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War may force job, flight reductions
Thomas Olson can be reached via e-mail or at 412-320-7854.
US Airways' financial situation also has left it in technical default on covenants of its bankruptcy credit line, which has $131 million remaining. The Retirement Systems of Alabama, which already had loaned $369 million to the airline, is in discussions with US Airways to possibly waive the default.
Passenger bookings dropped 20 percent on Tuesday year-over-year and 40 percent on Wednesday, the day of America's first strike at Iraq, US Airways' bankruptcy attorney said yesterday.
"Our short-term survival and long-term success after we emerge from Chapter 11 are conditioned on our taking decisive, proactive steps to limit the airline's financial exposure from the war," CEO David Siegel said.
Among those possible steps is invoking wartime clauses of US Airways' union contracts that would defer 5 percent of their pay -- as well as management's -- for up to 18 months.
US Airways, which already has cut Pittsburgh-area employment to about 9,000 from a peak of 11,700, would not disclose how many jobs, aircraft or flights the Iraqi war is pressing it to cut or when.
Just two days ago, US Airways received the go-ahead from the federal bankruptcy court in Alexandria, Va., to reorganize and emerge from bankruptcy on March 31. It still expects to do so, spokesman David Castelveter said.
The nation's seventh-largest airline filed a Chapter 11 petition seven months ago, on Aug. 11.
"The war will make things tougher for US Airways, because they will burn through a lot of cash," said Jake Haulk, president of the Allegheny Institute for Public Policy.
"This war is not going to make it any easier for them or any airline," Haulk said. "They will fly with more empty seats, which puts more pressure on seat prices, which then hurts your revenue."
US Airways' plan originally envisioned losing about $200 million this year and turning profitable again in 2004. But the war with Iraq, which is hurting passenger traffic, is likely to cost US Airways $360 million, the airline says.
Business travel, especially, has fallen sharply in the face of the Iraqi war.
According to Radnor-based Business Travel Coalition, 21 percent of the 123 business organizations it surveyed this week have banned international travel until further notice.
"In the minds of many business and leisure travelers, an occupation of Baghdad after just six days would not represent a 'green light' to begin traveling again," said coalition Chairman Kevin Mitchell.
US Airways had tried to assuage skittish travelers with its "Peace of Mind" policy, announced March 4 as war talk was heating up. Effective last week, it allows passengers to make one flight change without charge. The full value of unused tickets can be applied to travel within 90 days of the start of military action or a red-level terrorism alert from the Department of Homeland Security.
"It could be well into 2003 before U.S. citizens feel relatively safe traveling again, and such a scenario would likely portend the collapse of the domestic U.S. commercial aviation system," Mitchell warned.
Major airlines have chopped 98,000 jobs and parked roughly 300 jetliners since Sept. 11, 2001. In addition, the industry lost $19 billion in the past two years and is on track to lose at least $10 billion this year, according to the Air Transport Association.
US Airways is still grappling with internal challenges in order to exit bankruptcy -- namely, the logjam over restructuring the pension plan that covers more than 7,000 US Airways pilots and retirees, including about 900 actives based in Pittsburgh.
The airline needs to resolve the issue before the federal Air Transportation Stabilization Board will release its $900 million loan guaranty. Until that's done, US Airways will not receive the $240 million in equity financing pledged by the Retirement Systems of Alabama.
If US Airways and its pilots are able to negotiate a supplemental pension plan, the carrier expects to amend its reorganization plan accordingly and present it to the bankruptcy judge in Alexandria, Va., on March 28. Those talks continue, Castelveter said.
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