- The Washington Times - Tuesday, September 7, 2004

From combined dispatches

US Airways Group Inc.’s shares tumbled nearly 13 percent yesterday after union leaders representing US Airways pilots rejected sending a management contract proposal to members for ratification.

US Airways has warned that a bankruptcy filing could be imminent in the coming weeks if it cannot make new labor deals with its unions.

The Master Executive Council of the Air Line Pilots Association met off and on over the Labor Day weekend to discuss its options. The council adjourned at 10:30 p.m. Monday after voting against putting the company’s proposal to a vote.

“At this time it is uncertain as to whether or not discussions will continue between ALPA and the company,” union spokesman Jack Stephan said in e-mail.

The pilots union, whose members are the highest paid of the company’s labor groups, declined to comment on reasons for its leaders’ decision.

The Arlington carrier, which emerged from bankruptcy protection just one year ago, says it must cut costs by $1.5 billion a year to avoid a return to bankruptcy and potential liquidation. The company is seeking about $800 million in labor cuts, including $295 million a year from pilots.

“I am not prepared to throw in the towel or conclude that we cannot reach an agreement,” US Airways Chief Executive Officer Bruce Lakefield said in a letter to pilots yesterday.

The airline is committed to reaching an agreement, he said.

On the Nasdaq Stock Market, US Airways shares closed down 30 cents at $2.05.

The seventh-largest U.S. airline faces a Sept. 15 deadline to make a $110 million pension payment and may be in violation of terms of a $1 billion loan at the end of the month. An agreement for $295 million in pilot givebacks would help sway other unions to make concessions, said Robert Mann, president of R.W. Mann & Co., a Port Washington, N.Y., firm.

“The whole issue has been to create momentum by getting the pilot group to lead,” said Mr. Mann, whose firm advises airlines and their unions. “The clock is running, and it’s running out.”

US Airways sought bankruptcy court protection in August 2002 and emerged in April 2003. The shares traded at $32 on Aug. 25, 2003.

Mr. Stephan said representatives from Pittsburgh and Philadelphia combined to defeat the proposal to send a new contract out for vote. While Pittsburgh and Philadelphia representatives are a minority on the union’s Master Executive Council, they represent a majority of US Airways pilots and therefore can control any union vote.

The Pittsburgh and Philadelphia representatives have generally taken a tougher stance throughout the negotiations. Pittsburgh representative Fred Freshwater said last week that pilots who have contacted him strongly support a tough negotiating stance.

Negotiations with the union included a proposal by management that would cut pay by as much as 35 percent and contributions to a 401(k)-style retirement plan by as much as 30 percent, according to sources familiar with the discussions.

So far, none of the airline’s unions have reached agreement on a new labor deal. While other unions, including flight attendants, are in negotiations, the machinists’ union has refused to enter talks on a new labor contract.

US Airways is awaiting a counteroffer from the flight attendants, and will meet tomorrow with the one representing customer service and reservations agents.

The U.S. airline industry has lost money each year since 2001, when terrorist attacks deepened a travel slump, followed by the Iraq war and the threat of an airborne respiratory virus. The growth of airlines with lower costs than US Airways has held down ticket prices as jet-fuel prices climbed to records.

United Airlines, the second-largest carrier behind American Airlines, has operated in bankruptcy since December 2002. United told employees last month it might terminate its pension plans to reduce costs, while Delta Air Lines Inc. will disclose details of its plan to lower costs today in a bid to avert bankruptcy.

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