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US Airways Bankrupt.
August 11, 2002 10:12 PM   Subscribe

US Airways Bankrupt. It had to happen to one of the big airlines eventually, what with 9/11 and the hesitancy to fly following. But on top of everything else financially as of late... it just deepens that already sick feeling. Who's next?
posted by dopamine (17 comments total)

 
Personally I'm considering selling all of my worldly assets now, hiding the cash in tomato cans, and sailing off to somewhere in Micronesia for awhile. The coming Apocalypse will pass and then I'll come home and buy some farmland. On a less ridiculous note, I'm just wondering how companies the scale of say, WorldCom and US Airways "restructure" during their bankruptcy. It would just seem to me that things would be so huge and so out of control, that it's inevitable that they'll just eventually vanish into impoverished nothingness.
posted by dopamine at 10:15 PM on August 11, 2002


Mmmm.. I can smell the government bailout already.....
posted by Steve_at_Linnwood at 10:20 PM on August 11, 2002


I love that this article about a company's excessive debt to Bank of America comes with a sidebar ad encouraging me to get a Bank of America mortgage. I can't wait until RJ Reynolds sponsors the lung cancer telethon.
posted by Ignatius J. Reilly at 10:43 PM on August 11, 2002


In retrospect, the Fed's blocking of the United-US Airways merger looks sorta dumb.
posted by mrbula at 11:03 PM on August 11, 2002


dopamine: Many companies emerge from bankruptcy and go on to live fulfilled lives. The process hands over a lot of control to a judge, which is good for the company because it means they can't get sued out of existence. They may renegotiate contracts with employees or suppliers, and certainly they get reprieves on some of their outstanding debt. Banks go along because a working company sending them 50 cents on the dollar is better than a defunct company sending them pocket lint. The judge may force them to sell off businesses, either to eliminate losing propositions or simply to raise cash. In short, it isn't the end of the world by any means.

Steve: US Air is also expecting a $1 billion collateralized loan backed by a federal guarantee that has been conditionally approved by the Air Transportation Stabilization Board, provided the company is able to get cost-cutting accords with its unionized employees. This is the money Congress allocated for bail-outs last fall.
posted by dhartung at 11:30 PM on August 11, 2002


Heh. Bankruptency is just a state of mind for airlines. Ask Continental, they've been in and out what... 3 times?
Anyway, those of us in the industry have been watching USAir for some time. This is very, very much not unexpected. I'm frankly surprised they took this long. Their problems are essentially unrelated to Sept 11th and are mostly due to a poor route structure that is under heavy attack by that Southwest-esque upstart JetBlue, among others. Their massive labor costs don't help either.
The federal loan guarantee is already in process. Has been for a while. They may not get it, though. The feds are being very tightfisted. They now own something like 35% of America West (why they would want to own them, I donno) in return for the guarantees to them.
The merger was a horrible idea that United wanted to run screaming from but Wolf was a cagy bastard who wrote several large personal bonuses into the withdrawal papers that made things tough.
As to the future, US Air will still operate. This will provide ammo to their contract negotiations with the various groups, especially the pilots who are deeply entrenched and aren't giving anything despite the nasty fact that 1400 are on furlough, more than any other airline. If they do eventually thrash into oblivion it will take decades (see TWA).
Who's next? Well, the worst of the bunch is AmWest, but they have the feds to keep them afloat. We lost Vanguard a little while ago but nobody noticed that outside the industry and Midway is heading for a second stoppage. As for other majors, I'd have to say United. Not because they're in danger of going away, but because they also need a big stick for contract talks.
My take on it? A big shrug. They're so deep in furloughs that I'll probably be ready to retire before they start hiring again. I wouldn't have flown for them in the best of times so not having that choice doesn't bother me much.
posted by eszetela at 11:50 PM on August 11, 2002


US airlines in general have been very thinly capitalized for a long time. Even in the early 80's airline bonds were high interest, high-risk instruments, compared to the bonds of most other US industries. It doesn't take much to push an airline into bankruptcy.

I don't know why this is, for airlines more than for, say, shoe manufacturers. Anyone have ideas?
posted by Slithy_Tove at 3:25 AM on August 12, 2002


I'd say it was less Sept. 11th and more bad business.
posted by Hall at 4:00 AM on August 12, 2002


Also, its reliance on DCA (National Airport) as a hub absolutely killed them when it was closed for a month last fall. A huge portion of their debt was amassed in those weeks.
posted by PrinceValium at 5:22 AM on August 12, 2002


I don't know why this is, for airlines more than for, say, shoe manufacturers. Anyone have ideas?

Extraordinarily high fixed costs, very strong unions, and brutal competition (not least from bankrupt competitors). Good for the flying public, bad for the airlines.
posted by jaek at 6:37 AM on August 12, 2002


Considering that U.S. Airways and the city of Charlotte, North Carolina have conspired to make Charlotte the most expensive airport in the United States, I'm thrilled to see them go bankrupt.

Charlotte has been unable to attract a low-cost carrier despite several years of trying and the availability of empty gates and ticket counters ready to be leased at Charlotte-Douglas airport. The problem is the hub, which gives US Airways a distinct advantage over any competing airline in terms of destinations and frequency.

So much for "deregulation and capitalism"!

I'm happy to drive four hours to Atlanta than let the scum fuckers at U.S. Air rip me off. Good riddance!

Not that it will keep Dubya from bailing them out, of course!
posted by mark13 at 8:11 AM on August 12, 2002


jaek:

Extraordinarily high fixed costs, very strong unions, and brutal competition (not least from bankrupt competitors). Good for the flying public, bad for the airlines.

That and the fact that they have superior corporate apologists. You might want to realize that this is supposed to be a free market system. I guess people like you can't deal with that, eh?
posted by mark13 at 8:20 AM on August 12, 2002


Corporate apologist?

The question was asked "Why is airline debt riskier than normal debt", or more generally "why is running an airline not such a great business. The answer to that is pretty straightforward.

And it is a free market system. Which is why I take advantage of the fact that I can fly 600 miles to visit my girlfriend for slightly more money than I'd spend in gas to drive, while at the same time I won't touch an airline stock with a ten foot pole.
posted by jaek at 8:40 AM on August 12, 2002


The longer your routes, the less you spend on fuel, equipment depreciation, and expensive and time consuming ground operations.

USAir has (by far) the shortest average routes of any of the full-service airlines, because its major airports (Philly, Pittsburgh, Reagan National in Washington, and Charlotte, and New York La Guardia) are all on the East Coast. Reagan and La Guardia are prohibitted by law from operating flights longer than 2,000 miles, so nothing overseas or to the West Coast.

The big hub in Philly is a money loser because Philly has been steadily declining as a business city for 20 years, and thus losing the passengers to pay high walk-up and business/first class fares.

And, of course, the shuttle service (Washington - NYC - Boston) is the only air corridor in the nation which faces meaningful rail and bus competition, as well as the get-in-your-car-and-drive competition which also affects the other air corridor routes (SF-LA, San Antonio-Austin-Dallas-Houston, Atlanta-Charlotte, etc.)
posted by MattD at 8:43 AM on August 12, 2002


... and, yes, I know, that Southwest has managed to operate short routes very profitably, but they have a fundamentally different business model from that of USAir, and operate at substantially less expensive airports as a rule.
posted by MattD at 8:44 AM on August 12, 2002


mark13, let go of jaek's ankle right now. bad dog.
posted by dhartung at 10:21 AM on August 12, 2002


Mmmm.. I can smell the government bailout already.....

yep
posted by rhyax at 10:49 PM on August 12, 2002


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