Merger May Be US Airways' Last Shot at Survival
Wednesday, May 18, 2005
For US Airways -- one of the oldest and most recognizable names in the industry -- time is drawing short. After plunging twice into bankruptcy protection and shearing off nearly $2 billion in costs, the nation's seventh-largest carrier is pinning its hopes of survival on a merger with America West Airlines.
"We don't have many other options left. This is it," said a US Airways Group Inc. executive who spoke on condition of anonymity because of the sensitivity of the negotiations.
Negotiations are entering a critical stage, with a deal possible this week, people familiar with the talks said.
If a merger succeeds, the Washington area could suffer a blow to its prestige as the new airline would likely move its headquarters from Arlington to Tempe, Ariz., the home of America West Holdings Corp. The merged carrier is expected to be led by America West senior executives and could move some of the 1,970 Washington-based jobs out of the Washington region.
The US Airways saga -- from one of the most profitable carriers in the mid-1990s to its near demise today -- symbolizes the travails of the entire U.S. airline industry. It illustrates the hard times that befall companies that fail to adapt swiftly enough to changing times. The traditional airlines, like other older industries such as steel, retail and autos, have been slow to respond to the emergence of efficient, low-cost rivals and increasingly price-conscious consumers. A US Airways-America West merger could spur other troubled carriers to seek linkups, producing a leaner, more efficient industry.
US Airways, formerly known as US Air, has been a household name since it was founded in 1939 as All American Aviation based in Wilmington, Del. Ten years later, the carrier moved its corporate headquarters to a hangar at Washington's National Airport, then in 1989 moved again to its current home in Crystal City.
The airline flourished in the mid-1990s largely because of its dominance in the Northeast, where business travelers on short-haul flights paid rich fares -- for example, nearly $1,000 for a half-hour trip between Pittsburgh and Washington. Today, fares are considerably lower, but flights in and out of Washington are popular and lucrative and will not likely be reduced by a merged US Airways-America West.
"Washington is one of the few places they make money," said airline consultant Darryl Jenkins, visiting professor at Embry-Riddle Aeronautical University. "They would be silly to give up an asset like that."
The airline's gradual descent began around 1998, according to several current and former executives, labor leaders and employees. US Airways was still turning a healthy profit, but signs of its future troubles were emerging. At the heart of its struggles has been the often tense relationship with its workers, many of whom have been at the airline for 30 years or more -- much longer than most of the senior executives. As the airline's fortunes have fallen, executives have had a hard time persuading workers to accept changes that have often led to lost jobs or wages. Workers have grown distrustful of managers who sometimes have backed off assurances to the rank and file while doling out millions of dollars in retention incentives to executives.
The airline recently revealed that it is paying $55 million to keep some of its top executives as it tries to complete the America West deal. The retention pay angered many US Airways workers who have given up more than $1 billion in pay and benefits this year.
As far back as 1999, workers resisted the airline's efforts to increase service of 60-seat regional jets on routes where tiny turboprop planes were in use. US Airways managers said the shift was necessary to compete with other airlines such as Continental, Northwest and Delta, which were quickly adding the smaller jets on routes where US Airways had only turboprops. But the workers, fearing that the change would result in cuts in jobs and pay, wanted assurances of job security.
While managers and employees spent two years negotiating over the use of the new planes, competitors continued adding their own regional jets and stealing passengers from US Airways.