US Airways Circles as Pilots Bicker

US Airways (UAIRQ Quote - Cramer on UAIRQ - Stock Picks) shares have nearly doubled in the last week on hopes its pilots union will vote on wage concessions, but its stock will likely be worthless -- and the carrier will need more than just pilots on board to keep flying.

Pilots are currently holed up at the Pittsburgh Airport Hyatt, meeting with advisers and union representatives on a tentative agreement on wage concessions, which includes an 18% pay cut, new work rules designed to maximize efficiency and reduced pension obligations for the company. In exchange for an estimated $300 million a year in cost savings, the pilots will receive equity in the new postbankruptcy US Airways and share in any profits.

Essentially, the master executive council, which runs the union, is voting on a vote. Its members are deciding whether to give the rank-and-file a chance to ratify the tentative agreement -- a process that has been an issue itself. For two days the union was unable to pass a resolution on the vote, then broke off internal talks and agreed to meet in Pittsburgh on Tuesday morning.

This is the second time the union has been divided on whether to hold concessions up to a vote. One month ago, four local union representatives from Philadelphia and Pittsburgh blocked a general vote on a proposal that could have kept the carrier out of bankruptcy court. After giving $7 billion in concessions to management and eliminating the defined benefit plan, some union hardliners refuse to give another inch, no matter the consequences.

US Airways shares were off 7 cents, or 4.8%, to $1.37. Since being delisted from the Nasdaq Stock Market on Sept. 22, over-the-counter shares of US Airways have jumped from 75 cents on hopes the company can reach a deal with pilots. But if and when the carrier emerges from Chapter 11 bankruptcy protection, that equity is likely to be rendered worthless when the company issues equity in a new company to pay off creditors.

Liquidation looms. Because of its weak balance sheet and deep losses, US Airways lacks debtor-in-possession financing and instead has to use its remaining cash to fund operations. But as it enters the seasonally weak winter months, the airline desperately needs to cut costs immediately to conserve cash. Management, which plans to reduce annual costs by $950 million, said if it can't generate $200 million in cash over the next five months, it will be forced to file for Chapter 7 and liquidate.

According to the Associated Press, management has announced its share of the sacrifice, telling employees that it will cut 370 management and nonunion positions, reduce pension obligations and force senior officers to take a 20% pay cut. All told, US Airways said the concessions will generate $45 million annually in cost savings, but that's a long way from what the company hopes to save.

Even if pilots send the proposal out to a vote -- and have it ratified -- US Airways will have to win over two other major work groups who are even less willing to cut their own pay. The Association of Flight Attendants, which represents 5,500 employees, and the International Association of Machinists, which represents 4,800 employees, have rejected management's last proposal on wage concessions -- and neither are at the negotiating table at the moment.

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