Bankrupt US Airways Faces Cash Peril

Airline must rely on daily revenue and cash to operate while it tries to reorganize.
Stephen TaubSeptember 14, 2004

US Airways Group Inc. president and chief executive Bruce Lakefield is determined that the airline will emerge from its second bankruptcy filing in two years in stronger shape than ever. The company filed for Chapter 11 protection on Sunday.

“We have come too far and accomplished too much to simply stop the process and not succeed,” he asserted in a press release over the weekend. “A restructured US Airways with low costs and low fares will be a dynamic competitor.”

The airline has provided assured that service will not be affected while its tries to hammer out a reorganization plan and secure financing.

The reality, however, is that the embattled company may not get a chance to stick around long enough to realize Lakefield’s goal. That’s because US Airways must rely on daily revenue and cash to operate while it tries to reorganize. Thus, it could be forced to liquidate quickly if it runs out of money or it is unable to secure exit financing, according to a report in Bloomberg.

“If they were to run short of cash, I would expect it would happen in the first quarter of next year,” Philip Baggaley, a longtime airline analyst at Standard & Poor’s, told the wire service.

The airline, which has $1.45 billion in cash, cash equivalents, and short-term investments, said it would have access to a part of the $750 million in cash it received from a loan from the Air Transportation Stabilization Board.

Of course, US Airways isn’t the only airline in dire financial shape. UAL Corp.’s United Airlines has been in bankruptcy for nearly two years and has had trouble raising exit financing; AMR Corp.’s American Airlines almost filed for bankruptcy about 18 months ago; and Delta Air Lines Inc. has been threatening to seek protection from creditors if it can’t reach a cost-cutting deal with its employees.

US Airways filed for its second recent bankruptcy when it was unable to get two major unions to agree to proposals to cut $800 million in labor costs.

“Since we still lack the new labor agreements that are needed for the Transformation Plan to succeed, we must preserve the company’s cash resources that are required to implement the plan,” said Lakefield over the weekend.

The major, traditional airlines have been hurt by the slowdown in traffic since the 2001 terrorist attacks, the recent surge in energy prices, and their bloated labor costs relative to smaller, upstart airlines like JetBlue. Now, they are entering the traditionally slow fourth-quarter travel period.

The higher costs are especially hard to bear by what is, in effect, a commodity industry in which price and convenience are the most important factors for customers choosing an airline.

Concerning US Airways, Mike Boyd, president of Boyd Group, an aviation consulting firm in Evergreen, Colo., told Bloomberg, “The real question is, are they going to have the financing they need to get out of Chapter 11?”

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