US Air Pulls Back From Expansion Plans

US Airways Group Inc. on Wednesday told its shareholders that in the absence of an agreement with its unions to cut labor costs, the company has begun diverting millions of dollars intended for global expansion into other investments.

US Airways Chairman Stephen M. Wolf told the annual meeting that the carrier is talking with manufacturers of small regional jets about replacing turboprops on its commuter subsidiaries. The money for the planes would come from cash the airline has set aside to buy wide-bodied jets for overseas flights.

Wolf noted that the airline already had diverted $126 million to buy back stock from British Airways in an effort to boost the value of its shares.

Telling shareholders that “we simply have not made any progress whatsoever” in efforts to reduce the company’s labor costs, Wolf said management, with the backing of the board of directors, has begun downsizing the airline.

“In the coming months our fleet will start shrinking again,” he said.

Wolf said the airline had built its cash reserves to finance plans for global expansion, but the lack of contract concessions had halted the process.

“We’ve been stopped from doing that, and now we’ve started using [the money] for alternative sources to increase shareholder value,” he said.

US Airways shares fell $3 to close at $34.875 on the New York Stock Exchange.

Wolf’s presentation on the state of the airline was delivered to a sparse audience, largely composed of uniformed pilots who came to protest the downsizing and the demands for contract concessions. The meeting was held in Philadelphia to underscore the city’s importance in the carrier’s global expansion plans.

The airline is seeking concessions in the labor contracts with its three major unions: the Air Line Pilots Assn., the International Assn. of Machinists (IAM) and the Assn. of Flight Attendants (AFA). In the absence of new contract agreements, Wolf said the board would shrink the airline into a “superior regional carrier.”

The airline appears near agreement with the IAM on a new contract and is reported making progress with the AFA. But Wolf said there has been no progress on key cost-cutting issues in talks with the pilots.

Jon Bryan, a 767 captain who heads the Air Line Pilots Assn. unit at US Airways, told the meeting that Wolf’s “harsh actions have had a chilling effect on morale.” He said the pilots have offered concessions and called on Wolf to step up the pace of negotiations with the union.

Before the meeting, Bryan had said that if Wolf’s goal was to “demoralize the work force and break up the union, he’s doing just the opposite.” He said the union was prepared to “do everything possible to make US Airways a profitable enterprise,” but that Wolf was demanding more from the pilots than the airline needed.

US Airways pilots this week received a pledge of $5 million from the union’s national headquarters. Bryan would not say how he would use the money.

Wolf said the goal was to make US Airways’ labor costs--the highest in the industry--competitive with those of United, American, Delta and Northwest airlines on national and international routes, and to match Southwest Airlines and Delta Express on routes where they compete.