Ambiguity at US Air begs for answers about Embraer 170s

 - February 2, 2007, 5:00 AM

Hopes for a first-quarter launch of US Airways’ MidAtlantic division dimmed to a flicker last month as pilots continued their dispute over payscales for new Embraer 170 positions and management took steps to sell off assets to meet minimum federal loan requirements. As a result, more than a month after the FAA granted the 70-seat Embraer 170 provisional certification to ostensibly allow MidAtlantic to begin proving runs and crew training, the Pittsburgh-based division still hadn’t taken delivery of its first airplane, leaving everyone in the dark about when, if ever, the fledgling airline would get off the ground.

Still, by late last month, Embraer would not admit to any change in delivery plans. “There are apparently some internal issues, but our dialogue with US Airways does not indicate any lack of definition,” Embraer executive vice president Fred Curado told AIN. According to US Airways, the language in MidAtlantic’s labor contract calls for pay rates on par with those of American Eagle CRJ700 crews. ALPA claims the contract does not specify rates for airplanes certified to carry more than 70 seats, namely the Embraer 170. An ALPA spokesman told AIN that the dispute would go to arbitration, and that the union hoped for a resolution by early this month. But the pay issue doesn’t preclude US Airways from taking airplane deliveries for proving runs, rousing suspicion that the reason it hasn’t may run deeper than a labor disagreement.

Earlier concerns that US Airways would move MidAtlantic’s headquarters out of Pittsburgh appeared temporarily assuaged during a January 6 meeting between airline executives and Allegheny County chief executive Dan Onorato, when US Airways signed long-term leases on 10 of its 50 mainline gates at Pittsburgh International Airport. It also agreed to lease the remaining 40 mainline gates on a month-to-month basis until at least September, along with 12 turboprop gates under the same conditions.

Asset Sale in the Works
But the relief proved short lived because just days later news broke that US Airways had begun seeking buyers for a number of its assets, including one of its three hubs, its East Coast shuttle service and some or all of its three US Airways Express subsidiaries– PSA, Allegheny and Piedmont Airlines. A US Airways spokesman said the sale would not include MidAtlantic, and that the airline still intends to use Pittsburgh as the new division’s base.

However, after reporting losses of $90 million during the third quarter, US Airways faces an uphill battle to meet covenants associated with the $900 million federal loan guarantee it secured when it emerged from bankruptcy last year. The guarantee requires that US Airways keep its cash and cash equivalents above $1 billion–$300 million less than what it has on hand now. It also must meet a number of loan-payment requirements. If it violates the covenants it risks losing the guarantee, a prospect that would most likely result in US Airways losing its financing for the Embraer 170s, spelling the end of MidAtlantic.

Originally expected to begin revenue service with one of its new Embraer 170s last November, MidAtlantic had blamed aircraft certification delays for its failure to do so then. During the new jet’s most recent regulatory setback, expected to last into this month, Embraer managed to win so-called provisional certification from the FAA, allowing MidAtlantic to begin proving runs and start flight training of its pilots and flight attendants–all US Airways employees furloughed soon after 9/11. But the fact that US Airways had yet to avail itself of the opportunity has raised still more questions about the timing and location of MidAtlantic’s launch Heralded early on by US Airways CEO David Siegel as critical to the future of US Airways, MidAtlantic has since existed in relative anonymity since the company announced plans for its formation in May 2002. More than a year-and-a-half after opening offices at RIDC Park West outside Pittsburgh International Airport, MidAtlantic remains something of an enigma, laying in wait for a seemingly clandestine go-ahead from headquarters in Arlington, Va.

Even though MidAtlantic would generate jobs–at significantly lower pay–for furloughed pilots, flight attendants and mechanics, employee unions have already moved to mitigate the unit’s potentially destructive effect on mainline positions. In negotiations with Allegheny County over new lease terms at Pittsburgh International since it emerged from Chapter 11 protection last May, US Airways wants authorities to cut $500 million of the airport’s $640 million in construction debt, a burden that costs the airline some $50 million a year. Union leaders have urged Onorato to require mainline hub status as a condition of any such relief. With the interim agreement signed last month, US Airways has promised to maintain the level of service it now provides from Pittsburgh until September, giving negotiators a nine-month window in which to forge long-term commitments.

Meanwhile, the status of MidAtlantic appears as uncertain as ever after Siegel canceled a “road show” during which he planned to share details of his latest restructuring plan. Siegel said he delayed the announcement “because our union leadership has said that they have no interest in hearing the revised business plan or even having discussions with management on work rule and productivity changes.”