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US Air to seek fed help
Carrier poised to seek loan guarantee; Southwest profit meets, Northwest loss beats target.
April 18, 2002: 4:50 PM EDT

NEW YORK (CNN/Money) - Continued losses at US Airways will likely lead the nation's No. 7 airline to become the second carrier to seek federal loan guarantees. It is also looking for wage concessions from its unions and savings from suppliers.

The announcement comes as US Airways posted a smaller-than-forecast loss in the first quarter. Northwest Airlines also posted a loss that beat Wall Street expectations, while Southwest Airlines, the only major carrier to stay in the black since the Sept. 11 terrorist attack, posted a small first-quarter profit that matched Wall Street forecasts.

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Among the major carriers, only No. 8 America West Airlines (AWA: down $0.06 to $5.26, Research, Estimates) has sought and received the loan guarantees. Federal regulators who consider the request for guarantees are likely to require the airline to give an equity stake to the government, which would reduce the current shareholders' position in the company.

Shares of US Airways (U: Research, Estimates) were down almost 10 percent at one point Thursday but rallied to close down 28 cents, or about 4 percent, to $5.92. Meanwhile shares of Southwest (LUV: Research, Estimates) closed down 45 cents, or 2 percent, at $18.55 and shares of Northwest (NWAC: Research, Estimates) slipped 16 cents to $19.89, as most airline stocks traded lower.

US Airways Group lost $286 million, or $4.22 a share, excluding the effects of a change in accounting. While that's an improvement from the year-earlier loss of $164 million, or $2.45 a share, excluding accounting changes and special items, that is well below the $6.08 a share loss forecast from First Call. Still, the company's statement quoted its new CEO, David Siegel, as saying the results are "not only extremely disappointing, they are unacceptable."

Siegel admitted to analysts that much of the improvement was due to tax credits. The company's loss, excluding income taxes and the effect of the accounting changes, rose 61 percent to $435 million from $270 million on that basis a year earlier.

Revenue at US Airways was off 23.7 percent from a year ago to $1.7 billion. Miles flown by paying passengers fell 16 percent to 9.6 billion, while average fares fell 14 percent.

Siegel has spoken of needing to reach new contracts with employee groups at US Airways, so far without success.

"To be successful, US Airways must restructure to lower its unit costs, optimize the revenue potential of its East Coast presence and improve its overall balance sheet position," said Siegel's statement. "To implement our restructuring plan, it is likely US Airways will file an application with the federal Air Transportation Stabilization Board for a government-guaranteed loan."

Siegel said that the company would be looking for both unions and the airlines' various suppliers to negotiate new cost agreements.

"We are in the process of developing plan to include all stakeholders, not just labor," he told analysts in a conference call. "I wouldn't focus on any particular group. It's going to include suppliers. It's a total solution."

Siegel says the plan would include greater use of lower-cost regional jets and an alliance with other U.S. and international carriers. Company executives would not give details of the restructuring plan or even how large a loan guarantee might be sought. Siegel said the new management team would be meeting with various groups in April and May. But the analysts' questions and comments to the executives suggested they're not convinced the executives will be able to turn around the carrier.

"I think you're a long way from profitability," said Kevin Murphy, analyst with Morgan Stanley. "We have to hear about what you're going to do with labor and how this will be a long-term fix."

Southwest profits continue

Southwest, which has passed US Airways to become the nation's No. 6 carrier since Sept. 11, earned net income of $21.4 million, or 3 cents a share, which was in line with the consensus forecast of analysts surveyed by earnings tracker First Call. The Dallas-based discount airline earned $121.0 million, or 15 cents a share, a year ago.

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Southwest said it expects to see profitability improve in the second quarter, although it will earn significantly less than year-ago results due to continued weakness in air travel demand. First Call's forecast is for earnings per share of 18 cents, down from 22 cents in the year-earlier period.

Revenue fell 13 percent to $1.3 billion from $1.4 billion. Southwest was the only major carrier not to significantly cut its schedule or staff in the wake of the terrorist attacks, and even though capacity grew by 4 percent from a year ago, the miles flown by paying passengers fell 2.5 percent to 10.4 billion. But the real hit to revenue was a nearly 10 percent decline in the average amount paid by passengers for each mile flown.

Northwest loss less than forecast

Northwest Airlines, the nation's No. 4 airline, lost $171 million, or $2.01 a share, in the quarter. That's better than First Call's loss per share forecast of $2.46 for the period, but worse than the $121 million, or $1.47 a share, it lost before special items a year earlier.

Revenue at Northwest fell 16.5 percent to $2.2 billion from $2.6 billion a year earlier. Miles flown by paying passengers fell 9.5 percent to 16.5 billion, while the average fare paid per mile flown declined 10.5 percent.

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Most major carriers other than Northwest and Southwest attempted to raise discounted fares by $20 per round-trip last week. But when Northwest refused to join them, the carriers all rolled back the fare hikes on Monday.  Top of page