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Lakefield throws down gauntlet

| Thursday, July 29, 2004

After weeks of cajoling, US Airways Chief Executive Officer Bruce Lakefield took off the velvet gloves and showed recalcitrant union leaders his iron fists.

And the unions put up their dukes.

In a blunt recorded message to employees, Lakefield said the financially troubled airline faced "significant losses" for the rest of the year and would file for Chapter 11 bankruptcy reorganization if employees did not ratify $800 million in wage and benefits concessions before Sept. 30.

Lakefield warned union leaders: "Please stop dragging your feet or hoping that Chapter 11 will help you. It most certainly will not. ... If US Airways fails to have new labor contracts in place well before Sept. 30, it faces a series of consequences ... which could have a destabilizing impact on the company and a negative impact on employees."

Lakefield said the company's second-quarter net profit of $34 million -- its first since summer 2000 -- was no indication that the company had turned the corner on achieving long-term profitability.

But Lakefield's message didn't connect with union leaders, who are reluctant to give up more after having returned $1 billion in wages and fringe benefits in two previous rounds of givebacks.

"We just received proposals Tuesday from the company, so -- excuse me! -- who is really dragging their feet?"

said Perry Hayes, president of the Association of Flight Attendants' negotiating council.

Company officials have said they must cut costs by $1.5 billion by Sept. 30 or risk defaulting on $730 million in federally guaranteed loans. Default would likely force US Airways to file for bankruptcy a second time.

Lakefield told financial analysts the company was not pursuing asset sales to keep afloat, setting the stage for bankruptcy if new labor agreements are not reached.

With only about nine weeks left until the deadline, bargaining talks are have yet to reach full throttle.

Negotiations with the pilots' union have been ongoing for more than a month. But two unions -- the Association of Flight Attendants and the Communications Workers of American, representing gate and reservations agents -- began formal bargaining only two days ago. A fourth union, representing mechanics and baggage handlers, has refused to negotiate.

"We believe that, for US Airways to survive, changes have to be made in the way it operates," said spokesman Joseph Tiberi of the International Association of Machinists and Aerospace Workers. "We can't understand why the company is focused only on renegotiating contracts. History shows that's only a short-term fix, when US Airways needs a long-term solution."

Marick Masters, a University of Pittsburgh business professor who is writing an academic paper about US Airways' labor negotiations, said there was no bluff in Lakefield's message.

"I think he is intensifying pressure on the unions to concede, and he put it as almost an ultimatum that if they did not concede, the consequences would be dire -- especially for them."

Ronald Kuhlman, a vice president with R2A, a San Francisco-based airline consultant, said that Lakefield's comments boded ill for the company's outlook.

"When you begin making threats," he said, "it means you're not making great progress" in negotiations.

Lakefield was appointed CEO in April after his predecessor, David Siegel, was forced to resign because of strained relations with labor. Until now, Lakefield had taken a conciliatory approach toward unions.

Jack Stephan, a spokesman for the Air Line Pilots Association, said his union was working hard to reach a new labor agreement. Negotiators for both sides are meeting all week in Charlotte, he noted.

"Pilots are not hoping for bankruptcy as an avenue to saving us," Stephan said.

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