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US Airways delivers warning
In a quarterly report filed with the Securities and Exchange Commission, the airline said it "anticipates risk of failing to comply'' with the terms of the loans, and that it uses cash rapidly to meet debt and lease payments and finance daily operations.
US Airways said it was working on a transformation plan to cut costs and restore profitability. "However, there is no assurance that the plan can be achieved,'' the filing said.
The airline added, "The final outcome on the future scope of service and the location of maintenance, reservations, training and other support facilities in the Pittsburgh region will ultimately depend on the negotiations between the company and its labor unions, and state and local officials, on respective issues that need to be resolved ...''
US Airways statements are another sign of the difficulties US Airways, United, and other legacy carriers face in staving off bankruptcy, said Ronald Kuhlmann, a vice president with R2A, a San Francisco-based aviation consultant.
"Somebody's going to disappear,'' Kuhlmann said. "And more than one somebody.''
US Airways, the nation's seventh-largest airline, is attempting to complete a $1.5 billion cost-cutting plan that includes $800 million in wage and benefits concessions from employees. The company's unions, which gave back $1 billion in two previous rounds of concessions, are balking at additional concessions.
Last week, US Airways Chief Executive Officer Bruce Lakefield told employees that a transformation must be completed by Sept. 30 or it could risk defaulting on the loans backed by the Air Transportation Stabilization Board. A default could force the airline into bankruptcy for the second time in two years.
According to US Airways' filing, loan terms amended in May require the airline to maintain "that month-end unrestricted cash will equal or exceed the lesser of the outstanding ATSB loan balance and $725 million.''
David Castelveter, a US Airways spokesman, said he did not know precisely how much cash the airline must maintain to avoid default. The outstanding balance on the $900 million in ATSB-guaranteed loans is believed to be between $700 million and $721 million.
In announcing a second-quarter net profit of $34 million last week, US Airways reported that it ended the period on June 30 with total unrestricted cash, cash equivalents and short-term investments of about $1.73 billion, including $975 million in unrestricted cash.
US Airways said last week that the company is expected to slip back into unprofitability beginning the July, August and September quarter and will be in a "cash burn situation'' for the remainder of the year unless it can complete the restructuring.
Spokesmen for two unions reacted coolly to US Airways' filing.
"We don't want to say anything until our economists have had a chance to review the information,'' said Joseph Tiberi, spokesman for the International Association of Machinists and Aerospace Workers.
"It doesn't make us hurry any more or less'' to reach new contract agreements, said Teddy Xidas, president of Local 40 of the Association of Flight Attendants.
Given the company's financial condition and uncertain labor talks, airline analyst Ray Neidl, of Blaylock & Partners in New York, said he believed that US Airways' survivability odds were "50-50.''
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