MidAtlantic launch does little to soothe widespread anxiety

 - October 4, 2007, 9:52 AM

US Airways insisted the decision to place a new Embraer 170 flight simulator at its Charlotte, N.C., base didn’t necessarily signal an intention to move MidAtlantic Airways out of Pittsburgh International Airport. But employees and airport officials remained unconvinced–yet another reflection of a persistent distrust new US Airways CEO Bruce Lakefield hopes to assuage as he attempts to save the company from financial ruin.

So rather than celebrating MidAtlantic’s April 4 launch of revenue service after a series of extended delays, many of the airline’s 244 employees spent the day contemplating a future obscured by uncertainty. For not only has US Airways failed to negotiate permanent leaseholds in Pittsburgh, most of the planned Embraer 170 deliveries remain subject to a financing deal with Brazilian export bank BNDES.
Unwilling to comment on funding arrangements, a US Airways spokesman told AIN that the airline stands “positioned to take the full order.” Nevertheless, after agreeing to finance leases on 30 of the 85 Embraer 170s US Airways has ordered, GECAS too said it might withdraw from its deal if US Airways’ Standard & Poor’s credit rating drops below its present position.

Late last year US Airways came close to defaulting on covenants attached to its $900 million loan guarantee issued by the Air Transportation Stabilization Board. The brush with disaster proved too close for comfort for Standard & Poor’s, which on January 9 cut the airline’s rating from a B to a B-minus. Even though last month US Airways won some relief on the covenants by prepaying $250 million of the original $1 billion loan, Standard & Poor’s refuses to remove the company from its CreditWatch list, leaving its already dubious rating status in peril.

At best, the loan prepayment may buy  Lakefield some time to extract more labor concessions, the long struggle over which has raised the ire of virtually every employee group and led to the resignation of now former chief executive David Siegel. Meanwhile, US Airways allowed its leases to lapse at Pittsburgh International in an effort to extract concessions from the airport authority, a move that sparked earlier suspicions of an impending move to Charlotte.

Advertised as the centerpiece of US Airways’ recovery from the ravages of 9/11 and subsequent economic crash, MidAtlantic took delivery of its first pair of Embraer 170s on March 8, after pilots finally agreed to drop a grievance over pay scales for airplanes designed to hold more than 70 seats. Nearly a month later it launched revenue service from Pittsburgh to Albany, followed by Atlanta, Boston, Nashville and Newark, and to Syracuse from both Philadelphia and the Steel City. Now in possession of six of the 70-seat jets, all financed by GECAS, the airline has loaded May 2 schedules that show the start of round-trip service from Pittsburgh to Philadelphia and Kansas City, and between Philadelphia and Nashville. It also plans one-way service from Buffalo to Philadelphia and Pittsburgh. By June MidAtlantic expects to fly 22 routes and add another 17 by the end of the year.

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

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 county executive Onorato to require mainline hub status as a condition of any such relief. With the interim agreement signed in January, US Airways promised to sustain the level of service it now supplies from Pittsburgh until September, giving negotiators a nine-month window in which to forge a long-term deal

But with the decision to place the Embraer 170 simulator in Charlotte, US Airways appears ready to move MidAtlantic if it doesn’t get what it wants. “There are no certainties that MidAtlantic will remain based in Pittsburgh, nor are there certainties that we will continue to hub Pittsburgh,” said the US Airways spokesman. “All of that revolves around our ability to implement our cost-cutting initiatives.”