9/27/2005 - Born-Again US Airways Set for Takeoff
PITTSBURG TRIBUNE-REVIEW© By Thomas Olson- The latest chapter in the 56-year life of US Airways, the comeback carrier, opens on or about Tuesday when it exits bankruptcy and completes its merger into America West Airlines. The combined airline, which will fly under the US Airways flag, will be America's largest discount carrier and the sixth-largest overall. Having shed $1.5 billion of industry-high operating costs during bankruptcy, US Airways will operate 3,600 daily departures to 229 cities in North America, Latin America and Europe.
Tuesday marks the second time in 2 1/2 years that US Airways has finished a trip through bankruptcy, as well as the second time in four years that it's hitched its future to a merger. But unlike the ill-fated United Airlines deal, this one is going to set sail.
"US Airways has made remarkable progress. And they come out with substantial liquidity, so they won't be teetering on the edge like they have been in the past few years," said Dan Kasper, the head of aviation consultant LECG, Cambridge, Mass., referring to the new US Airways' nearly $2.5 billion cash cushion.
The turnaround saga also is a tale of two Davids -- Bronner and Bonderman. The latter is a comeback story himself that has Bonderman in control of the new carrier's largest stake.
Bronner, head of the Retirement Systems of Alabama, is being left behind by US Airways' second reorganization. The pension group invested $240 million for 37.5 percent control of US Airways during its 2002-2003 bankruptcy. It did so by topping Bonderman's Texas Pacific Group's bid of $200 million.
But the Alabama group's equity is wiped out by US Airways' second bankruptcy. Plus Bronner, currently chairman of US Airways, will lose that job after the merger closes. He will be succeeded by Doug Parker, 43, who's had a successful track record running America West.
"Dr. Bronner gets one thing out of all this: He gets out of it," said Michael Boyd, head of The Boyd Group, an industry consultancy in Evergreen, Colo.
On the other hand, Bonderman, head of Texas Pacific, emerges in a commanding role at the new US Airways. Now the majority owner of America West, Bonderman's group will swap those shares for control of about 18 percent of the combined airline, the largest single stake.
Launched in 1983, America West is the only airline established since industry deregulation in 1978 to crack the ranks of the nation's major carriers. But high fuel prices of the early 1990s and high debt from expansion led America West to file for bankruptcy in 1991.
With financing from airline affiliates and industry guru Bonderman, America West emerged from bankruptcy in 1994. Two years before, he and Texas Pacific invested $65 million in Continental Airlines, which helped turn around that airline.
"Bonderman doesn't get involved in half-way deals. He's where he is today because he only gets involved in sure things," said Boyd.
"The airline business is not a game for faint-hearted investors," said Kasper. "The fact they were willing to put money in this tells you they think it has a good chance to succeed."
Neither Bonderman nor Bronner would comment for this story, said respective spokesmen.
Cost specter
A product of several acquisitions over the years, US Airways has long been plagued by high operating costs.
Even after the first bankruptcy culled $900 million in labor costs, US Airways still had industry-high costs-per-available-seat-mile, according to U.S. Bureau of Transportation Statistics data. US Airways costs were 15.9 cents per mile in winter 2003, versus No. 2 Delta Air Lines' 13.3 cents. America West was at 7.8 cents, not far from JetBlue Airways, the lowest at 6.1 cents.
But the bureau's latest data showed US Airways was the only major carrier -- other than Southwest Airlines -- to shave operating costs last quarter from year-ago levels. Increases came from jet fuel costs that doubled from 2004 levels. Still US Airways' overhead of 15.3 cents per mile remains second-highest, behind the 15.7 cents of Northwest and Continental airlines.
US Airways patterned its new personnel costs around America West's, but overhead still suffers from higher costs inherent in its route network, say analysts. That is, it takes more time and fuel to navigate the congested skies and airports of the East Coast than longer-range flights elsewhere.
"They still have to change things to get the costs down, as well as undertake a major reorientation of their route system," said Boyd. The analyst said US Airways is still too reliant on traffic north-and-south -- routes rife with low-cost competitors JetBlue, AirTran and Southwest.
Boyd believes US Airways must concentrate on stitching together east-west routes, concentrating on synergies with America West -- and do it within a year or so. "They've got the management to do it, but I don't know if they have the time," he said.
"But their unit costs are coming down, and their labor costs are more competitive with low-cost carriers," said Kasper. "And that's a huge change."
As part of the carriers' merger plans, the two airlines expect to shed at least 5,000 jobs between them. Executives won't say how the reduction will break down between US Airways' 30,000 workers and America West's 14,000, only that they believe most of it will come through attrition.
Then, it will take up to two years to integrate all work groups and labor contracts, said Parker. Merging seniority lists and choosing between different unions for similar work groups takes time and work, said Kasper. Plus, employees have to learn new computer systems for things like reservations and crew scheduling.
"It won't be a perfectly smooth process," he said.
But Parker may be as able as any airline exec to pull it off, say analysts. A young veteran of Northwest Airlines, Parker arrived at America West as chief financial officer in 1995 and quickly climbed to the top.
At just age 39, he took over the chairman-CEO reins at America West one week before Sept. 11, 2001. Under Parker, the airline was the first to obtain a federal loan guarantee -- of $380 million -- after the terrorist attacks choked passenger traffic and revenue.
"America West is swallowing a much bigger organization and will have to bring them over to America's West's way of doing things," said Kasper. "But Parker is a young guy; he's energetic and demonstrated the ability to turn around an airline. And he's had this vision of (a new US Airways) for quite a while."
USED BY PERMISSION PITTSBURGTRIBUNE-REVIEW © BY Thomas Olson: tolson@tribweb.com
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