This article from NYTimes.com has been sent to you by psa188@juno.com. US Air's Chief Lender Threatens the Ultimate December 7, 2002 By MICHELINE MAYNARD The chief executive of the primary lender to US Airways said yesterday that he would liquidate the airline if unions refused to provide $200 million in additional wage and benefit concessions. In an interview, David G. Bronner, head of the Retirement Systems of Alabama, said that he did not expect to have to follow through on his ultimatum and predicted that the discussions between the airline and its employees would result in an agreement by next week. The concessions would be the second round in US Airways' efforts to draft a reorganization plan under Chapter 11 protection from its creditors. US Airways has said it hopes to submit its proposal to a federal bankruptcy court by Dec. 20. Before that, it would like to receive final approval for $900 million in loan guarantees from the government, which gave it provisional approval last summer. To do so, the airline has asked union members for further cuts in pay and benefits. If they do not comply, Mr. Bronner said in the interview, the airline would go out of business and be liquidated in bankruptcy court. "What's their alternative?" he asked rhetorically. "If they don't want to do this, we'll Chapter 7 it." Referring to the debtor-in-possession financing that the Alabama pension system is providing the airline during its time under bankruptcy protection, Mr. Bronner said that without concessions, "we'll pull the D.I.P. financing and they're gone." His stance with the US Airways unions is an example of the tough approach that analysts expect airlines to begin taking with employees now that a United Airlines bankruptcy filing seems highly likely. Indeed, Mr. Bronner's comments came as Donald J. Carty, the chairman and chief executive of American Airlines, continued a series of meetings this week with groups of employees. In the meetings, which began last week in Chicago and are expected to continue through the end of the year, Mr. Carty is emphasizing the financial crisis American is facing and its need for concessions, an American spokesman, Tim Doke, said. The airline is telling employees that if United emerges from bankruptcy with labor cost reductions, American will have to become similarly lean, Mr. Doke said. At US Airways, Mr. Bronner's words carry extraordinary weight. As the result of negotiations completed this week, Mr. Bronner, who directs the $25 billion Alabama fund, will in effect take control of the airline's board at the point US Airways emerges from bankruptcy. Mr. Bronner and the airline agreed that he will have 7 of the 13 seats on the board, up from the 5 that he and the Alabama pension fund originally gained when he came forward in September to bid for the airline. Mr. Bronner said the seven seats would be equivalent to 72 percent voting control of the airline, for which he initially agreed to provide $240 million in immediate financing as well as $500 million more in debtor-in-possession financing, outbidding the Texas Pacific Group. US Airways has drawn $300 million of that $500 million but cannot draw the remaining $200 million until it emerges from bankruptcy. Mr. Bronner said that he would occupy one of the seven board seats, but had not decided who would have the others. As part of the agreement with the airline, Mr. Bronner is cutting his fund's stake, originally 37.5 percent, to 36 percent, so that a larger share can be given to unsecured creditors. Management is also reducing its stake, to 8 percent from 10 percent. Whenever the company emerges from bankruptcy, which it hopes to do by March, Mr. Bronner said he would give 2 percent of his stake to management to restore its lost holdings. The negotiations came as US Airways struggles to reduce its costs and complete its Chapter 11 plan. Though workers cooperated in an initial round of concessions, some are opposed now. Only the pilots' union has agreed to consider further concessions. The machinists' union has rejected the idea, while the flight attendants said they would participate only if other unions did so. Mr. Bronner asserted it was vital for the airline to obtain work rules from the unions "that are in this century, and not in the last century." Yesterday, Scotty Ford, the president of the union chapter that represents mechanics, said he was willing to meet with US Airways on the matter. "We're just going to see what they're going to say," Mr. Ford said. Patricia Friend, international president of the Association of Flight Attendants, was critical of Mr. Bronner. "He's acting as though he believes an airline can be saved on the back of the workers," she said. "It shows his lack of experience. Maybe he's looking for an easy way out because he made a mistake. There's not going to be anything to govern if he liquidates." Under the restructuring plan, unions will have three representatives on US Airways' board, one each for pilots and machinists, and the third to be shared by flight attendants and other employee groups. But unlike their counterparts at United Airlines, the union representatives do not receive veto power over company affairs, nor will the unions hold a stake in US Airways. A spokesman for the airline, Chris Chiames, declined to comment on Mr. Bronner's remarks but said, "We plan to be working through the weekend, talking with our unions, and have every confidence that we'll reach agreements." Mr. Bronner said he had no regrets about investing in the airline, despite the difficulties in this stage of the reorganization plan. "It always gets ugly right at the end," he said. Officials at American, meanwhile, said their airline had no timetable for achieving cost reductions. Nonetheless, the carrier hopes that employees will rapidly agree to cuts that will help achieve savings of $3 billion to $4 billion a year by 2004, compared with what it spent on operations in 2001. Management has already squeezed out spending cuts of about $2 billion a year before approaching the union groups, said Mr. Doke, who is American's vice president for corporate communications. "One of the purposes of these meetings is to give the sense that this is a period of immediate financial crisis," he said, "and we have to address it with that sense of urgency. We have to acknowledge that this is a time where we need to take a real hard look at our contracts, and look for as many savings as we possibly can." In the meetings, which involve senior executives of American, the airline is providing employees with details of those spending cuts, then presenting comparisons between its labor costs and those of its competitors. The approach is intended to show employees that they are not the only source from which American is extracting savings. But, Mr. Doke continued, "Obviously labor is a major expense line in this company, and we're going to have at some solutions to get us closer to the $3 billion to $4 billion target that will make us competitive." While some analysts have speculated that American, based in Fort Worth, could follow US Airways, and potentially United, into bankruptcy court, the airline is not raising that possibility with employees, he said, nor does it expect that workers would put it in that position. "None of our employees want to have anything close to a United situation," he said. "I don't think there's any way our employees will let us get to the point where a creditors' committee and a bankruptcy judge are writing our contracts." But the airline is also not ignoring the economies that United could achieve in bankruptcy. "If United emerges as more competitive in their operations, we're going to have to be competitive with them on the cost side," Mr. Doke said. He described the meetings as cordial, not adversarial, adding, "It's kind of a 180 from the kind of approach our friends in Alabama are taking." http://www.nytimes.com/2002/12/07/business/07WAYS.html?ex=1040276239&ei=1&en=a7b9645784ffa2a4 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