US Airways 3-month recovery plan calls for luck By Barbara De Lollis USA TODAY As US Airways opens a three-month campaign to fly out of bankruptcy reorganization, its survival may depend as much on good luck as smart strategy and creditors' support. US Airways is counting on $1.8 billion in annual cost savings to power its transformation from a high-cost competitor that had its last profitable year in 1999 into a leaner, efficient moneymaker by 2004, according to a reorganization plan filed with the bankruptcy court late Friday. Achieving that vision requires fixing US Airways' pension plan — underfunded by an estimated $3.1 billion over seven years — a problem for which airline officials don't yet have a solution. It also rests on assumptions about a key ally and the industry's recovery that the airline's plan admits might prove too optimistic. "There are lots of hurdles ahead of them, and the pension is clearly one," says airline consultant Mo Garfinkle. "But the biggest hurdle they have is: Are they going to meet their revenue projections?" Among the challenges: The pension plan. Resolving this issue is one condition US Airways must meet to obtain a federal guarantee for most of a $1 billion loan it will need after it emerges from reorganization. United Airlines' future. US Airways and United begin joint marketing of flights next month, a deal that US Airways has previously said could bring in $200 million a year in revenue. But United's own bankruptcy reorganization may lead to cutbacks that could reduce that value. An unpredictable airline industry recovery. US Airways missed its revenue projections in September, October and November because of a slower-than-expected recovery in air travel, which forced the carrier to ask its unions for deeper concessions. The industry is likely to lose $7.4 billion this year, excluding special charges, and $3.6 billion next year — on top of $6.2 billion in losses last year, says UBS Warburg airline analyst Sam Buttrick. A delayed economic recovery, another terrorist attack or war with Iraq could worsen the outlook. US Airways' supporters say the reorganization should give it the muscle to be a successful carrier. "It's going to be a powerful East Coast carrier with a competitive cost structure that ultimately will allow it to compete efficiently with Southwest, JetBlue, AirTran and other low-cost-structure carriers," says Jonathan Ornstein, CEO of Mesa Airlines, a regional carrier for US Airways. The bankruptcy filing does not spell out plans for US Airways' route network, which serves 203 cities. The airline says it is still negotiating airport and aircraft leases and plans to submit details to the bankruptcy court before the proposed voting deadline. In its financial projections, the airline estimates it will lose $229 million in 2003 but make a $122 million profit in 2004. An expected $1 billion in reduced labor costs will last through 2008. The reorganization plan also says: US Airways expects its key investor, the Retirement Systems of Alabama (RSA), and unsecured creditors committee to endorse the plan by Jan. 16. It expects to begin seeking creditors' support for the plan in late January and to obtain court approval to emerge from reorganization in March. RSA will own 36.6% of the reorganized airline; the federal government, 10%; unsecured creditors, 10.5%; GE, a leading creditor, 5%; airline pilots, 19.3%; other employees, 10.8%; and management, 7.8%. US Airways' current stockholders will be wiped out. RSA will have eight of the new board's 15 seats, and labor will have four. US Airways CEO David Siegel and two directors nominated by the company and unsecured creditors will round out the board. Roger EWROPS