- The Washington Times - Thursday, July 19, 2001

US Airways and other major airlines reported huge second-quarter losses yesterday, and US Airways executives warned of a “restructuring” if their finances do not improve.

US Airways’ senior management met yesterday in Arlington to discuss the quarterly results and their efforts to merge with United Airlines’ parent company, UAL Corp., which remain in doubt because of regulatory obstacles.

“Over the last couple of months, we have had to look at options,” said Rakesh Gangwal, US Airways’ chief executive officer. “The status quo will have to change.”

Although Mr. Gangwal refused to discuss details, industry analysts say US Airways may have few choices. They include selling off the airline in pieces to competitors, selling the company to its employees or forming a business alliance with an international airline.

“Basically the way the airline is structured right now, it’s just not going to generate enough revenue over their costs,” said Ray Neidl, airline analyst for the Wall Street financial firm of ABN-AMRO.

By selling off its airplanes and other assets to competitors, US Airways could avoid the antitrust concerns of federal regulators, he said.

Another option would involve “having employees give salary back in return for ownership of the company,” Mr. Neidl said.

Current labor contracts make profit nearly impossible, he said.

“To save this company, you have to reduce costs,” Mr. Neidl said. “Close to 40 percent of their costs are labor-related.”

Eliminating unprofitable routes might further reduce expenses, he said.

An alliance with an international airline could offset losses in the United States, he said.

“It wouldn’t save them, but it would help,” Mr. Neidl said. “It would allow them to get into more foreign markets.”

Mr. Gangwal said he would wait until the Justice Department decides next month whether to approve a buyout by United before announcing any new business moves.

However, he has said he would not recommend to the company’s board that the airline be broken up and sold off.

The risk of a breakup, along with frustration over attempts to merge with United, prompted US Airways’ pilots to tell the airline’s management yesterday to put more effort into improving its operations.

“The pilots are demanding that senior management refocus their attention to the operation of our airline,” said Chris Beebe, chairman of the master executive council of the Air Line Pilots Association at US Airways.

The “continued preoccupation” with the merger by Mr. Gangwal and Chairman Stephen Wolf “could squander our company’s competitive future as a stand-alone carrier, as well as our pilots’ long-term dedication and recent investments to ensure that future,” Mr. Beebe added.

The airline’s officials conceded they project losses for the rest of this year similar to their second-quarter losses.

US Airways lost $24 million in the second quarter of this year, compared with earnings of $80 million in the same quarter last year, the company said.

“These results are disappointing, especially given US Airways’ historical financial strength in the second quarter,” Mr. Gangwal said.

However, US Airways’ losses were dwarfed by competitors from larger airlines, who blamed high fuel prices, labor costs and fewer business travelers because of a slumping economy.

UAL Corp. lost $292 million for the quarter, meaning it has not had a profitable quarter for a year. The parent company of United earned profits for five years in a row before the recent economic downturn.

United is the nation’s second-largest airline, and US Airways is the sixth-largest.

AMR Corp., the parent company of American Airlines, reported a net loss of $507 million in the second quarter for the nation’s largest air carrier.

Mr. Gangwal blamed competition from smaller low-cost airlines as the main reason US Airways is losing customers. The airline’s passenger revenue dropped by 11 percent in the second quarter.

Low-cost carriers have added more than 200 flights in the last year along the same routes used by US Airways.

US Airways reported gains in long-haul service to Europe, the Caribbean and the West Coast and plans to expand its fleet of regional jets from 57 to 70 this year.

Nevertheless, Mr. Gangwal said in an earlier statement, revenue has “been under pressure as companies cut back on business travel or seek lower-price tickets.”

The airline pursued first a merger with United, then a possible buyout, to save it from bankruptcy. Federal regulators have expressed concern that a takeover of US Airways would give United too much control over the airline industry, possibly forcing passengers to tolerate higher fares and less service.

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