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david
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US Airways files for BK
« on: Sep 12th, 2004, 7:40pm »		 Quote Quote Modify Modify Remove Remove
US Airways Files for Bankruptcy Protection  
 
53 minutes ago  Add Business - AP to My Yahoo!  
 
 
By MATTHEW BARAKAT, AP Business Writer  
 
ARLINGTON, Va. - US Airways Group Inc., the nation's seventh largest airline, filed for bankruptcy protection Sunday for the second time in two years. The company's president vowed to continue restructuring the airline into a low-cost carrier during the bankruptcy process.  
 
 
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"We have come too far and accomplished too much to simply stop the process and not succeed," said Bruce Lakefield, US Airways' president and chief executive. "A restructured US Airways with low costs and low fares will be a dynamic competitor."  
 
 
US Airways said customers would notice no operational changes as a result of the bankruptcy and that it will seek permission to continue its frequent flyer program.  
 
 
The Chapter 11 filing in U.S. Bankruptcy Court in Alexandria came after US Airways was unable to obtain $800 million in annual cost cuts from its workers' unions that the airline said it needed to stay afloat.  
 
 
The company's return to bankruptcy comes as several of its larger rivals also confront the need to repair weak finances. UAL Corp.'s United Airlines has been operating under bankruptcy for nearly two years, AMR Corp.'s American Airlines was on the brink of a filing 18 months ago and Delta Air Lines Inc. warned that it might seek similar protection soon if it cannot trim its labor costs.  
 
 
Several weeks ago, US Airways Chairman David Bronner warned that the airline would most likely have to liquidate if it filed for bankruptcy. Lakefield subsequently backed off those comments, and on Sunday again sought to assure customers that the airline faced no immediate danger of shutting down.  
 
 
"I believe that the light of day will convince our employees that sacrifices are needed to keep the airline flying," Lakefield said in a telephone interview Sunday. "When you look at the other choices, I believe our employees will make the right choice."  
 
 
Last Monday, a deeply divided pilots union refused to allow its membership to vote on a company proposal that would have cut pay by 20 percent and retirement plan contributions by 50 percent.  
 
 
As recently as Friday, US Airways made a last-ditch effort to reach a deal with the pilots, offering a proposal with minimum pay cuts that would have required more flight hours each month, putting more pilots at risk of furlough.  
 
 
Some pilot representatives who opposed the new deal said the pilots and other US Airways workers had made enough concessions during the company's first trip into bankruptcy in August 2002. Then, the unions collectively agreed to contract concessions of more than $1 billion a year.  
 
 
Fred Freshwater, a pilots' union representative from Pittsburgh who opposed management's latest contract offer, said he wasn't surprised the company was unable to reach deals with labor and that it sought bankruptcy.  
 
 
"When you look at the behavior of management, when you look at their proposals, they were seeking the total capitulation of labor," Freshwater said.  
 
 
The bankruptcy filing also could cost federal taxpayers. The government loaned the airline $900 million last year as part of a special program to assist airlines after the Sept. 11 attacks.  
 
 
The airline still owes Uncle Sam $718 million, and it will ultimately be up to a bankruptcy court to determine the government's place in line among creditors. But Lakefield said the Air Transportation Stabilization Board is a secured creditor, and would be first among those seeking repayment.  
 
 
US Airways said Sunday that it has an agreement in place with the government and with other lenders to use some of its cash reserves to continue operations while in bankruptcy. In its filing, the company listed $8.8 billion in assets, including $1.45 billion, and $8.7 billion in liabilities.  
 
 
A hearing was scheduled Monday morning in U.S. Bankruptcy Court.  
 
 
The company said financial deadlines looming on Sept. 30 forced it to file now to conserve cash to navigate bankruptcy. The airline also had a $110 million pension payment due Wednesday if it had not sought protection.  
 
   
 
 
 
While US Airways has an agreement with its lenders to use some of its existing cash reserves, it does not have a new investor lined up to provide additional financing. When the airline filed for bankruptcy in 2002, investment firm Texas Pacific Group had already agreed to invest $200 million in the airline. That plan was eventually supplanted by the Retirement Systems of Alabama, a pension fund for state workers, which invested $240 million for a 36 percent stake in the carrier and eight seats on its board.  
 
Lakefield said Sunday US Airways likely will need to find an investor to provide additional financing, but with new labor deals, "we won't have any problem finding our way out" of bankruptcy.  
 
Bronner acknowledged the Alabama fund could lose its entire investment, which amounts to less than 1 percent of the fund's portfolio.  
 
"The reluctance of union negotiators to agree to concessions is understandable, but their refusal to acknowledge the realities of the airline industry is a mystery," he said in a statement. "There are thousands of jobs at stake, but if any of them are going to be saved, then all employees are going to have to make sacrifices, as difficult as that might be."  
 
US Airways actually turned a small, $34 million profit in the last quarter. But the April-June period is typically an airline's strongest, and its prospects — both short and long-term — appeared poor because of relatively high labor costs, expensive fuel costs and intense new competition from low-cost carriers.  
 
US Airways first filed for bankruptcy protection in August 2002 after the Sept. 11 attacks devastated the airline industry as a whole and US Airways in particular. The company had lost $2.1 billion in 2001 as it dealt with the prolonged closure of Washington's Reagan National Airport, where it was the largest carrier, after the attacks.  
 
When US Airways emerged from its first bankruptcy in March 2003, the airline made numerous changes, seeking to reinvent itself as a low-fare carrier in the mold of JetBlue Airways Corp. and America West, a unit of America West Holdings Corp.  
 
It de-emphasized its hub-and-spoke system, eliminating its Pittsburgh hub altogether. It implemented a lower, simplified fare structure along parts of its network, including its hub in Philadelphia, where it faces a severe new challenge from Southwest Airlines.  
 
More recently, the company sought to exploit one of its few profitable business segments — its Caribbean flights — by expanding those offerings through a mini-hub in Fort Lauderdale, Fla.  
 
If the airline liquidates, Freshwater said "it would be devastating to many, many people. ... But it's like I've told my kids many, many times, `Don't worry about things you have no control over.'"  
 
Freshwater said he expects the union to continue negotiations in bankruptcy.  
 
(Substitutes 20th paragraph to correct Alabama fund has 36 percent stake instead of 38 percent.)  
 
 
 
 
 
 
 
 
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