- The Washington Times - Monday, September 24, 2001

US Airways Group, already in financial trouble this summer and looking for answers, is now on the short list of major airlines likely to file for bankruptcy in the wake of the Sept. 11 terrorist attacks.

More so than any other air carrier, US Airways' survival depends on a raft of unknowns. How can it redefine itself after the collapse of acquisition plans with UAL Corp.? Will consumers feel safe enough to travel in time to shore up sagging profits?

One of the biggest questions lingering was answered quite clearly last week.

"If we don't open DCA (Ronald Reagan Washington National Airport), within 10 days, one of the major airlines will go under," Transportation Secretary Norman Y. Mineta told the Senate Commerce Committee last Thursday. All knew he was speaking of US Airways, of Arlington, the region's only major air carrier, which by some estimates accounts for 70,000 airline and related service jobs around Washington.

Those jobs are now in jeopardy.

US Airways announced last week that it will hand out pink slips to 11,000 workers. It cut service by 23 percent, and one of its major markets, Reagan Airport, remains shut, exacerbating daily financial losses.

"US Airways is one of the airlines in the deepest trouble at the moment," says David Stempler, president of the Air Travelers Association. "It was in a slow spiral down toward bankruptcy if no changes occurred, but the events of Sept. 11 have just hastened the whole process."

Struggling under high labor and fuel costs, US Airways earlier this year sought to be acquired by UAL Corp.'s United Airlines. But federal regulators nixed the deal, leaving many industry analysts to question the viability of the local airline.

The industry had been highly profitable in recent years buoyed by a strong economy and surging demand for travel. That demand, for most airlines, more than offset rising labor costs and growing customer frustration with service. But the slowing economy, coupled with rising fuel costs last summer, put US Airways and other carriers into financial trouble.

Following the terrorist attacks on the World Trade Center and the Pentagon, analysts estimate this year's industry losses will rival the record $4.8 billion lost in 1992.

Consumers' fear of flying after the terrorist attacks is making the situation much worse.

"Nobody wants to travel right now people are afraid to get on airplanes," says Darryl Jenkins, airline expert and professor at George Washington University. "They (US Airways) already have very little flexibility in terms of reorganizing and restructuring, so the future doesn't look good for them."

US Airways, the nation's sixth-largest carrier, is the dominant airline at Reagan Airport, handling 45 percent of the air traffic. After the airport closed last week, the carrier shifted some of its shuttle flights to Washington Dulles International Airport, in an effort to keep the service running.

Bleak options

Coincidentally, US Airways held its annual shareholders meeting last Wednesday, eight days after the terrorist attacks. Company Chairman Stephen Wolf said the airline is quickly burning through its cash reserves and will need a federal bailout to stay in business.

"We're going to have to bring down costs dramatically," Mr. Wolf said, adding that filing for Chapter 11 bankruptcy is also an option; That would give the company time to reorganize while under protection from its creditors.

"One needs to be prudent relative to Chapter 11," Mr. Wolf said. "If you're going to file you should go in with as much cash as possible."

He said that the worst thing that could happened to the airline isn't filing for bankruptcy, but running out of cash and not being able to keep the carrier going.

US Airways, which had 417 aircraft as of early September, has an estimated $1.2 billion in cash on hand.

Midway Airlines last month filed for bankruptcy, but the day after the attacks on the Pentagon and World Trade Center it shut down altogether, saying the turmoil made reorganization impossible.

To prevent other airlines from going belly up, the Bush administration last week asked Congress to approve a bailout package of $8 billion. The amount is less than the $17.5 billion the industry had asked for.

Industry analysts say a bailout of any sort is better than none, but that in the long run it does not guarantee the survival of troubled carriers like US Airways.

"It puts them in better shape than they would have been," Mr. Jenkins says. "But in the long run it only depends on whether they can generate revenue again, and that's unknown."

He says the quick decision to lay off 11,000 workers and cut back operations by 23 percent was "wise … that saves cash in the short term, so I think that was a good thing."

The work-force cut brought down US Airways' employee count to about 35,000.

The good times

US Airways' sales had been growing largely during the late 1990s. Its sales last year hit a record $9.27 billion.

But at the same time the company lost $269 million ($4.02 per diluted share). It was the company's first unprofitable year, following several years of profits ranging between $500 million and $1 billion. Diluted shares reflect the value of options, warrants and other securities convertible into common stock.

Aside from losing money with every passing hour, US Airways' stock recently has taken a massive hit. The company's shares closed at $4.55 Friday on the New York Stock Exchange, marking the stock's 52-week low.

Before this month, the stock's low was close to $20.

At the start of the year US Airways had a total of $9.127 billion in assets. Almost $5 billion was in fixed assets, half of which could be easily turned into cash. As the losses following the terrorist attacks of Sept. 11 mount, the company's assets diminish, analysts say.

