What's in store for US Airways in the new year?

01-05-2003

As we greet 2003, the future of US Airways continues to be a question of significant interest.

Certainly, the slate of the airline's local stakeholders has diminished dramatically in the past year. Its population of local employees has been shrunk by more than 20 percent. There are also fewer travelers. While load factors on its planes are holding fairly steady, there are about 25 percent fewer flights. And, of course, the number of local shareholders has fallen to zero.

On Dec. 21, management filed its 97-page reorganization plan to emerge from bankruptcy, perhaps as early as the end of March. "We have achieved unprecedented results on all fronts thus far, and are on track to reduce operating costs by more than $1.8 billion annually," said David Siegel, the airlines new president and CEO. "The support of our customers and the cooperation of our employees and labor union leaders, as well as our lenders, lessors and vendors, have allowed us to use this process to lay the groundwork for our future success."

Exactly who constitutes this "our" is left unclear.

Assuming that over the next few weeks the airline's labor force ratifies the givebacks to which its union managers have agreed, U.S. Bankruptcy Court will review the plan on Jan. 16. If approved, it then will be submitted to the airline's creditors and prospective lenders for their comments and approvals.

For the plan to succeed, the Air Transportation Stabilization Board must approve a $1 billion loan guarantee; labor givebacks and pension fund issues must be rationalized; and the Retirement System of Alabama (RSA), which will hold 36.6 percent of the stock in the post-bankruptcy carrier, must come through with the additional investments to which it has agreed.

The remainder of the leaner, meaner airline will be owned by US Airways pilots (19.3 percent), other employees (10.8 percent) and management (7.8 percent), unsecured creditors (10.5 percent), the ATSB (10 percent) and General Electric (5 percent), which is putting up money to buy the new regional jets upon which US Airways is predicating its future success. As previously disclosed, all existing stock of the old airline will be canceled without compensation to its former shareholders.

Let's presume that all of the remaining financial participants in the once and future airline will fall into line. After all, the reorganization plan's "liquidation analysis" concludes that the airline is worth more alive than dead to these interested parties.

However, as has been painfully evident in recent years, management plans (and not only that of US Airways) don't always work out. Indeed, plenty of people are hoping, even actively working, to make sure that US Airways doesn't make it out of bankruptcy. Many of them are executives of America's other airlines, most of whom are also mired in deep financial doo-doo of their own. They're pulling off their competitive gloves to keep this re-organized airline from taking off. Even the more recent bankruptcy of United Airlines may make it more difficult for US Airways to prosper in the future.

Then there are a host of other, unknowable and uncontrollable issues. The sagging economy has certainly contributed to the public's reluctance and inability to travel. The fear of terrorism and our security reactions to that fear have put a damper on enthusiasm about traveling. Forget about a protracted war in Iraq or a spike in jet fuel prices, even an extended stretch of unusually bad weather might be more than the carrier can overcome.

Even if US Airways does make it out of bankruptcy, what part in the plan will Pittsburgh play? With its management in the Washington, D.C., area and its primary outside ownership centered in Alabama (and almost none in this area), will our fair 'Burgh become the weak-sister third hub in a route system that already has a burgeoning Southern base in Charlotte and a Northeast hub in the huge population center of Philadelphia?

Yes, we have a world-class airport, with promises that the services offered here by the new US Airways (and its projected regional MidAtlantic Airways subsidiary) are expected to expand. But they are only promises. In these days of stark financial reality, there are no guarantees, and it's not difficult to predict a future in which a struggling carrier must make hard decisions.

Furthermore, if its service here does continue at present levels, what incentives will there be for a cash-strapped US Airways to offer competitive rates in and out of an airport in which it has a virtual monopoly?

But what if US Airways doesn't fly out of Chapter 11 at the end of March?

Although its protection from creditors could be extended indefinitely, the more likely outcome would be Chapter 7, which, according to the plan, assumes the carrier would immediately cease all operations and its remaining assets would be sold off to pay creditors. The reorganization plan's liquidation analysis "does not contemplate the sale of any business as a going concern."

What then?

Passengers actually in transit at the time would be directed to other carriers to complete their journeys. Under operating regulations of the Airline Reporting Corporation and the International Airline Transportation Association, other participating carriers will accept the tickets of the bankrupt airline, but passengers would be transported only on a stand-by, space available basis.

Similarly, those passengers who have already purchased US Airways tickets for future flights would be able to apply the dollar value of those tickets to purchase seats on flights of other carriers, if they're available, although not necessarily at the same fares.

This information is in no way meant to dissuade people from making plans to fly on US Airways, which, after all, is still the primary option for flights in and out of Pittsburgh International. What's more, the flight services and schedule reliability of US Airways flights in bankruptcy have been better than before these troubles began.

But if you do buy a ticket on US Airways (or for that matter United), it's probably also wise to take some basic precautions, especially if your trip is far in the future.

Consumer experts suggest purchasing all tickets with a credit card. The Fair Credit Billing Act, a federal law, guarantees you'll get your money back if your airline goes under. Be sure to submit the ticket, itinerary or receipt to your credit card company within 60 days of the bankruptcy, with an explanation that the airline went bust before you could use the ticket. Credit card issuers are required to refund your ticket, although getting any money back could take some time.

Buy travel insurance to protect deposits on other travel arrangements, but make sure the insurance specifically covers carrier default for the airline on which you'll be flying. Many insurers cut back coverage on shaky travel suppliers.

Finally, get a paper ticket instead of an electronic one, even though it costs extra. A paper ticket will make it much simpler if another airline agrees to honor the bankrupt carrier's tickets.

What about all those Dividend Miles you've been accumulating in your frequent-flier account?

While there may be some adjustments to award redemption levels, your miles are probably safe as long as the airline keeps flying under Chapter 11 bankruptcy protection. However, that situation changes dramatically if it ceases operations.

There's a widely held assumption that other airlines would try to capture market share by offering to accept the bankrupt carrier's mileage members, but there are no guarantees. In the two decades that frequent-flier programs have been around, no carrier this large has ever closed shop without being absorbed by another airline. When you consider how precarious overall industry finances are these days, it's questionable that another airline would open itself to US Airways' nearly $100 million worth of outstanding nonrevenue liabilities.

As far as your miles go, it may be a case of use 'em or lose 'em.

If you're sitting on a pile of Dividend Miles, the safest course is to cash them in as soon as possible, either for a future US Airways flight or, even safer, for a flight on one of its partner airlines, including United, Northwest, Alitalia, Latin Pass Partners or Qantas. Nonrevenue tickets don't have the same protections as purchased tickets, but once you have a ticket in hand, the partner airline is unlikely to cancel it if US Airways goes all the way under.

In light of these sobering speculations, it may seem Pollyanna-ish to express any optimism, but we won't let that stop us from doing so, because in many ways, we passengers have never had it better.

As mentioned earlier, US Airways continues to fly millions of people and, by a number of measurements, is doing it more effectively and efficiently than ever before. Rather than cutting back on the number of destinations to which it flies, the carrier has been introducing quick, convenient service to many new places, particularly in the Caribbean and Europe. In an attempt to generate immediate revenue, it has held fare sale after fare sale, providing amazing savings for those bold enough to book and buy flights far in advance.

The present management has made enormous strides to rectify past mistakes and create a more rational carrier that can survive and even prosper. Their ability to do that, however, depends to a large degree on the traveling public's confidence to keep buying tickets.

In the final analysis, however, it still comes down to a matter of faith.

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