UAL Extends Labor, ATSB DeadlineUnited Airlines last week delayed a possible bankruptcy filing when it agreed to extend its self-imposed deadline for reaching cost concessions with various labor groups. The carrier originally planned to finalize new labor agreements by last Monday and then resubmit its application to the Air Transportation Stabilization Board for $1.8 billion in federal loan guarantees, but at the request of the coalition of the carrier's largest unions, management agreed to push back the date. The extension was widely expected once the company named Glenn Tilton its new CEO on Labor Day.
A United official confirmed ATSB agreed to accept an updated business plan after the carrier reviews a proposal provided by the union coalition.
Carriers Raise Cargo Fuel SurchargesIn a development that again could spill over to passengers, American and United airlines today doubled the fuel surcharge on cargo shipments to $0.10 per kilogram for international shipments and to $0.04 per pound on U.S. domestic shipments. AA cited "a sustained rise in fuel prices over recent weeks." British Airways and Lufthansa today also will increase fuel surcharges on all worldwide shipments. KLM Royal Dutch Airlines will take similar measures, effective Oct. 1.
Meanwhile, Northwest Airlines on Oct. 1 will up its cargo fuel surcharge to $0.05 per pound on all freight products, except in countries where the carrier is awaiting government approval. All three carriers said future adjustments will be made as necessary, based on an index using spot jet fuel prices.
Other U.S. airlines implemented cargo fuel surcharges earlier this year, but have yet to announce adjustments, including Continental, Delta and US Airways. Cargo fuel surcharges have fluctuated with the price of fuel in the past few years—unlike passenger fuel surcharges, which were levied by U.S. carriers in February 2000, doubled to $40 per roundtrip a few months later
(BTN, Sept. 18, 2000) and left untouched since. However, given the possibility of renewed hostilities in Iraq, carriers may become even more burdened by fuel costs and impelled to pass them along to the traveling public.
US Airways Gets Second Offer, Labor NodBankrupt US Airways late last week received a second offer for sponsorship of its reorganization plan. The Retirement Systems of Alabama, a pension fund, reportedly offered $240 million for a 37.5 percent stake in the carrier, topping an earlier $200 million bid placed by David Bonderman's Texas Pacific Group. US Airways said a motion "for approval of a bidding process to determine the highest or otherwise best offer" will be heard on Thursday in bankruptcy court.
The carrier last week also advanced its restructuring efforts when the last of its labor unions announced their members had ratified the company's latest cost-cutting plans. The International Association of Machinists District 141-M and the Communications Workers of America joined unions representing pilots, flight attendants and others in finalizing concessions. With all unions now onboard, US Airways will seek final approval from the Air Transportation Stabilization Board for $900 million in federal loan guarantees. ATSB in July granted the carrier conditional approval.
"The ratification of this last remaining employee agreement provides us with tremendous momentum to secure our financing, complete our restructuring plan and emerge from bankruptcy early in 2003," said Jerry Glass, US Airways senior vice president of employee relations.
"We are in the process of implementing the largest employee concession package in the history of the U.S. airline industry," added US Airways CEO David Siegel in a speech last week to the International Aviation Club of Washington. "Wage cuts are painful, and giving up benefits is hard but, given the economy and the state of the industry, most employees were still going to be better off keeping their US Airways job with a pay cut, than the alternative."
Final ATSB approval is not certain and may have other strings attached. The board will require additional cost reductions beyond labor concessions, a request a carrier official said soon would be handled in bankruptcy court. ATSB likely will ask US Airways to provide the government with collateral, but the carrier would not comment on specifics.
ATSB last December required America West Airlines to provide it with warrants to purchase up to one-third of the company's non-voting common stock in exchange for federal loan guarantees.
Industry Loss Forecasts IncreasedJ.P. Morgan Securities analyst Jamie Baker earlier this month revised his industrywide 2002 forecast, upping expected losses from $5.4 billion to $6.8 billion. UBS Warburg analyst Sam Buttrick and Merrill Lynch analyst Michael Linenberg also widened industry loss estimates for the year to $7 billion. If they are at all close to the mark, 2002 would represent the industry's worst year, financially, surpassing a record $6.2 billion in losses in 2001. Baker and Linenberg also raised the forecasted industrywide 2003 loss to more than $3 billion, while Buttrick estimated next year's red ink to total $2.5 billion.
Buttrick said September results will be as much as 9 percent worse than normal. "This represents the single largest monthly deterioration in revenue trends in the post-Sept. 11 environment," he said. "We expect most of the September deterioration to reverse in October and then expect further sequential deterioration into November."
Midwest Express UpdateMidwest Express Holdings, parent of Midwest Express Airlines, this month said third-quarter financial performance would be worse than previously expected. Measures to offset financial losses will include a "significant schedule change" effective Nov. 1, employee reductions of up to 250 by year-end, renegotiated vendor agreements and the sale of DC-9 aircraft as part of the transition to a Boeing 717 fleet.
Meanwhile, the Association of Flight Attendants, which has threatened operations with localized strike action, returned to the bargaining table late last week.