Mr. Stempler, the consumer advocate, notes that US Airways' financial uncertainly is the reason some industry insiders pushed hard for it to be acquired by United Airlines earlier this year.

"The thing we tried to get regulators to understand is that you can't just look at what if the merger goes through and you have consolidation," he says. "You also have to look at what if it doesn't."

If US Airways goes out of business, consumers will lose a major carrier that services big and small towns all over the Northeast, Mr. Stempler says.

At the airline's shareholder meeting last week executives of the carrier talked about exploring any options available to the company, including a merger or acquisition.

Industry insiders say no airline at the moment has the financial stability to make a purchase, and that US Airways would not be an attractive target anyway.

"I think United is really the only one who'd ever consider them," Mr. Jenkins says.

The workers

Roy Freundlich, a veteran pilot at US Airways for 14 years, says this is one of the worst episodes the company has been through.

"But the way to get through a crisis is not to be consumed with doom and gloom, but to have a vision of success. And that is how we are approaching this," he says, referring to co-workers.

When pilots face an emergency while in the air, they are supposed to slow down and react calmly and logically, he says. That is how the Airline Pilots Association wants US Airways' executives to respond to the current crisis, says Mr. Freundlich, a spokesman for the union.

"They are overreacting," he says. "Passengers will come back. And the air transport system is too vital to the economy of this country."

Not surprisingly, last week's layoff announcement has workers scared about their job prospects. Others, who were laid off previously because of the economic downturn, are not doing so well away from the airline.

Former US Airways customer service representative and single mother Monique Johnson once earned about $1,100 to $1,400 biweekly. But she was laid off and now receives $268 a week in unemployment benefits from the Virginia Employment Commission.

"It's very scary," says Ms. Johnson, a 15-year veteran at US Airways and Reagan Airport. "I need to come to work."

The money she makes now is not enough to even take her 7-year-old daughter, Shauneil, to a movie or a meal at Burger King, she says.

Of the 11,000 cuts announced last week, 1,100 are pilots.

The first batch of 500 will be let go at the start of December, another 400 follow in January, and the rest will be gone by April, Mr. Freundlich says.

"We can't even get to the capacity reduction by December, and by then we don't understand how they can justify such a rash move," he says, referring to management. "We recognize this is a serious situation, but we just don't agree with the solutions management is using to deal with it."

Pilots are let go based on seniority, so the first to be handed pink slips are those with less experience. Following the cuts there will be a lot of staff restructuring, says Mr. Freundlich, who questions that logic.

"That means significant displacements," he says. "And it's a very expensive proposition I don't see how it gives them the immediate cash that they need."

Major local player

US Airways is the third largest employer in Arlington County, with some 2,000 local employees working from its headquarters there.

"It is the principal carrier at National Airport and so extraordinarily important to the county as a provider of services," says Terry Holzheimer, director of the office of business investment within the Arlington County Department of Economy Development. "We're very hopeful that US Airways will come out of this as a viable and healthy business."

The airport represents a regional economic impact of $5.6 billion annually, about "half or more of which probably attributable to Arlington County," Mr. Holzheimer said.

The airport is expected to remain closed until early October, although some industry insiders are seeking to have it permanently closed to commercial flights for security purposes. Others say closing Reagan Airport would be a big mistake from a business perspective.

"It's a very good airport from a revenue standpoint, in that they have a lot of business travelers there so they have the ability to charge higher fares in a business market," says Joel Denney, analyst with US Bancorp Piper Jaffray in Minneapolis.

Flying mostly south and east, before Sept. 11, US Airways had 186 daily flights at Reagan Airport. Serving 204 airports in the United States, Europe and the Caribbean, US Airways through its regular, express, shuttle and Metrojet services has 4,478 daily flights.

Now the airline is operating at about 75 to 78 percent of its normal volume, with some airports operating fully and others partially, says US Airways spokesman Richard Weintraub.

At local airports there are some cancellations, but most flights are on schedule, with the exception of Reagan Airport, he says.

That airport is of particular significance, because it is a "relatively a high fare airport," says James A. Wilding, president and chief executive at the Metropolitan Washington Airports Authority, which controls both Reagan and Dulles. "High fares mean profitability [for the airlines]."

The routes to and from Reagan "are the most prized … especially for an airline like US Airways," Mr. Wilding says.

Union pilots at US Airways have yet another take on why the government should keep Reagan Airport open: To show the nation is not caving in to its fear of terrorism, Mr. Freundlich, says.

"The way to deal with [the threat of terrorism] is by implementing security so the threat is eliminated," he says. "But don't shut down the airport and give them a win like that."

"There are a lot of airports in proximity to cities LaGuardia, Kennedy, Logan and lots of others," he says. "You can't single out Washington and say that one has to go."

• Staff writers Donna DeMarco and Daniel F. Drummond contributed to this article.

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