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Airline industry finally gets dose of good news
http://www.chicagotribune.com/business/chi-0304010082apr01,0,2459018.story?coll=chi-business-hed


Airline industry finally gets dose of good news
Labor deals could avert bankruptcy

AMERICAN AIRLINES


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By Robert Manor
Tribune staff reporter
Published April 1, 2003

Earning a respite from an immediate threat of bankruptcy, American Airlines said Monday that three of its unions had agreed to wage cuts of $1.8 billion.

The tentative accords with the carrier's pilots, mechanics and flight attendants are far reaching and touch on nearly every aspect of pay, benefits and work rules, the company said.

"By taking these decisive actions, the union leadership and our employees have demonstrated an unwavering commitment to the future of the company and have enabled us to avoid an immediate filing with the bankruptcy court," said American Chairman and Chief Executive Don Carty.

American, the world's largest airline, had set Monday as the deadline for its unions to agree to cut wages and to relax work rules for their members. The airline said it will soon announce pay cuts for its non-unionized workforce as well.

Without the cuts, American warned, it would file for Chapter 11 bankruptcy. In a sign of how close to bankruptcy American was edging, talks for $1.5 billion in debtor-in-possession financing led by Citibank were close to complete by late afternoon, according to Reuters news service.

Citibank agreed to put up $750 million backed by American's giant frequent-flier credit card business, along with another $250 million that would be part of a more standard debtor-in-possession loan shared with two other institutions.

CIT Group committed to $250 million, and Merrill Lynch & Co was prepared to take the final $250 million, Reuters said.

The airline industry is in the midst of its worst financial crisis ever, with losses of nearly $30 billion worldwide since the Sept. 11, 2001, attacks slashed the demand for air travel as a weak economy kept fares down.

UAL Corp.'s United Airlines, the world's second-largest carrier, has been in bankruptcy since December.

Industry analysts said American bought time for itself, but there is no guarantee it won't follow United, US Airways and Hawaiian Air into bankruptcy court.

American's accords call for mechanics and baggage handlers to take cuts of $620 million a year. The Transport Workers Union covers 34,500 workers at American. The Association of Professional Flight Attendants, with 26,000 American members, has agreed to cuts of $340 million. And the Allied Pilots Association, which has 13,500 members at American, has agreed to cuts of $660 million.

Management and support staff will take cuts equal to $100 million. Carty himself will take a 33 percent base pay cut and decline a bonus for the third consecutive year.

Carty said that while these agreements are a "critical step" to its survival, they still must be approved by union employees, who are expected to vote in two weeks.

Danger still lurks

Analysts said it was unclear if the cuts will be enough to avoid bankruptcy.

"If this is a six-month war, they are in trouble," said John Pincavage, president of Pincavage & Associates, which provides business planning to airlines.

Although based in Ft. Worth, American and its American Eagle subsidiary employ 11,000 people in the Chicago area. American is the second-largest carrier serving O'Hare International Airport, with 1,000 flights in and out each day.

James Corridore, an analyst with Standard & Poor's, said some of American's traditional strengths in business and international travel are handicaps today. Business and international travelers are by far the two most profitable segments for any airline.

"Business travelers are not flying or they are flying in coach," Corridore said, as companies cut travel.

And business and leisure travelers alike are skipping overseas destinations.

The outbreak of severe acute respiratory syndrome, or SARS, a mysterious lung illness, in Asia is curtailing travel to many destinations there as well, analysts say.

Union cooperation

But airline analyst Michael Boyd said American is lucky because its unions have offered their own proposals to management on ways to cut costs and improve operations.

"Their attitude was, `Let's make [American] survive,'" Boyd said.

Details of the agreements were not available Monday.

Concessions recently obtained by United might give a glimpse at what American workers can expect. Lower-paid employees like flight attendants saw a smaller cut in salary than highly paid workers like pilots. For example, United's pilots, who with several years of seniority can be paid as much as $300,000 a year, have agreed to a 30 percent cut.

Investors cheered the developments, sending American's stock up 52 cents, to $2.10. The stock has traded as high as $26.11 over the past year.

American was not in danger of immediate collapse. The airline has $1.9 billion in cash and nearly $3 billion in assets such as aircraft that could be used as collateral for loans.

But in 2001 and 2002 the company recorded losses of nearly $5.5 billion, and this year American is said to be losing $5 million a day.

- - -

US Airways' and American's cost-cutting results differ

In the past year, US Airways has cut its employee payroll and costs while in Chapter 11 bankruptcy. Even though American Airlines has cut its payroll, its labor costs increased 5 percent from 2001 to 2002.

In billions

OPERATING REVENUES In billions

US Airways, 2001: $8.3

US Airways, 2002: $7.0

Change: -16%

American Airlines, 2001: $19.0

American Airlines, 2002: $17.3

Change: -9%

OPERATING EXPENSES In billions

US Airways, 2001: $10.0

US Airways, 2002: $8.3

Change: -17%

American Airlines, 2001: $21.4

American Airlines, 2002: $20.6

Change: -4%

LABOR COSTS In billions

US Airways, 2001: $3.7

US Airways, 2002: $3.2

Change: -13%

American Airlines, 2001: $8.0

American Airlines, 2002: $8.4

Change: 5%

OPERATING LOSS In billions

US Airways, 2001: -$1.7

US Airways, 2002: -$1.3

Change: $400 million

American Airlines, 2001: -$2.5

American Airlines, 2002: -$3.3

Change: $800 million


US Airways American Airlines OPERATIONS 2001 2002 CHANGE 2001 2002 CHANGE Airplanes 342 280 -18% 881 819 -7% Employees 35,232 30,585 -13% 97,900 93,500 -4% Passengers (millions) 56.1 47.1 -16% 94.1 99.2 -5% Pass. miles (billions) 45.9 40 -13% 120.6 121.7 1% Load factor 69% 71% +2 pts. 69% 71% +2 pts. Break-even load factor 81% 86% +5 pts. 79% 87% +8 pts.
Note: Passenger operations data are for American Airlines only. Load factor defined as percentage of seats filled with paying passengers.

Source: AMR Corp. and US Airways Group

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