Manoeuvring to widen the narrow window it has to return to profitability, US Airways won some breathing room with the restructuring of its $980 million federally guaranteed loan.
The breathing space has some strings however. The guarantor, the Air Transportation Stabilization Board, said that the carrier must cut costs deeper, by as much as 25% more this year, despite anticipated stiff labour resistance.
US Airways pre-paid $250 million of the federal loan in return for the revised conditions, which are in fact an easing of earlier board covenants. The revised loan paves the way for US Airways to sell off assets, although the carrier will not say if it will do so.
The government would let US Airways keep up to 25% of the proceeds, or no more than $125 million, if it sells anything before February 2005, and lets it accept offers for certain assets in the form of cash and promissory notes, which should make sales easier. But the board, created after the September 2001 crisis, wants US Airways to have a business plan fixed and in place by mid-year.
Lowering costs still further will not be easy. The machinists union, calling management "incapable" of running the airline, is reluctant to discuss further concessions, while the flight attendant union will not do so until it sees a more detailed business plan.
So far, the pilots alone among US Airways staff have agreed to consider renegotiating their contract. Chief executive David Siegel said in a message to employees that he would like those "formal negotiations" to begin in April.
At the time it won the loan revision, KPMG, US Airways' auditor, expressed "substantial doubt about the airline's ability to continue as a going concern", which is common in firms that have reorganised.
But Siegel has suggested that time is short. In a February speech to a Washington-area retired officers' group, Siegel said: "When the inevitable forces of consolidation kick in, it is important that we have a competitive cost structure. Otherwise, we will be the awkward teenager at the school dance, hoping someone will come talk to us, but going home disappointed and lonely." n
DAVID FIELD WASHINGTON
Source: Airline Business
