This article from NYTimes.com has been sent to you by psa188@juno.com. US Airways to Cut Costs $1.8 Billion a Year December 22, 2002 By MICHELINE MAYNARD US Airways said yesterday that it would reduce its costs by $1.8 billion a year, or 17 percent, after it emerges from a bankruptcy reorganization through employee wage and benefit concessions, expanded use of regional jets and changes in the way it uses its routes. The airline added that its chief lender, the Retirement Systems of Alabama, would control eight of 15 seats on its board after it emerges from Chapter 11 bankruptcy protection. The Alabama pension fund would have the largest stake in the airline, 36.6 percent, after agreeing in October to pay $240 million and to provide $500 million in financing. But the airline said that its employees would control 31.2 percent and receive four board seats, up from the three promised when US Airways envisioned a 13-member board. The federal government would hold a 10 percent stake, once US Airways receives final approval for its application for $900 million in loan guarantees. The disclosures came in a restructuring proposal filed late Friday night with the United States Bankruptcy Court in Alexandria, Va. The airline, based in Arlington, Va., released details of the plan yesterday, hours after it reached agreement with its machinists' and flight attendants' unions on additional wage and benefit concessions that are a linchpin of its recovery plan. The proposal said US Airways' recovery ultimately will rest on four major criteria: savings that it achieves through employee concessions and its own cost-cutting; the greater use of more efficient regional jets; an agreement on joint ticket sales with United Airlines, set to begin in January; and an eventual rebound in the airline industry, sluggish for the past two years. The company's chief executive, David N. Siegel, said yesterday that the airline, a unit of the US Airways Group, hoped to come out of bankruptcy as soon as March, if a judge approves the plan. However, US Airways' creditors will have the opportunity to raise their concerns, which could delay an approval for months. "As the entire industry grapples with restructuring, our efforts will ensure that we emerge from Chapter 11 protection as a very efficient airline with competitive labor, fleet and operating costs," Mr. Siegel said in a statement released by the airline. David G. Bronner, the chief executive of the Retirement Systems of Alabama, said yesterday that he was impressed by the actions of management and unions in agreeing to additional concessions. Two weeks ago, Mr. Bronner had threatened to withdraw the financing he had provided the airline, and to liquidate it if union members would not accept further wage and benefit cuts. The tentative deals with the machinists and flight attendants followed similar agreements between US Airways and its pilots, customer service agents and its flight controllers. Pilots have approved their plan, while the other unions must still vote. In all, US Airways' unions have tentatively agreed to a total of $1.04 billion in wage and benefit concessions annually through 2008, including the latest round of $200 million. Those agreements "demonstrate to us that there is a dedicated work force that will pull the company through and who will benefit from the future success of their airline," Mr. Bronner said in a statement. The airline said there will be additional layoffs but it did not provide specifics on reductions in its work force of 38,800. US Airways, the nation's seventh-biggest carrier, sought bankruptcy protection in August, after its business, which is largely on the East Coast, failed to rebound following the Sept. 11 attacks. Mr. Siegel, who joined the airline last March, tried to stave off the filing with an extensive cost-cutting program including employee concessions. The airline had won provisional approval from the federal Air Transportation Stabilization Board for $900 million in loan guarantees, but has yet to obtain final approval. Robert W. Mann Jr., an airline industry consultant in Port Washington, N.Y., said he was concerned that US Airways may have a harder time winning that approval. Mr. Mann said that the airline's fortunes have worsened significantly since last summer, when the board gave its initial approval. The rejection of concessions by one of its unions, or a war in Iraq could hurt the airline's chances of a loan guarantee, he said. Indeed, US Airways disclosed in its filing yesterday that it faces a $3.1 billion shortfall in its pension plan over the next seven years that it is required to address before the loan-guarantee board can complete action on its application. The airline said that it was searching for solutions. In the filing, US Airways' recovery timetable was decidedly modest, citing the heated competition in the industry and the struggle for airlines to regain business. Company officials said yesterday that they hope the airline can break even in 2004, and return to profitability in 2005. That information is not contained in the plan, which projected a loss of $229 million in 2003, and a profit of $587 million in 2009, after it has achieved cost savings and restructured both its fleet and its route system. The company has not reported a profit since 1999. The filing does not predict any widespread reduction in service or aircraft. Since filing for bankruptcy in August, US Airways has eliminated just one city, Saginaw, Mich., from its routes, which now serve 86 airports. It has cut its fleet to 279 planes from 311 in August, and said that it expects to maintain that number of aircraft. The biggest change would come in the airline's much wider use of regional jets. It disclosed in the filing that it would replace the turbo-prop planes deployed by its regional carriers, and expand its fleet of regional jets to 300 by 2006 from 70. US Airways said it had a pledge from General Electric Capital, its primary aircraft lessor, to finance the purchase of the additional aircraft once it emerges from bankruptcy. The use of regional jets will allow US Airways to deploy the more efficient aircraft on routes where it cannot fill a larger jet and where passengers have resisted flying the less-comfortable turbo-prop planes. Of the $1.8 billion in annual savings, US Airways said a portion would come through an agreement with United Airlines to allow each to book passengers on the other's flights, effective next month. United is also in Chapter 11, having filed for protection on Dec. 9, and US Airways cautioned in its filing that any unforeseen problems at United could affect it, as well. The US Airways filing reiterated that its existing common stock will be wiped out once it emerges from bankruptcy. Then, it plans to issue new common stock. The Alabama pension system would receive 19.7 million shares, as well as the entire issue of new preferred shares. The pilots' union, the largest employee stakeholder, would receive 14.7 million common shares, while unsecured creditors would get 4.5 million. Though Mr. Bronner has a simple majority of board seats, his voting control will be the equivalent of 72 percent, due to his common and preferred holdings. http://www.nytimes.com/2002/12/22/business/22AIR.html?ex=1041578352&ei=1&en=7ce6a0017ec8093c 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