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US Airways last week was close to finalizing a code share arrangement with another major U.S. carrier, an important step in its recovery plan and effort to obtain a federally backed loan guarantee. Though US Airways said it has been in active discussions with several airlines, Continental and United airlines at press time were the most likely candidates.

Representatives of both US Airways and United last week confirmed ongoing discussions, indicating the one-time merger hopefuls once again could attempt a cooperative venture. Delta Airlines has been ruled out because of overlapping routing structures.

US Airways needs desperately to align with a domestic and/or international partner to fully utilize its East Coast feeder operations and improve revenues. A new partnership is one element of the US Airways recovery plan currently under consideration by the Air Transportation Stabilization Board.

US Airways earlier this month applied to ATSB for $900 million in federally backed loan guarantees to support $1 billion in loans earmarked for a restructuring.

United and US Airways last July pulled the plug on an attempted integration after federal regulators indicated they would block the deal. Considering United's deteriorating financial performance throughout 2001, the demand falloff after Sept. 11 and ongoing labor strife, an approved merger would have been particularly problematic. However, a code share agreement would have fewer strings attached and less risk, and could leverage United's strength from the West Coast and Chicago O'Hare with US Airways' East Coast presence. Continental also acknowledged active discussions with US Airways, however, the airline already has a domestic partner with Northwest.

A new partnership would help US Airways gain approval from ATSB, which recently rejected loan guarantee applications from Vanguard Airlines and tiny Frontier Flying Service. The green light is tied to US Airways' ability to slash labor costs, while rejection likely would lead to bankruptcy proceedings. The carrier will continue working with ATSB and labor union leaders to fine-tune its application.

The loan application is one prong of a far-reaching restructuring that also calls for a $1.3 billion annual cost reduction. Labor will bear the brunt, losing $950 million in wages and benefits, if management's initial proposals are accepted. However, key labor unions have proposed smaller cuts and negotiations are ongoing. The US Airways business plan also stresses expanded regional jet operations. US Airways has said it will be forced into bankruptcy if it cannot slash costs and obtain the federal loan guarantee.