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Auditors question USAir's survival


With uncertainty looming about USAir's ability to win crucial labor concessions, company auditors for the first time have raised questions about whether the airline can survive.

After a two-week delay, USAir Group Inc. filed its year-end financial report yesterday with the U.S. Securities and Exchange Commission in which the company's accountants concluded there was "substantial doubt" whether the airline could continue operating in its current form.

Since 1988, the airline has lost more than $3 billion, including $684.9 million last year. While not unique in corporate financial statements, the conclusion by USAir's auditor, KPMG Peat Marwick LLP, marks the first time that the Arlington, Va.-based carrier has received such an assessment.

Yesterday, the airline disagreed with the auditors' conclusion. In its filing it cited a cash reserve of $400 million in the first quarter of 1995.

"We feel there is adequate liquidity with normal operations and ,, barring any unforeseen circumstances," said Richard Weintraub, a spokesman for the airline, which is the largest carrier at Baltimore-Washington International Airport.

In its annual filing, however, the airline conceded that a downturn in the economy, increased fuel prices or intensified fare wars would have a particularly adverse effect on USAir. The carrier cited its heavy debt load and said it no longer had access to bank credit or the ability to sell its accounts receivables for immediate cash. Similarly, the company's financial problems make it unlikely that it would be able to raise money through the sale of stock or debt.

USAir had delayed its routine filing with the SEC past the regular March 31 deadline, saying it expected the outcome of continuing labor talks to "materially affect" its financial statements. The company had been granted an extension of 10 working days by the SEC.

Despite the latest assessment by the company's auditors, some analysts believe a turnaround remains possible, particularly if the airline soon reaches an agreement with its unions.

"There's no doubt USAir has a lot of big problems on its plate so the auditors' statement does not really surprise me," said Timothy F. Sieber, a vice president with Aviation Systems Research, a consulting firm in Golden, Colo. "But this isn't a death warrant for USAir. There's still time to pull out of this."

During the past two weeks, the airline did reach a tentative agreement with its 5,200 member pilots union, but it failed to strike any deal with its 25,000 other union ized employees. The pilots' proposal, which cuts wages 22 percent, gives board seats to the union. An equity stake is contingent upon the airline's other unions also making substantial concessions.

The airline is seeking $2.5 billion in wage, work rule and benefit concessions over the next five years from its employees. Talks have continued this week with other unions, Mr. Weintraub said.

USAir is hoping to find an additional $500 million a year in cost savings from other areas of operations. Recently, the company announced steps to slice operating expenses, including a recently announced 5 percent cutback in flights.

In its SEC filing, the company also said it was "evaluating and considering the risks associated with various strategic options, including further downsizing."

"It's no secret that we've done a very careful analysis of our routes," Mr. Weintraub said yesterday. "What we have said is if we are going to be competitive in the long run, we have to lower the cost structure. . . . We're just sort of mid-stream in the whole process."

USAir has the highest costs of any major domestic airline. Its 200-page filing reiterated its concerns about operating with lower-cost carriers in an intensely competitive airline environment where low fares are so pervasive.

Yesterday, Houston-based Continental Airlines said it was scrapping Continental Lite, the low-fare, no-frills service once seen as the carrier's financial savior, after it lost $100 million to $120 million in 1994.

Industry experts said Continental Lite could not shed the costs associated with its full-service operation and that prevented it from making money on its low fares. The demise of Continental Lite will help USAir, particularly in areas such as Baltimore, where Continental's discounts had forced USAir to lower fares dramatically.

But other discount airlines are still cropping up. And many, such as Southwest Airlines, are continuing to expand. In its SEC filing, USAir expressed concern about Southwest's lease of four additional gates at BWI and reports that Southwest plans to add 25 more airplanes to its fleet in 1995.

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