles estimates of savings needed to survive and US Airways posts disappointing third-quarter figures
United Airlines has pieced together more of its recovery plan, winning wage concessions from two union groups and agreement with a bank to restructure some of its debt. But more is needed before the US carrier is safe from bankruptcy.
Meanwhile, American Airlines has doubled to $4 billion the amount of cost savings it says is needed to remain viable, while US Airways, in Chapter 11 bankruptcy protection, has turned in a "disappointing" third-quarter net loss of $335 million.
United's scramble to secure billions of dollars of cost savings before it follows US Airways' fate took a step forward last week when its pilots agreed to shave wages by $2.2 billion over five and a half years. The Transport Workers Union (TWU) has also tentatively agreed wage cuts, but the extent of the offer has not been revealed.
United also reached agreement with one of its main lenders, German bank KfW, to restructure about $500 million of debt obligations due in November and December - allowing the cash-strapped carrier to postpone payment until 2007 and giving it breathing space to win further cost concessions from employees and possible approval for a $1.8 billion US government loan guarantee.
United is not yet out of danger. It has almost $4 billion more in cost concessions to agree with other union groups, most of which are reluctant to give up as much as the highly paid pilots.
Analysts remain sceptical whether the work can be done in time. JP Morgan analyst Jamie Baker says the pilot proposal "adds credence", but he believes United's odds of bankruptcy remain in the 75-80% range.
California Credit Suisse First Boston aerospace managing director Pierre Chao also believes United is an "almost certain" bankruptcy candidate.
Despite American's stronger cash position, Chao also is concerned that the carrier could follow suit. Chairman and chief executive Don Carty last week admitted that the $2 billion cost savings originally sought may be only half what is needed. The unions say that American has not asked for wage concessions, but Carty has met labour groups to stress the seriousness of the situation.
US Airways chief executive David Siegel, meanwhile, admits the carrier's third-quarter net loss of $335 million does not bode well for an early emergence out of Chapter 11. "While we accomplished much in the third quarter, we clearly have more to do to respond to this new reality," he says.
Two small US airlines, Aloha and Frontier, had rare cause to celebrate when both won approval for Air Transportation Stabilization Board loan guarantees - for $40.5 million and $63 million, respectively.
Source: Flight International
