Restructuring at TWA is finally beginning to bear fruit as Delta Air Lines slows its broad '7.5' cost-reduction programme. But both carriers have been hard hit by one-time costs associated with layoffs, outsourcing, fleet retirements and, especially for TWA, new technology investment.

At St Louis-based TWA, there are distinct signs that the carrier is levelling out of a decade-long nose-dive. With low unit costs, solid customer-satisfaction response and Wall Street optimism, the airline is finally enjoying a purple patch and, not insignificantly, better operating results. Still, in the fourth quarter of last year, TWA was the only US major to report a loss amid record profits. On the upside, the $28 million deficit in that period was a dramatic improvement over the $245 million loss posted by the carrier in the same December quarter in 1994.

Officials insist that TWA would have become profitable had it not been for a $156 million charge for reorganisation costs. The airline is replacing or incorporating the most basic tools of the trade, like a yield management system, which was only put on-line in the second half of 1995. Renewal of the oldest fleet in the US airline industry, which brings with it some of the highest maintenance costs, is another strategic and financial imperative for the carrier.

The latter point was addressed in mid-February with TWA putting in one of the few large-scale new aircraft orders by a US carrier in recent memory. The decision to order 20 new Boeing 757s and 20 options heralds the airline's return to health. With financing nailed down - 10 will be bought with manufacturer backstop financing and 10 will be leased from International Lease Finance Corp - TWA is looking at fill-up capacity. Plans call for at least 10 MD80s and potentially five B747s for peak-season travel. The carrier may yet look at the B777 and the Airbus A340, according to chief executive Jeffrey Erickson.

At Delta, the replacement of its 55 ageing L.1011s is the prime reason for an estimated $650 million charge against earnings due in the March 1996 quarter. Though there is no fixed end date for the L.1011 retirement programme, the 19 that now fly transatlantic routes will be moved into domestic operation starting next year. Delta will replace them with 12 new B767s in a deal that saw the carrier cancel 30 firm orders for B737-332s and options on 56 more in a conversion deal with the manufacturer.

Delta says the fleet restructuring is not part of the wider 7.5 programme. But the carrier is including some of those costs in the $650 million charge. In its zeal to cut costs, however, Delta admits that 'in some areas we cut too far' and is now in the process of refilling more than 660 customer service positions, mainly at Atlanta.

Mead Jennings

Source: Airline Business