This article from NYTimes.com has been sent to you by psa188@juno.com. US Airways Announces Bankruptcy August 12, 2002 By EDWARD WONG US Airways, crippled by the attacks on Sept. 11 and burdened by high costs, filed yesterday for Chapter 11 bankruptcy protection, the first major carrier to do so since the events last fall. The nation's sixth-largest airline, US Airways said that it had arranged financing to allow it to continue operating while it reorganized, but indicated that its routes and flights would be affected. The airline said that it was reviewing its schedules and that it might eventually reroute passengers with connecting flights to make better use of its hub cities, potentially causing confusion on the East Coast, where US Airways is a dominant carrier. The company had recently won concessions from two major labor unions; it had also deferred some debt payments and received conditional approval of its request for a $900 million federal loan guarantee. But it said bankruptcy was needed because it would be unable to renegotiate agreements in a timely manner with certain vendors, aircraft leasers and financiers. The airline will shrink considerably, industry analysts predicted. The carrier, based in Arlington, Va., will almost certainly retool its inefficient hub operations, trim the size of its fleet and eliminate more jobs. Its extensive route network in the Eastern states is built around hubs in Philadelphia, Pittsburgh and Charlotte, N.C. The overall United States airline industry is under economic pressure, having lost $1.4 billion last quarter and $11 billion last year. A small carrier, Vanguard Airlines, recently filed for bankruptcy protection, and Midway Airlines, of Raleigh, N.C., suspended service after filing for bankruptcy protection a year ago. Some industry analysts said US Airways' filing could portend such a move from the second-largest carrier, United Airlines, which has said that it needs federal loan backing to obtain crucial financing before it runs out of cash. But United is thought to have greater access to the capital markets than US Airways, and so far it has not said it will seek bankruptcy protection. Still, before US Airways made its filing last night in United States Bankruptcy Court for the Eastern District of Virginia, in Alexandria, it had lined up financing to operate in bankruptcy. The filing listed assets of about $7.81 billion and liabilities of $7.83 billion. The carrier said it expected to move out of bankruptcy in the first three months of 2003. "Ultimately, this effort is about our customers, employees and the communities we serve, as we seek to fix the airline's finances and return to profitability," David N. Siegel, the chief executive, said in a written statement. "US Airways will continue to operate while we complete our financial restructuring, and our customers should be confident that we will continue service to the more than 200 communities in our network." Mr. Siegel, who was hired in March to lead an overhaul of the carrier, said that members of its frequent-flier club would continue to accrue and use miles and that consumer marketing agreements with other companies, like credit card issuers, would be honored. Last month, US Airways posted a net loss of $248 million for the second quarter, its eighth-consecutive losing quarter. It lost $2 billion last year and was among the carriers most affected by the September attacks because its business is so concentrated on the East Coast. The government's shutdown of Ronald Reagan Washington National Airport for more than three weeks severely damaged the carrier because many of its passengers use the airport. The company's labor unions had mixed reactions last night, having heard management's threats of a bankruptcy filing in recent months. In the last week, the carrier had worked out agreements with its pilots and flight attendants for significant wage cuts and other concessions. Those agreements prevent US Airways from asking a bankruptcy court judge to demand further concessions, but they leave room for job cuts and other reductions. For example, the pilots' agreement allows the airline to trim its fleet size to 245 planes from 311 under bankruptcy court protection. In any trimming of the work force, the carrier is expected to seek employee buyouts before resorting to layoffs. "The pilots are understandably disappointed," said Roy Freundlich, a spokesman for the pilots' union, which represents 4,800 workers at US Airways. More than 1,000 pilots remain on furlough because of cuts after Sept. 11. Jeff Zack, a spokesman for the flight attendants' union, which represents 7,500 workers, said: "We knew it was coming. They had been saying it for months. We've locked in a new contract that we've ratified so we're not giving any more concessions." The airline had not reached an agreement with its machinists' union, which represents more than 12,000 mechanics and fleet service workers and has been the most reluctant to make concessions. But yesterday morning, the carrier made a proposal to the mechanics, and they intend to vote on its terms before the end of August. "The announcement of a bankruptcy filing does not change our position regarding the company's restructuring plan," said Robert Roach Jr., general vice president of the union. There is speculation that the carrier might have made its filing yesterday to put additional pressure on the machinists' union to give in on concessions the government is requiring for the loan guarantee. US Airways had been working feverishly over the last month to win labor concessions as part of the effort to secure financing. The carrier had applied for the $900 million federal loan guarantee on a $1 billion private loan as part of the government's $10 billion loan guarantee program it set up after Sept. 11. On July 10, the Air Transportation Stabilization Board, which administers the program, granted the carrier the loan guarantee on the condition that executives wring concessions from labor and that they in turn give more generous stock warrants to the government. The air stabilization board said yesterday that those terms remained in effect with the further condition of an approved reorganization plan by the bankruptcy court. "The board will review the reorganization plan when presented and will determine whether it meets the conditions for issuance of a guarantee," it said. The loan guarantee program has been the subject of much debate, with critics arguing that it distorts market forces. US Airways' bankruptcy filing will undoubtedly raise more questions, with critics wondering why the government is planning to back a company coming out of bankruptcy protection. But some industry specialists say the filing will probably strengthen the airline's application because it will include the cost cuts that the government has been seeking. "Now, it will be slimmer and trimmer," said Darryl Jenkins, director of the Aviation Institute of George Washington University in Ashburn, Va. "Now, they'll probably look more like Continental Airlines. If they didn't file for Chapter 11 now, their debtors could force them into involuntary bankruptcy. Right now, they have control." The carrier's outstanding debt consists mostly of aircraft lease financing, and creditors will receive whatever the market dictates those leases to be worth, said Richard P. Schifter, a partner at the Texas Pacific Group, a private equity firm that invests in troubled companies. Texas Pacific is among a group of lenders, led by Credit Suisse First Boston and Bank of America, that has given US Airways $500 million of what is known as debtor-in-possession financing to continue operations. Texas Pacific will buy $200 million worth of stock in the carrier when it emerges from bankruptcy, for a 38 percent stake, and will have 5 of the 13 board seats. Texas Pacific's partners - led by David Bonderman, James G. Coulter and William S. Price - have a strong record investing in troubled airlines. A decade ago, they invested in Continental Airlines and America West, both of which had filed for bankruptcy. Mr. Siegel of US Airways knows the group because he was working as an executive at Continental at the time. The partners made 11 times their investment in Continental. Passengers are likely to scramble to use frequent-flier miles or to book trips on other carriers. But September is expected to be dismal, so a slight capacity reduction might not hurt the airline's revenue much. Still, there could be an exodus to East Coast rivals like Delta Air Lines and JetBlue. "The answer really lies in how they restructure, how it's communicated and how it affects people," said Kevin P. Mitchell, president of the Business Travel Coalition. "If you're sitting here today with a vacation package in September, you're going to be very anxious about what all this means." http://www.nytimes.com/2002/08/12/business/12AIR.html?ex=1030155859&ei=1&en=2dd20f312563f6bc HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact onlinesales@nytimes.com or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to help@nytimes.com. Copyright 2002 The New York Times Company