This article from NYTimes.com has been sent to you by psa188@juno.com. US Airways Gets Lender; United Wins Pay Cuts November 19, 2002 By MICHELINE MAYNARD Alabama's pension fund won its bid yesterday to become the primary lender for US Airways, giving it the leading role in the airline's effort to emerge from bankruptcy court. Separately, United Airlines, which is seeking to avoid the same fate as US Airways, disclosed that its salaried employees had agreed to pay cuts of $1.3 billion over the next five and a half years as part of an overall $5.8 billion package of concessions from its workers. Pilots for United, part of UAL, also voted overwhelmingly to approve $2.2 billion in concessions as their contribution, the Air Line Pilots Association said yesterday. At US Airways, the Retirement Systems of Alabama offered in September to invest $240 million for a 37.5 percent stake in the airline, which had filed for Chapter 11 bankruptcy protection. The fund topped an offer by the Texas Pacific Group, which had structured a turnaround plan. The bankruptcy court had set a deadline of Friday for other competing offers, but none were made, said the airline, which is based in Arlington, Va. The $26 billion Alabama fund, whose other investments include television stations, golf courses and hotels, also provided $500 million in debtor-in-possession financing, of which US Airways has drawn $300 million. The fund already holds $340 million in aircraft leases with the airline. The fund will be able to fill 5 of the airline's 15 board seats. US Airways said it would file a restructuring plan with the bankruptcy court in mid-December. It still expects to emerge from bankruptcy in the first quarter of 2003. The restructuring plan is crucial to winning final approval from the Air Transportation Stabilization Board for $900 million in loan guarantees. The board has already granted its preliminary approval. Even so, airline officials have cautioned employees that further cuts may be necessary. David G. Bronner, the chairman of the fund, said in an interview yesterday that the airline, at his urging, would include contingency plans in the restructuring plan in case its financial condition worsens. "One of their fears and one of my fears is clearly Iraq," said Mr. Bronner, who has been running Alabama's fund for nearly 30 years. But Mr. Bronner praised US Airways' management, led by its chief executive, David Siegal, as "superb." "They're thinking of everything down the road," he said. "The worst thing you could do is get yourself out of bankruptcy and then end up right back into it." Mr. Bronner said he expected the air transportation board to approve the US Airways restructuring plan. But Mr. Bronner joined the rising tide of pessimism about United's chances of receiving $1.8 billion in loan guarantees as it tries to avoid bankruptcy court. Noting that US Airways, which is smaller than United, may need to seek more cuts, Mr. Bronner questioned whether the $5.8 billion pledged by United's employees would be enough. He said the board would be asking: "Is their plan realistic? Does it get them to where they need to be? The preliminary indication is that it is not there. I think that's evident." The pay cuts announced for United's salaried employees would take effect on Dec. 1, a day before the airline faces a critical deadline for repaying $375 million in debt backed by aircraft. Those employees are taking cuts of 2.7 percent to 10.7 percent. United said it would issue stock options to all employees taking part in its recovery plan. Wage cuts for the pilots union will take effect once the recovery program begins. The union said its members had approved the concession package on a tally of 6,526 to 340. About 80 percent of United's 8,800 pilots voted. The package provides for 18 percent pay cuts in 2003 and 2004, with pay restored to 2002 levels by the end of the deal in 2008. "The recovery program is the best and only realistic course of action for United," Paul Whiteford, chairman of the United pilots' union, said in a statement. Glenn F. Tilton, United's chief executive, said in a statement that the pilots' vote demonstrated unprecedented cooperation. "We are on a clear path to transform our airline and we must pull together to succeed," he said. If United is unable to secure approval from the air board for its loan guarantee package and cannot make or extend the debt payment, executives said, the airline will be forced to seek bankruptcy protection. The announcement of the salaried employees' concessions leaves only United's largest union, the International Association of Machinists, without an agreement. The union represents 26,000 baggage handlers, mechanics and other ground personnel at the airline, with which it has been holding talks in recent weeks. But the union has resisted granting concessions and in fact rejected US Airways' request for concessions before it filed for bankruptcy. David Gregory, a labor law professor at St. John's University in Jamaica, Queens, attributed the machinists' attitude to a general suspicion that pervades the labor movement in the wake of high-profile bankruptcies at Enron, WorldCom and other companies. "The labor movement just doesn't believe what corporate America is telling them," Professor Gregory said. "There is almost a complete disregard for management, and United Airlines is caught up in that." Moreover, he cited a "profound incredulity" among ordinary workers that an airline the size of United could end up in bankruptcy court. But Thomas L. Boland, managing partner at the Seneca Financial Group in Greenwich, Conn., said a court restructuring seemed likely for United as the best way to attack its cost structure. "I think that the clock is ticking, and that may be the only way they can perform the radical surgery they need to survive in the long term," Mr. Boland said. Mr. Boland, the former chairman of the US Airways Shuttle and a longtime executive with Citigroup, advised America West in its successful loan guarantee bid last summer. Mr. Boland noted that even with provisional approval from the air transportation board, US Airways still had to resort to Chapter 11 bankruptcy. He was skeptical of United's plan, outlined on Sunday, that calls for the airline to return to an operating profit in 2004 and to begin repaying the loan guarantees, if granted, in 2005. "It sounds like they're putting a plan together that's saying everything is going to be good in two years," Mr. Boland said. "What happens if everything isn't good in two years, and everything comes home to roost, and they'll be in the soup again? They haven't fixed anything, they've just deferred the problem." http://www.nytimes.com/2002/11/19/business/19AIR.html?ex=1038722636&ei=1&en=bddc6d7909d19c41 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