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Boxed In at US Airways


With few options to raise much-needed cash, the carrier faces a daunting winter

Doug Parker, the youthful CEO of US Airways (LCC), is accustomed to living on the edge. A financial whiz who cut his teeth as a fare analyst, Parker was named chief executive of America West Airlines 10 days before the 2001 terrorist attacks. Four years later, Parker merged with the twice-bankrupt US Airways, creating a carrier that has since lost about $1.5 billion—and is on pace to lose an additional $565 million in 2009.

With the specter of swine flu and continued economic troubles looming over air travel, some analysts now question whether US Airways can survive the traditionally lean winter months. "They've leveraged everything they own and don't have many other ways to raise cash," says Robert Herbst, an industry consultant and editor of AirlineFinancials.com.

But sitting in a cramped conference room at his airline's Tempe (Ariz.) headquarters, the remarkably relaxed Parker, 47, brushes aside the doomsayers. "I don't see any more casualties this business cycle," he says. With business bookings picking up, "it feels as though we're climbing out of this."

Still, he's determined to gird the $12.1 billion airline against any further downturn in traffic. A recent increase in luggage fees is expected to generate $400 million in revenue this year. In mid-August, Parker also engineered a creative "slot swap" with Delta Air Lines (DAL), through which US Airways gained the ability for fly 42 more daily flights out of Washington's Reagan National Airport in exchange for giving up many of its slots at New York's LaGuardia Airport, where it has a 4% share of that market.

There's only so much Parker can do. For one thing, US Airways has the weakest hub network of any traditional carrier. Despite streamlining its operations in Phoenix, Charlotte, and Philadelphia, those cities generate less revenue than hubs for other carriers. And while larger carriers are stockpiling cash for the coming winter—American Airlines (AMR) recently secured $2.9 billion in new financing—US Airways' options are more limited. It's sitting on nearly $1.5 billion in cash, a level Parker believes is sufficient to ride out the winter, but the company's restrictive loan covenants limit his ability to spend the money as he might like.

On Sept. 22, US Airways announced that it would sell 26.3 million new shares to Citigroup. That will raise just a little more than $100 million, but with shares trading below 5, Parker probably couldn't have sold much more without incurring the ire of shareholders. "We certainly don't like diluting our shareholders," he says, "but in times like this, more liquidity is better than less."

How much more Parker can do isn't clear. The airline's chief financial officer, Derek Kerr, estimates that the carrier could raise $150 million more by borrowing against some training centers and repair hangars.

Despite the challenges, a number of industry watchers aren't ready to count out Parker, who is considered one of the best financial minds in the business. "If Doug went to Wall Street to raise capital for a new airline, he'd have $1 billion in commitments before he got to the end of his [PowerPoint] deck," says Robert W. Mann, an airline industry consultant in Port Washington, N.Y. The problem, though, is with the airline he's got. With few resources and a cloudy outlook, Parker may be facing a winter of discontent.

Foust is chief of BusinessWeek's Atlanta bureau.

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