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Mon, Mar 31, 2003 - Page 12 News List

Protection may not help failing airlines in the US

NY TIMES NEWS SERVICE , NEW YORK

On the eve of its planned emergence from bankruptcy, US Airways on Saturday notified employees it would immediately impose a 5 percent cut in wages. The company said the drop in bookings since the beginning of war with Iraq left it no alternative to recover lost revenue.

The airline's disclosure was made in a letter sent to employees this weekend by David N. Siegel, chief executive of US Airways Group, the airline's parent.

The letter was posted on an employee Web site, and a company spokeswoman confirmed Saturday that the pay cuts would be made and apply to every employee at the airline, the nation's seventh largest.

Even as US Airways gets ready to roll off the operating table on Monday, American Airlines is steeling itself to go under the scalpel of bankruptcy court restructuring.

But industry experts and economists are questioning whether the kinds of cuts that carriers make in Chapter 11 are deep enough to cure the industry's fundamental ills. After all, many have said, the airlines went through a wave of bankruptcies in the early 1990s only to end up in their worst shape ever today.

So while US Airways will undoubtedly look leaner on Monday -- when it is scheduled to end its bankruptcy protection -- than when it filed last August, it does not expect to turn a profit this year or next, and even the company acknowledges it still could fail.

United Airlines is using the leverage of bankruptcy laws to press its unions to let it start a low-cost carrier. But such experiments have failed in the past, because they could never fully copy the successful model of Southwest Airlines.

It is unclear, in the meantime, what American Airlines, the world's largest carrier, would do if it files for bankruptcy protection, as bankers have said it might next week. But there are no indications that American -- or any of its major rivals -- are seriously rethinking how they do business.

Skeptics say the problem with the old-school focus on labor cost cutting is that it has not worked.

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