DAVID FIELD / WASHINGTON DC
US Airways needs $950m labour savings to receive loans as United seeks more cuts
Labour unions are threatening recovery plans at United Airlines and US Airways as they approach a 28 June deadline for federal loan applications. To receive loan guarantees under the Air Transportation Safety and Stabilisation Act, the carriers must make substantial cost cuts which have to be approved by the unions.
US Airways is facing a further time constraint, with the carrier spending about $3.5 million a day more than it was making in the first quarter. Chief executive David Siegel is requesting about $1 billion in federal loan guarantees. To secure these, he wants $950 million of labour savings, which represent a reduction of a third on last year's labour costs, and more than $200 million in concessions from suppliers such as Airbus.
Siegel's recovery plan makes more use of regional jets, which he would increase from the 140 allowed for under the terms of a recent deal with its pilots to as many as 300 within three years. It also plans codesharing alliances to deliver between $150 million and $300 million in annual revenues. US Airways is believed to have begun talks with United, Northwest Airlines and Continental Airlines. Siegel has ruled out allying with Delta Air Lines, with which it has significant East Coast overlap.
United parent UAL has yet to decide whether to seek federal loan backing. It is using two recently concluded contracts with the International Association of Machinists (IAM) as a basis for a new round of cost cuts, which soon-to-depart interim chief executive Jack Creighton describes as "the missing element" in United's recovery plan. Creighton hopes to have about $750 million in labour savings from the IAM as well as from its pilots and flight attendants in place before he departs.
United chief financial officer Jake Brace says the loan guarantee might be "a way to weave in the employee piece of the plan", but airline consultant Mort Beyer says he is not certain UAL will be able to win deep enough concessions.
The US airline recovery appears to have stalled, with traffic in April falling 12.2% compared to the same month last yearas capacity dropped 11.3%, leading to a 0.7 percentage point decline in load factor to 71.4%. This was the first drop since December, says Credit Suisse First Boston analyst Jim Higgins. Excluding Southwest Airlines, the majors saw domestic unit revenue fall 12.8%, versus a 10.6% drop in March. Meanwhile, domestic yield fell 11.9%, the same as in March. UBS Warburg analyst Sam Buttrick has trimmed 2-3% from his revenue forecasts. He now expects 2002 industry losses to be $4 billion compared to an earlier forecast of $3.5 billion.Source: Flight International
