US Airways Falls, Rivals Gain

Talks have broken down between US Airways (UAIR - Cramer's Take - Stockpickr) and its pilots, putting the carrier another step closer to filing for bankruptcy protection again.

US Airways has been looking for $295 million a year in wage concessions from pilots, and unless they are on board, the carrier will not be able to cut overall costs by the $1.5 billion a year it considers necessary to become competitive. While reports last week seemed to indicate that pilots were amenable to management demands, negotiations fell apart over the weekend when executives didn't include parts of the pilots' proposal.

"We are disappointed that the company's latest proposal failed to respond in any substantive way to our proposal of Aug. 21," said Jack Stephan, spokesman for the Air Line Pilots Association representing US Airways' pilots.

As a result, US Airways appears likely to be heading back into Chapter 11 protection, just a year and a half after emerging from it. The company has said it needs wage cuts by Sept. 30 or it will have to file for bankruptcy, or worse, even liquidate. In either scenario, current shareholders will likely see their equity cancelled and will end up with nothing.

In response to the news, shares of US Airways continued to fall, dropping 9 cents, or 4.7%, to $1.82 on Tuesday, adding to its 34% fall so far this month.

The rest of the airlines, however, rose Tuesday, with the Dow Jones Airline Index gaining 2.2%, as the price of oil fell 28 cents to $45.77, continuing to ease off of recent highs near $50 a barrel. AMR (AMR - Cramer's Take - Stockpickr), parent of American Airlines, rose 23 cents, or 3.1%, to $9.23, while Continental Airlines (CAL - Cramer's Take - Stockpickr) rose 23 cents, or 2.4%, to $9.88 and Northwest Airlines (NWAC - Cramer's Take - Stockpickr) rose 18 cents, or 1.9%, to $9.65.

The news is the latest in a string of dire warnings about the carrier. Two weeks ago, Glanzer & Co., the bank representing the pilots' union, sent out a 26-page report to the company's 3,400 pilots, saying that the company may be forced back into Chapter 11 by mid-September as the high price of oil, competitive pressures and a too-high cost structure erode its balance sheet.

But saving US Airways might not be worth the trouble for the company's creditors and debtholders -- one of which is the U.S. government, having granted the carrier a $900 million loan guarantee after the World Trade Center attacks. According to the Glanzer report, the company "might be worth more dead than alive" to everyone except its employees.