Posted on: Wednesday, October 31, 2001
US Airways Loses $766 Million in third quarter
By Matthew Barakat
Associated Press
ARLINGTON, Va. — US Airways reported third-quarter losses of $766 million, far worse than what analysts had expected from the struggling airline.
The loss, which amounts to $11.42 per share, takes into account the $331 million the airline received from the federal government as part of a congressional bailout of the airline industry. Without that money, the airline would have lost $1.10 billion in the third quarter.
In the third quarter last year, US Airways reported a loss of $30 million, or 45 cents per share.
Most of the major airlines have reported hefty third-quarter losses in part because of the Sept. 11 attacks, but US Airways' suffering has been especially bad because it is the largest carrier at Washington's Reagan National Airport, which remained closed for weeks after the attacks. Even now, the airline is able to operate only 35 percent of the flights that were scheduled before Sept. 11.
Excluding unusual items, the company lost $433 million, or $6.45 a share. Analysts surveyed by Thomson Financial/First Call had predicted a loss of $4.36 per share.
Despite US Airways' huge losses, president Rakesh Gangwal said he is optimistic about the airline's future. Specifically, he said the Sept. 11 attacks have allowed the airline to restructure and downsize in ways that would have been impossible otherwise. Specifically, the attacks allow the airline to invoke "force majeure" clauses in union contracts and eliminate unprofitable routes. Force majeure is the legal term for an uncontrollable event that releases a party from its contractual obligations.
Gangwal said he expects the changes to be permanent.
"I don't want to take advantage of the situation, but we have to do what is right for the company," Gangwal said in a conference call with analysts. "And the events of Sept. 11 have opened certain doors for the company that were pretty much closed before."
For example, the company will eliminate its MetroJet service, based at Baltimore-Washington International airport, in December. The flights were popular with travelers but lost money for US Airways because the airline found itself in direct competition with low-cost carrier Southwest on most of its routes there.
Roy Freundlich, spokesman for the US Airways pilots represented by the Air Line Pilots Association, said the union has already filed a series of grievances against the airline related to its use of the force majeure clause. The first of these will likely be heard by the National Mediation Board in December.
"We've been saying all along that management has been using force majeure not as an opportunity to get through a crisis, but to take advantage of a crisis," Freundlich said.
Sam Buttrick, an analyst with UBS Warburg, said US Airways has changed its strategy following its failed merger with United Airlines and "now, contrary to perhaps conventional wisdom, US Airways is seeking to shrink dramatically, into profitability."
Following the Sept. 11 attacks, the airline announced it would lay off 11,000 of its 46,500 workers. Last week, the airline reported that more than 2,000 workers had signed up for a voluntary leave program. It also reduced capacity by 23 percent.
About 6,200 of the 11,000 have already been laid off or furloughed, with the rest expected over the next five months.
Gangwal said the company has been able to conserve its cash reserves despite the losses. It begins the fourth quarter with $1.04 billion in cash, compared to $1.25 billion at the start of the third quarter.
He expects the airline to finish the year with a cash balance of $800 to $900 million.
Those cash reserves will be critical for the airline to avoid bankruptcy.
Quarterly revenue fell 16 percent, from $2.38 billion in 2000 to $1.99 billion in 2001.
For the first nine months of 2001, including unusual items, the loss of $960 million compares to losses of $168 million in the first nine months of 2000.
