- The Washington Times - Saturday, May 11, 2002

Arlington-based US Airways plans to seek federal loan guarantees to cover its huge losses since September 11 and is considering bankruptcy protection unless it can find a way to cut costs.

The company's top executives acknowledged their dire financial situation as they released a first-quarter report showing a loss of $269 million.

Shares of US Airways dropped 27 percent yesterday to close at $3.60. Its cash reserves have fallen to $561 million as it loses $3.5 million daily.

Last year, the nation's sixth-largest carrier lost more than $2 billion.

A significant part of the loss resulted from the closing and gradual reopening of Ronald Reagan Washington National Airport, where US Airways is the largest tenant.

"It had a tremendous effect on us," said David Castelveter, US Airways spokesman. "Clearly, US Airways is the largest carrier in the Washington area. It only recently was given the authority to go back to a full schedule of flights."

Before September 11, US Airways operated 186 daily departures out of Reagan Airport.

On April 27, the Transportation Department authorized all airlines to return to full schedules at the airport. Nevertheless, US Airways now operates only 155 flight departures daily at Reagan Airport, largely because of industrywide difficulties in regaining customers.

Major airlines report their air traffic has returned to 88 percent of its pre-attack level, according to the Air Transport Association.

In December, as losses mounted, US Airways discontinued its MetroJet service, which operated primarily along the East Coast. The MetroJet service operated out of Washington Dulles International Airport and Baltimore-Washington International Airport.

Other factors in the financial losses were fierce competition among major airlines and high overhead costs from fuel, labor contracts, loans and suppliers.

"To implement our restructuring plan, it is likely US Airways will file an application with the federal Air Transportation Stabilization Board for a government-guaranteed loan," said David N. Siegel, US Airways' president and chief executive officer. The filing deadline is June 28.

The quarterly report US Airways filed with the Securities and Exchange Commission said the airline must review "alternative restructuring scenarios in the context of a judicial reorganization." In other words, the airline is considering bankruptcy.

Operating revenue in the first quarter of 2002 was $1.7 billion, down 23.7 percent from $2.2 billion a year ago.

US Airways has made East Coast air travel a key part of its business. As a result, the September 11 attack and the closing of Reagan Airport hurt the airline worse than most of its competitors. The gradual reopening was too slow to avert financial hardships, Mr. Castelveter said.

"We predominate on short-haul routes along the East Coast," he said. "The only service we were allowed to restore was a few shuttle flights and then a few flights to Pittsburgh, our hub. We haven't generated positive cash flow since September 11."

Before US Airways executives make any decision on bankruptcy, they plan to negotiate with stakeholders to reduce costs. Stakeholders refers to employees, suppliers and anyone else who has contracts with the airline.

The airline had 35,525 employees as of May 1. Of those, 2,979 work in the Washington area.

"We're not saying we're going to declare bankruptcy," Mr. Castelveter said. "We're going to work with our stakeholders."

The only other major airline to seek federal loan guarantees is America West Airlines, which received $380 million in January. A few small air carriers also have sought loan guarantees.

In return for the government's guarantee to repay its loans if it defaults, America West gave warrants for a one-third equity stake in the company. America West is the nation's eighth-largest airline.

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