North American Airlines Struggling to Survive

Delta Airlines will launch a survival strategy that includes job cuts, pay and benefit restructuring, and operational improvements to become what CEO Gerald Gerstein calls a “leaner, simplified, more productive airline.” Rumors have circulated for over a month that the airline was close to filing for Chapter 11 bankruptcy protection. US Airways Chairman David Bronner told the New York Times the airline’s labor groups must reach an agreement to save $800 million per year in order for the airline to avoid liquidation. While President and CEO Bruce Lakefield denied the airline faced imminent liquidation, he did say Chapter 11 protection is a very real possibility. US Airways is attempting to cut $1.5 billion in annual costs, $800 million of which it expects from labor. Air Transport World reported that Lakefield wants to avoid another Chapter 11 filing. "Chapter 11 protection can be a useful tool but it provides no guarantee for success…I would rather not file again," Lakefield said. "I would prefer that we resolve our issues outside of bankruptcy court. But to do that we need to complete negotiations quickly."

Talks with US Airways pilots broke down after the two sides were unable to reach a consensual agreement that would provide the airline with additional savings. United Airlines’ parent UAL Corp. has been struggling with its decision to stop funding pension payments as the Department of Labor announced an independent fiduciary would be appointed to represent the interests of the participants and beneficiaries of the pension plans.

In July, United skipped a required $72.4 million quarterly contribution to its pension plans and then said it did not expect to fund the plans while it was under Chapter 11 bankruptcy protection. The decision sparked a number of reactions which led to the Dept. of Labor review and its statement of the need for an independent fiduciary. ATA Airlines reported a $66 million swing in earnings in the second quarter as the airline reported a $26 million loss vs. a $40.8 million profit for the same period a year earlier. The 2003 results included a $37.2 million federal security reimbursement which was recorded as a reduction in operating expenses.

First-half results at ATA indicated a $90.8 million net loss vs. a $29.5 million net profit for the same period in the prior year. ATA expects to post a loss for the full year of 2004. The airline has implemented cost cutting initiatives and is taking action to reduce cash obligations, improve liquidity, and improve profitability.

At Air Canada, creditors voted to approve the airline’s reorganization plan that is expected to allow the airline to emerge from bankruptcy protection by the end of September. That plan was later approved by the Ontario Superior Court. Customer service representatives at America West Airlines voted in favor of representation by the International Brotherhood of Teamsters. Of the 3,095 employees eligible to vote on union representation, 54% cast affirmative votes.

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