Warning bells toll at North American airlines

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 circulated throughout the summer that the airline was close to filing for Chapter 11 bankruptcy protection.

Meanwhile, David Bronner, chairman of US Airways, told the New York Times the airline's labor groups must reach an agreement to save $800 million per year for the airline to avoid liquidation. While Bruce Lakefield, the airline's president and CEO, denies the airline faces imminent liquidation, he does 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. Logistics Today's sister publication Air Transport World reports that Lakefield wants to avoid another Chapter 11 filing. “Chapter 11 protection can be a useful tool, but it provides no guarantee for success,” Lakefield says. “I would rather not file again.” Lakefield prefers instead that the airline resolve its issues outside of bankruptcy court, “but to do that we need to complete negotiations quickly.”

United Airlines' parent UAL Corp. has been struggling with its decision to stop funding pension payments as the U.S. Department of Labor announced an independent fiduciary will 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.

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. 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 a reorganization plan that is expected to allow the airline to emerge from bankruptcy protection by the end of September.

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