US Airways lays groundwork for rejuvenated regional net

 - April 17, 2008, 5:29 AM

US Airways’ campaign to reverse its course toward financial ruin began exactly where new CEO David Siegel promised last month, as the company confirmed its intention to proceed with a series of initiatives aimed at developing its competitive position in the regional airline segment. Perhaps most significantly, it confirmed its plans to reactivate the operations of its idle Potomac Air subsidiary under the name MidAtlantic Airways. According to current plans, the division will operate out of US Airways’ Pittsburgh hub with a fleet of regional jets, starting sometime this fall.

Just four days after the MidAtlantic announcement, on June 3, US Airways launched a plan to enter marketing relationships with three Caribbean regional carriers: Caribbean Star, Nevis Express and Winair. Set to start on July 15 with code-share flights by Nevis Express linking San Juan, Puerto Rico, with St. Kitts and Nevis, the so-called “Go Caribbean” campaign will add service to 14 islands from four of US Airways’ Caribbean destinations.

Finally, on June 10 the Arlington, Va.-based airline reached an agreement with the Air Line Pilots Association on regional-jet payscales for the pilots of wholly owned subsidiary PSA Airlines, signaling US Airways’ intention to base more RJs in Dayton, Ohio. PSA employs 1,500 people and flies a fleet of 30 Dornier 328 turboprops to 30 destinations in the Ohio Valley and eastern U.S. Due to its single fleet type, its ALPA contract contained payscales for only the 32-seat 328s.

According to Siegel, US Airways’ plans to deploy RJs at PSA still hinge on the company’s ability to negotiate for the needed capital and aircraft delivery positions. Of course, the backlogs for both Bombardier and Embraer jets in most cases preclude the delivery of a new airplane for at least a year. However, the airline may have access to as many as 10 idle CRJs previously flown by Australia’s Kendall Airlines, as well as up to another 10 formerly operated by Raleigh-Durham, N.C.-based Midway Airlines. In an effort to gain access to the needed capital, US Airways last month applied for a $900 million government guarantee on a $1 billion loan as part of a restructuring plan aimed at lowering annual costs by $1.3 billion.

Judging by the airline’s activity in and around Pittsburgh, the plans for MidAtlantic appear more definitive. The company has already started recruiting staff following the opening of the airline’s offices within US Airways’ existing facilities at RIDC Park West, near Pittsburgh International Airport, during the first week of last month. US Airways has named Allegheny Airlines v-p of operations Robert Brayton president of the new subsidiary. Other executives named include current US Airways managers John Morales (v-p of maintenance), Jerome Wood (chief maintenance inspector) and Brittany VanBuskirk (director of in-flight service), former Atlantic Coast Airlines manager Daniel Capozello (director of system control), and former Continental Express executives Charles Hobbs (director of training) and Mitchell Fortson (human resources director).

Meanwhile, MidAtlantic will enjoy a ready supply of flight crews, as 1,070 US Airways pilots await recall from furloughs resulting from September 11. A scope-clause amendment signed on April 18 includes a so-called “jets for jobs” provision, under which furloughed US Airways pilots gained the right to fly all regional jets placed with a reconstituted Potomac Air–now MidAtlantic Airways. The amendment also recognizes ALPA as the collective-bargaining agent for MidAtlantic and grants furloughed pilots the right to staff at least half of the remaining regional jets placed at the currently operating Express carriers, including PSA. Under the deal, all US Airways pilots flying for regional partners/subsidiaries must draw RJ captain’s pay rates of the airline for which they fly, regardless of seat occupied. As expected, that provision has drawn sharp criticism from regional pilots, who argue against what would become a two-tier pay system for first officers.

The new US Airways scope clause increased the limit on regional jets flying for US Airways Express subsidiaries and/or affiliates from 70 to 140. However, US Airways has stressed that the amendment represents only an interim step toward a strategy involving the use of many more regional jets beyond the 140 now allowed.

Siegel, an early proponent of regional jets and the architect of Continental Express’ Embraer jet fleet, has placed development of the company’s RJ presence at the top of his list of priorities for the ailing airline. Although its current contract does not become amendable until January 3, the Air Line Pilots Association offered code-sharing authority for more than 400 regional jets, as well as rights to enter a domestic code-share deal with another major carrier, during last month’s “voluntary” talks between management and the union.

In an effort to improve its chances of qualifying for the loan guarantee, US Airways entered the talks with proposals to cut the pilot payroll by $595 million. According to an ALPA spokesman, the union offered pay cuts totaling $400 million. ALPA estimates the value of the RJ concessions at $500 million in annual revenues.

In return, ALPA asked for certain equity and governance positions at the company, up to and including board membership. At press time the sides continued their efforts toward reaching an agreement by the end of the third week of June. Issues still unresolved included company proposals to modify regional jet authority and payscales and working conditions for the pilots of MidAtlantic Airways.