US Airways bosses say BWI operation is in jeopardy President, CEO stress need for wage cuts as talks with pilots stall; Airport's plight tied to labor negotiations

THE BALTIMORE SUN

CHARLOTTE, N.C. -- Warning that time is running out for US Airways to cut its costs, top airline executives laid out bleak alternatives yesterday, including all but eliminating the carrier's money-losing operation at Baltimore-Washington International Airport.

Amid stalled negotiations with its pilots on wage and benefit cuts, Chief Executive Stephen M. Wolf and President Rakesh Gangwal stepped up the pressure in a meeting with hundreds of workers in a maintenance hangar at Charlotte/Douglas International Airport, one of the airline's largest hubs.

Without the cuts, they said, US Airways will be forced to become a smaller regional carrier again, just as it was before it merged with Piedmont Airlines in 1989. That would necessitate, they said, significant downsizing at BWI, where US Airways, which changed its name from USAir this year, has pruned itself to 75 jet flights a day, less than half the number in 1990.

In addition, the nation's sixth-largest carrier would be forced to scrap its transcontinental service and eliminate its Florida flights.

Altogether, those operations have lost the airline more than $2 billion since 1990, including $220 million at BWI, the two disclosed.

"We have not moved forward in putting in place a competitive cost structure," Gangwal said. "That is starting to paralyze our company and put us on hold on very strategic issues."

The airline, he said, urgently needs to finalize its deal with Airbus Industrie, the European aircraft consortium, to acquire as many as 400 new jets over the next decade. And it needs to create a low-cost express operation to compete with the explosion of low-cost flights on the East Coast.

Perhaps more than any other airport, BWI's plight is tied to the outcome of US Airways' labor talks. The result could mean the difference between a token US Airways operation in Baltimore and a thriving one with dozens of new discount flights. Hundreds of jobs also are at stake.

If it secures the cuts, however, US Airways has said it would launch a significant express discount operation at BWI to compete with Southwest Airlines and others.

"They still have a strong interest in operating flights at BWI," said David L. Winstead, Maryland's secretary of transportation. "The real issue is, can they get their cost structure realigned to become more competitive."

Thus far, US Airways has been chipping away at BWI operations. Only last week, it announced a plan to cut 20 more daily flights in June and lay off several hundred workers there. Even so, it remains the dominant carrier at BWI, where it leases 24 gates on Pier D.

Ironically, the airline, never known for stellar service, has been making dramatic improvements in its daily operations. In 1996, US Airways had the best on-time performance of any major U.S. airline, moving from seventh to first place, according to a U.S. Department of Transportation survey. For overall passenger service, it ranked second, behind Southwest.

High costs

But US Airways continues to have the highest costs in the industry, not only because of its wages but also because of its complicated route structure and its hodgepodge fleet, which is comprised of seven different aircraft types seating 150 people or fewer.

Without the cuts, US Airways will be unable to take the strategic steps necessary to compete in a global economy, Gangwal and Wolf said. Most immediately, it cannot secure the $14 billion in financing it needs to finalize its deal with Airbus -- a move that would provide larger aircraft and ultimately a simpler, uniform fleet.

While US Airways has set no deadline for a deal with labor, Wolf pointed out that its contract with Airbus expires Sept. 30. Negotiating a new deal could cost the airline tens of millions of dollars. Already, 57 of the aircraft promised US Airways have been sold to other carriers.

Also on hold are decisions about whether to exercise an option to purchase Shuttle Inc., which operates US Airways shuttles between New York and Boston and Washington, and whether to spend $300 million to expand operations at Philadelphia International Airport.

The negotiations with US Airways pilots have been going on for more than a year but sources say little progress, if any, has been made. The talks are being conducted with the pilots first because they are by far the highest paid. Other unions, including flight attendants and mechanics, will not settle without pilots taking the lead.

The employee meeting in Charlotte was one of a series that Gangwal and Wolf are conducting over the next two weeks. A session in Baltimore is set for Thursday.

The meetings are clearly designed to drum up support for the cuts from the airline's rank and file while establishing an atmosphere that would allow the union's leadership to recommend such cuts.

After the two-hour meeting yesterday, Mark Thorpe, a representative for the Air Line Pilots Association, said the union has been "extremely reasonable at the negotiating table, especially when viewed in the face of record company and industry profits as well as current industry labor trends."

He said the union's financial analysis indicates the company can continue to grow without the pay and benefits cuts the company is seeking.

Improved status

Compared to its plight just three years ago, US Airways is far better off. After losing nearly $3 billion between 1989 and 1994, the company has been profitable for the past two years, earning a record-breaking $263 million last year.

But company officials said yesterday that a healthy economy and the relative absence of low-cost competition accounted for much of that success. Continental Airline's CaLite discount service ceased operation in 1996, and ValuJet was shut down for five months by the Federal Aviation Administration after its May 1996 crash in the Everglades.

But beginning last fall, competition heated up as ValuJet resumed service, Delta Air Lines launched its discount Delta Express and Southwest began flying to the Northeast, with service from Baltimore to Providence, R.I. All told, there are nearly 400 daily low-fare flights on the East Coast, US Airways executives said.

As a stark example of why US Airways, with its high cost structure, cannot compete with Southwest, Wolf and Gangwal cited what happened to US Airways' earnings in the Baltimore-to-Providence market after Southwest entered the fray last October.

Between November 1995 and February 1996, USAir's planes between BWI and Providence were 53 percent full and the average one-way fare was $107. Profits over that four-month period were $182,000. During the same four-month period a year later, after Southwest launched service to Providence, US Airways' load factor rose to 65 percent, but its average fare was forced down to $53. The airline lost $2 million.

"Market after market, this is the phenomenon that is facing us," Gangwal said. "We have to ask ourselves how long can we go on this way."

Pub Date: 4/11/97

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