Washington investors have just two more days to exorcise their investment in US Airways before shares of the Arlington airline are exiled to the land of the living dead.
As the result of US Airways' decision to go into bankruptcy, the stock is being delisted by the Nasdaq Stock Market after tomorrow, banished to that part of the over-the-counter market where shares of bankrupt companies are branded with the letter Q appended to their initials.
The ticker UAIRQ is a clue that for the second time U.S. Airways' investors have been left holding shares worth not much more than a bag of airline pretzels. (Remember the good old days when they used to give us peanuts?) The shares, which traded between $2 and $3 for most of the summer, closed Friday at 75 cents, their lowest since the company came out of bankruptcy last year.
But unloading your investment in US Airways isn't good enough because airlines are like zombies. Better to drive a stake through the heart of airline stocks, shoot them with a silver bullet, spin around three times and throw a magic potion over your left shoulder to drive out the demons.
You'd think that investors would have learned long ago that taking a flier on airline stocks is a bad idea. But no. That is one reason the airline business is such a mess, says Kenneth J. Button, director of the transportation policy program at George Mason University.
No matter how much money people lose on airlines, "there are always going to be some stupid people willing to invest in them," Button said.
And as long as there are investors ready to put up the fuel, there will be executives eager to pour buckets of cash into jet engines so they can lose money on every passenger who straps on a seatbelt.
The zombie phenomenon explains why US Airways' bankruptcy is not going to benefit competing airlines in the same way the bankruptcy of Kmart Corp. was good for Wal-Mart Stores Inc. and Target Corp. When Kmart went into Chapter 11 two years ago and began closing stores, nearby Targets and Wal-Marts got more business and became more profitable. In retailing, competition works the way it is supposed to. Obsolete operators go the way of Woodies, Hechinger and Garfinckel's, while successful stores thrive.
If only the airline business worked that way.
If US Airways stopped flying today, someone would probably step up tomorrow and offer to buy its planes. As soon as they could strip off the old paint, spray on new colors and spiff up the interiors, that fleet would be flying again -- profitably or not.
The bankruptcy process also makes it all too easy for zombie airlines to keep flying. US Airways and United Airlines are able to keep operating under bankruptcy court protection even though by normal standards they are broke. Neither has enough money to meet all its obligations -- particularly the hundreds of millions of dollars promised to employees in pensions.
Treasury Secretary John W. Snow took an important step toward restoring economic rationality to the airline business last week by insisting that troubled airlines should not be allowed to duck their pension obligations. The federal government -- through the Pension Benefit Guaranty Corp. -- stands behind pensions in much the same way it protects bank deposits. If airlines default on their pensions, the buck gets passed to the PBGC, which itself is running low on cash and could require a taxpayer bailout.
But Snow and the other Bush administration officials who oversee the PBGC are not likely to get tough with United and US Airways with an election two months away. They don't want to be blamed for grounding any flights. A taxpayer bailout of the pension promises of spendthrift airline executives, however, sounds more like socialism than "an ownership society."
Pay your bills or shut your doors is the way the world is supposed to work. But airlines get special treatment everywhere. In most countries, governments simply bail them out. In the United States, the airlines benefit from a bankruptcy system that protects companies that can't make it.
If bankruptcy wasn't a boon, US Airways would not be seeking the courts' protection for the second time in two years; United's escape from Chapter 11 would not have been delayed as often as a flight out of O'Hare; Delta Air Lines Inc. would not be talking so openly about going into bankruptcy within the next month.
One of the things that is going on, of course, is a waiting game. All the airlines are waiting for one of the others to go away, hoping that will reduce the level of competition enough that the rest of the industry can regain its health.
That hope, of course, helps keep luring investors into airline stocks, along with the dream that "restructuring" in bankruptcy will make it possible for failing airlines to fly profitably.
Bankruptcy reorganization didn't work for US Airways -- but it will work the second time, officials insisted last week. The first time the carrier went through Chapter 11, it passed up the chance to cancel costly labor contracts. This time, executives are making clear they will cancel the contracts of pilots and other workers unless they voluntarily take pay cuts.
US Airways says the first bankruptcy was successful in cutting costs -- the airline just didn't foresee how high fuel prices would go, how fast low-fare carriers would grow or how far ticket prices would fall.
This time, US Airways executives say bankruptcy reorganization will succeed. But it hasn't worked for United, which Friday asked for more time to work on it, and there's little reason to believe it will work for Delta.
There are doubts about whether the waiting game will have any winners. As Button points out, if one of those three goes out of business -- but its planes and routes are taken over by someone else -- the industry will be right back where it started.
Liquidation of some airlines and mergers of some carriers are part of the solutions proscribed by local industry experts like Button and Darryl Jenkins, a former George Washington University professor who is now visiting professor at Embry-Riddle Aeronautical University, which runs the nation's top pilot-training program.
United chief executive Glenn F. Tilton raised the possibility of mergers last week in a speech in Europe, suggesting that consolidating the six largest network carriers into "about half that number" would help restore the industry's health.
But as Jenkins, the Embry-Riddle professor, likes to point out, government officials are as afraid of airline mergers as they are of liquidations. Politicians fear not only the loss of flights into their hometowns, but the loss of jobs at their "hometown" airlines. The Illinois congressional delegation has pushed for government help for United and though US Airways is headquartered here, its hubs in Pittsburgh and Philadelphia have made Pennsylvanians the airline's champion in Washington.
Any aviation expert you ask will tell you the airlines need to reinvent themselves, to find some way to compete besides cutting costs and cutting fares. It's been a long time since the airlines came up with anything as innovative as their popular frequent-flier programs. Their last Big Idea was the "yield management" computer programs that try to maximize revenue by setting different prices for every seat on a plane. That innovation came back to bite them in the butt, making fares so complicated that new competitors could lure away customers with simple, low prices.
The airlines can't all turn themselves into JetBlue, but they certainly can learn some lessons from the upstarts and startups. Ask anybody who's flown on the low-fare carrier created when Dulles-based Atlantic Coast Airlines turned itself into Independence Air. Wide leather seats, friendly staff members and low fares almost make flying fun again on Independence Air -- though that is no reason to buy the airline's stock. It's too soon to tell whether Independence Air can survive against the industry odds.
Truth be told, there's no good reason to buy any of the airline stocks. Even the most successful low-fare carriers, Southwest Airlines and JetBlue, have given investors a rocky ride this year. JetBlue stock is selling for half what it was worth a year ago and Southwest shares are off about 20 percent. Investors certainly would be better off if they shunned the entire industry. And the airlines probably would be, too.