Pilots for US Airways tentatively agreed yesterday to $100 million more in annual concessions, half the additional labor-related cuts the bankrupt airline is seeking in its quest for a federal loan guarantee.
Arlington-based US Airways, which filed for bankruptcy protection in August, is racing to slash $400 million from its budget before Dec. 20, when it must submit a reorganization plan to a federal judge. The airline has received preliminary approval for a $900 million federal loan guarantee -- on a $1 billion private loan -- but won't secure the guarantee unless it meets the new cost-cutting targets.
The company got all the savings it sought from the pilots, mainly from altered work rules and pension-benefit reductions. For example, pilots will have less flexibility to schedule the flights they want to work. The pilots also agreed to additional, temporary, wage cuts.
David G. Bronner, chief executive of Alabama's state pension fund, the airline's primary investor, called the new contract "spectacular." Last week Bronner threatened to withdraw financing that US Airways has used to continue operating and allow the airline to liquidate if the unions didn't agree to the additional concessions.
"The biggest key from management's point of view was work rules," Bronner said. "Ours were like those at United, and look where United is. We've got to have work rules where we can compete with Continental and JetBlue."
The accord with the pilots union doesn't eliminate the threat of liquidation, said Philip Baggaley, senior airline bond analyst at Standard & Poor's Corp., but it is a crucial first step. Barring terrorist attacks or a war in Iraq, these cuts should be sufficient to pull the airline through bankruptcy, he added.
To induce the pilots to accept its terms, US Airways offered to maintain its mainline fleet at 279 aircraft. In the restructuring agreement negotiated with the pilots union in August, the airline won the right to reduce its fleet to 245 planes.
No jobs were cut as part of the bargain, and management agreed to limit furloughs to the 472 already scheduled for early next year.
The latest concessions are on top of $465 million in annual wage and benefit cuts the pilots have already accepted. In exchange, they received a 19.5 percent equity stake in the airline and a seat on its board of directors.
Roy Freundlich, a spokesman for the US Airways unit of the Air Line Pilots Association, said management's pledge not to shrink the fleet conferred only weak job protection.
"If you fly 245 planes a lot or 279 planes a little, it amounts to the same thing," he said.
US Airways officials said they are negotiating with its machinists union for an additional $57 million in annual savings. They are working with unions for reservations agents, ticket-counter workers, flight engineers and other employees for $13 million more in yearly cuts.
The flight attendants union, which has been asked to give up $26 million more a year, has refused to negotiate until the company reaches agreements with the rest of its unions and management promises to take pay cuts until 2008 along with workers.
Management has taken some salary cuts, but those will be restored next year, said Jeff Zack, a spokesman for the flight attendants union. "Why should the employees have to bear the brunt of all of the cost cuts?" he asked.
US Airways also has to trim $200 million in non-labor costs to qualify for the federal loan guarantee. Officials said they have identified the cuts but haven't yet implemented the changes. They declined to comment on specific expenses."We're seeing what we can do to become better and smarter and leaner in all aspects of the business," said Jerrold A. Glass, senior vice president of employee relations. "It doesn't involve route cutting."
Under bankruptcy procedures, companies have wide latitude to wrench additional savings from creditors whose contracts predate the bankruptcy filing. US Airways has said it wants to reduce its payments to aircraft lessors and suppliers by $200 million; it is also seeking court approval to reject leases on hundreds of planes.
US Airways is scrambling for last-minute budget decreases because its original reorganization plan, which depended on generating $600 million in annual revenue, proved too optimistic even though it was based on relatively bleak forecasts for air-travel demand and the economy. Its assumptions matched those of other big carriers and industry observers, Baggaley said, but everybody turned out to be wrong.