US Airways may not perform as well financially as it thought following a merger with America West Airlines, the company said in a government filing this week.
The carrier said it expects to continue to experience operating losses through 2006 despite significant labor cost reductions and other cost savings achieved through the bankruptcy of US Airways.
US Airways and America West Airlines merged in late September. The combined company kept the US Airways name but is run by America West executives from the carrier’s Tempe headquarters.
While the company expects to compete better following the merger, about $600 million in operating costs and revenue synergies it hoped to see by combining the airlines cannot be assured, the airline said in a U.S. Securities and Exchange Commission registration statement.
"The integration of US Airways Group and America West Holdings (the airlines parent companies) following the merger will present significant challenges," the company said.
Industry consultants said said there was little new in the filing.
"Mergers never go as smoothly as planned, so this is really not much news," said Tim Sieber, vice president and general manger at the Boyd Group, a Colorado-based airline consulting group.
"If I recall, they really don’t expect to reap the benefits (of the merger) until early 2007 anyway. This is one of those SEC filings that’s required by law, and it really shouldn’t come as much as a surprise."
Bob Mann, of the R.W. Mann and Co., a New-Yorkbased airline consulting company, said the filing was another recitation of a usual disclaimer, which is "this is a rotten, terrible business but you’re welcome to join us."
At a luncheon following the merger’s close, chief executive officer Doug Parker said there were many areas of US Airways that were performing worse than management expected.
"In the short term, that’s a bad thing, but in the long term that’s a good thing because the faster you can get rid of them, the faster things become better and better than you thought," Mann said.
US Airways’ future could be threatened by union disputes, employee strikes and other labor-related disrup- tions that may adversely affect its operations, the filing said.
"Our business plan includes assumptions about labor costs going forward. Currently, the labor costs of both America West Holdings and US Airways Group are very competitive and very similar; however, we cannot assure you that labor costs going forward will remain competitive, either because our agreements may become amendable or because competitors may significantly reduce their labor costs."
In a separate filing, US Airways said it issued warrants to purchase 386,925 common shares at a price of $7.27 per share. The warrants — a substantial discount to the company’s Monday closing stock price of $31.99 — may be exercised any time before Jan. 18, 2012.
The company said it will not receive any of the proceeds from the sale of the warrants.
The new warrants replace those issued in 2002 to the Air Transportation Stabilization Board, an arm of the government, and to AFS Cayman Ltd.
In October, US Airways Group agreed with the transportation stabilization board to buy back all of its outstanding warrants for $115.8 million.
The company also recently asked the Department of Transportation for a renewal to fly to Guatemala. It also asked for permission to fly to and from El Salvador. US Airways already flies to Guatemala from its hub in Charlotte, N.C. The company asked for permission to go to El Salvador so it can code share with United Airlines.
"It’s all about keeping the skies open for El Salvador possibilities, really," said Phil Gee, company spokesman.