Airlines Need More Cost Cuts

As part of its restructuring, Air Canada has reached an agreement with the Canadian Auto Workers (CAW) union that, coupled with similar concessions from other unions, will allow it to cut costs by a further $146 million per year. The CAW, which represents 5,000 of the airline's workers, was the last holdout against additional concessions. The airline hopes to emerge from bankruptcy protection in September. In the United States, US Airways said it was able to cut $1.9 billion in operating expenses since filing for Chapter 11 bankruptcy protection. But its survival hinges on the ability to cut another $1.5 billion by the end of September. About $800 million of those cuts are being sought from labor unions - where the airline had cut $1 billion to date. Pilots, who gave $565 million in concessions during the bankruptcy have been asked for another $295 in reductions. The airline was not in favor of selling assets to raise cash.

The European Commission has been very clear that it will not permit the Italian government to subsidize the ailing Alitalia airline, but media reports indicate it would allow a bridge loan. The Italian government, which owns 62% of the airline, could provide an estimated $600 million in the form of a loan, if the EU Commission approves the loan. Alitalia had hoped to be a third partner in the Air France/KLM combination, which was approved earlier this year. The cargo operations of the two airlines should begin integrating activities in 2005. Alitalia's cargo operations are included in efforts to integrate the two European airlines' operations. In the meantime, Air France and KLM will provide each other with access to capacity in a limited number of lanes during 2004. Freighter adjustments are expected towards the end of the year.

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