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US Airways' turbulent year ends with $1.17 billion loss

| Sunday, Feb. 24, 2002

All airlines had a rough ride in 2001, but US Airways arguably had the roughest.

A failed $11.6 billion merger with United Airlines mixed with a continued stock slide and record losses totaling more than $1 billion led to the resignation of Chief Executive Rakesh Gangwal and a slew of cost-cutting changes.

The airline's stock price plummeted from about $40.44 per share on Jan. 2, 2001, to $6.34 per share on Dec. 31.

A significant portion of that drop occurred after a proposed $11.6 billion merger with United Airlines failed in July - a move airline brass had said was crucial to its future. With it, the promise of a new aircraft maintenance facility in Pittsburgh evaporated.

Then, like most airlines, US Airways' business tumbled after the Sept. 11 terrorist attacks. Revenues dropped, expenses continued and the airline dipped into its cash reserves.

By year's end, US Airways recorded a net $1.17 billion loss.

Things are not nearly normal at the airline's Arlington, Va., headquarters, or at its core cities in Pittsburgh, Charlotte, N.C., Philadelphia, New York, Boston, Baltimore and Washington, D.C.

Even so, under Chairman and Chief Executive Stephen Wolf, the airline has initiated a series of moves intended to position it for a better year.

The airline is banking on a series of changes it has made - "difficult yet necessary" - to move forward. The moves range from layoffs to eliminating planes, facilities and Metrojet, its low-fare brand that flew out of select cities.

"Clearly the demand levels are not where they were before Sept. 11, but we are seeing an increase in the demand of travelers," spokesman Dave Castelveter said. "After Sept. 11, we significantly reduced our flying, our capacity, by 23 percent. ... We phased out Metrojet and we still will be reducing capacity in the first quarter this year."

The airline also retired many of its older aircraft, including the DC-9, MD-80 and F-100 series planes.

"We're flying now with a more modern fleet and less fleet types," Castelveter said.

Maybe the most jolting move locally came with the layoff of at least 1,200 employees based in Pittsburgh.

"We announced we will eliminate 11,000 jobs and the vast majority of these reductions have taken place," Castelveter said. "A small number of reductions will take place in the first quarter."

The airline closed reservations centers in San Diego, announced prior to Sept. 11, Indianapolis, Dayton, Ohio, and Syracuse, N.Y. That leaves only Pittsburgh, Winston-Salem, N.C., and Orlando, Fla.

It consolidated aircraft maintenance operations, eliminating the engine shop at Pittsburgh International Airport as it decided to use GE, the manufacturer, to service engines. In turn, it shifted some maintenance work previously performed in Charlotte, N.C., to Pittsburgh.

Other minor changes occurred, including the temporary practice of not using blankets and pillows on flights, not providing meals on other flights and eliminating audio and video entertainment on planes. Some of those offerings are returning.

All of those changes were done with one thing in mind - reducing costs, which observers say is crucial to the airline's survival.

"They already have a very good route structure but they cannot continue to lose money unless they get control of their cost structure," said Kent George, executive director of the Allegheny County Airport Authority.

The airline also has new ideas about operating a new maintenance base at Pittsburgh, which the airport would own and the airline would lease. Talks continue, especially about financing the facility.

Despite the changes, 2001 was filled with hurdle after hurdle that will be tough to overcome.

Gangwal unexpectedly resigned to pursue a career in the private sector. He had been president since joining the airline in 1996 and CEO since 1998. Chairman Wolf reassumed the CEO job he had turned over to Gangwal.

The industry was estimated to have lost more than $6 billion in 2001 and US Airways had been targeted as the U.S. airline least likely to survive. Analysts pointed to the airline's troubles, including a network of money-losing, short-hop routes, costly labor contracts and poorly executed plans.

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