Is the sky falling for US Airways?

Tempe-based US Airways is likely to be first in line for bankruptcy within a year, according to at least one Wall Street analyst. Other industry experts say that's hogwash.

US Airways cuts jobs, flights and free sodas

"All the airlines are under water now," said airline consultant Michael Boyd, of the Colorado-based Boyd Group. "But US Airways is no more so than anybody else."

In fact, with a strong management team that has piloted the hometown carrier from the brink of disaster to Wall Street darling status during the past few years, US Airways may have better survival odds than the competition, said Bob Mann, of R.W. Mann & Co.

Soaring fuel prices that have carved sinkholes into bottom lines, combined with a sagging economy and an expected decline in travel as purses snap shut on discretionary spending, have devastated the U.S. airline industry.

Most airlines - except highly fuel-hedged Southwest Airlines - have announced big capacity cuts for fall. They also have raised fares and added fees for previously free services and amenities to try to make ends meet.

But those moves may not raise enough revenue to keep carriers solvent. Higher fares may turn off the passengers still flying, and parking big, expensive planes is still expensive even when they aren't consuming fuel.

"Given that we are forecasting huge losses through 2009 for all of the poorly hedged airlines, and that seven of the 10 companies we cover are trading at or below $6 per share, it is more than appropriate to be concerned about liquidity," wrote UBS analyst Kevin Crissey in a recent report on the industry. UBS polled its investors, asking them which U.S. airline is most likely to slip into bankruptcy.

The stock owners were most pessimistic about US Airways' future, according to a UBS report issued mid-June, with 60 percent of them saying there is better than a 50 percent chance the Tempe-based carrier will file for bankruptcy before the end of 2009.

UBS' own analysis came to the same conclusion.

"(US Airways) has the highest liquidity risk in the industry, in our view," according to Crissey's report published a week later.

That's if fuel prices don't contract, Crissey concludes. So far, there are no indications oil tabs will fall.

FACING THE COMPETITION

There are issues the local carrier faces that the competition doesn't.

Big East Coast airlines are teaming up. Delta and Northwest are merging, and that means they can scrap overlapping flight schedules. United and Continental formed an alliance that will allow seamless service for new routes, potentially stealing business from other carriers that can't book such through routes.

Industry giant American Airlines has announced double-digit cuts in flights. US Airways can't do that because of labor contracts. The company has announced 6 percent to 8 percent capacity cuts in fall, and 7 percent to 9 percent cuts in 2009.

That's about the limit allowed, said US Airways president Scott Kirby.

And the pilots won't give on that issue, said James Ray, spokesman for USAPA, the pilots' new union.

"We won't even entertain thoughts of any further cuts," Ray said. "The ATM machine is closed."

In the West, US Airways' big competition, Southwest Airlines, has such good credit ratings and pre-purchased so much fuel at relatively low prices that it doesn't have to cut capacity or raise fares much. And it isn't doing either.

But US Airways still has some advantages in the increasingly turbulent skies of the U.S. airline industry, Boyd said.

The airline is big in high-traffic, high-fare markets. Management is pulling capacity out of Las Vegas, a wise move, Boyd said. And US Airways has strength in Phoenix, Philadelphia and Charlotte, N.C., which are big business capitals, he said.

Mann also is high on US Airways' survivability factor compared with the competition. He said American Airline's apparent "abdication of New York" will help boost US Airways' business at LaGuardia Airport. And American's cutbacks could be US Airways' gains at Baltimore/Washington International Airport - a prime East Coast hub, he said.

Besides, Mann said, the Tempe-based carrier has proven to be aggressive and creative at muscling its way out of difficult scenarios, thanks to its forward-thinking leadership team.

The airline industry situation is dire, Mann said. But if anybody can work out a solution, US Airways is most likely to do so, he said.

UNCHARTED TERRITORY

"This is uncharted territory. The industry never cut 20 percent of its capacity and raised fares 20 percent at the same time," Mann said. "Everybody hopes it works out all right, but nobody has a model. There is no historical precedent."

Kirby is confident of his airline's place in the future of the industry.

"This is a great airline with great routes and customer loyalty," Kirby said. "We'll be here for the long term. We may be smaller, but we'll be here."

Kirby said US Airways management thinks of some of the seeming negatives as positives.

The planned Northwest-Delta merger could help eliminate a lot of capacity, he said. And while US Airways is limited to single-digit capacity cuts, the rest of the big guys are more than making up for it, he said. Anything that reduces overall flights and seats benefits the whole industry and allows all airlines to raise fares, Kirby said.

And as for Southwest's cheap fuel and no-fee policies, the Tempe airline has always competed with Southwest, and done so successfully, he said.

Regarding UBS and its investors' negative vibes, Kirby said he's heard it before. Then-America West Airlines was ready to tip into bankruptcy in 2001 and again in 2005, according to the doomsayers. It didn't happen either time.

In 2001, after the recession and the terrorist attacks nearly destroyed air travel, America West CEO Doug Parker was first in line in Washington asking for money to shore up his company. He got it.

In 2005, rather than tip into bankruptcy, Parker negotiated a merger with US Airways, which was already in Chapter 11. The cost savings and concessions achieved in bankruptcy court boosted the bottom line for the merged company.

"Nobody thought those options were likely in 2001 and 2005," Kirby said. "Static analysis is almost always wrong. It assumes that nothing will change."

Could a government bailout or another merger be in the cards this time? Or is US Airways management crafting new surprises?

Kirby would only say the company is working out options and he has "nothing to disclose yet."

But so far, the government, at the local and national level, has been more of a hindrance than a help, Kirby said.

Among his gripes are U.S. Department of Transportation's plan to take gate slots from existing holders at LaGuardia and auction them. US Airways is the biggest airline at the New York hub with 198 flights. The auction would cause the company to pay more for slots it already secured.

Also on Kirby's complaint list is Phoenix's plan to enhance Phoenix Sky Harbor International Airport, including a pricey automated train to ease road traffic.

"They want to spend billions to build a rail link into the airport, but we can't afford the landing fees that will go up to pay for it," Kirby said. "We have a really good relationship with Sky Harbor. But those are the things that will kill the industry."

US Airways

Headquarters: Tempe

Daily flights: 3,800

Destinations: 230

Hubs: Phoenix, Philadelphia, Charlotte, N.C.

Employees: 35,000

2007 revenue: $11.7 billion

2007 net income: $427 million

1Q 2008 revenue: $2.84 billion

1Q 2008 loss: $236 million

2007 passengers: 52 million

Domestic market share/rank in size: 5.7 percent, seventh