NYTimes.com Article: Debt Rating of US Airways Cut Another Notch by S. & P.

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Debt Rating of US Airways Cut Another Notch by S. & P.

January 10, 2004
 By MICHELINE MAYNARD





US Airways, which its chairman has said is in danger of
defaulting on $900 million in government-backed loans, had
its debt rating lowered yesterday by Standard & Poor's
because of concerns about growing competition from low-fare
carriers.

Standard & Poor's also kept US Airways and its corporate
parent, the US Airways Group, on negative CreditWatch,
meaning that the airline's debt could be downgraded again
in the near future.

The downgrade - to B- from B, both well below investment
grade - capped a bleak week for US Airways, the nation's
seventh-largest airline, which has encountered financial
problems since emerging from Chapter 11 bankruptcy
protection last April.

On Thursday, the airline's chairman, David G. Bronner,
confirmed that the airline had retained Morgan Stanley to
seek potential buyers for some of its biggest assets. Among
the units the airline is considering putting up for sale is
its East Coast shuttle; regional operations and gates at
various airports; and one of three hubs: Philadelphia,
Pittsburgh or Charlotte, N.C.

A number of airlines signed confidentiality agreements
yesterday with US Airways in return for being allowed to
see the deals that Morgan Stanley is offering, according to
people who have been briefed on the arrangements. The group
is thought to include both mainline carriers and low-fare
airlines. "They're in contact with everyone," someone
briefed on the discussions said.

Meetings between the potential bidders and US Airways are
expected to begin as soon as next week. US Airways' board
is scheduled to meet in February to discuss the airline's
next steps.

Mr. Bronner, who is also the chief executive of Retirement
Systems of Alabama, a big pension fund that is the
airline's largest shareholder, said that US Airways was in
danger of defaulting on the covenants of its federally
guaranteed loans.

The loans, which were awarded by the Air Transportation
Stabilization Board last spring, were the centerpiece of a
$1 billion restructuring plan.

If US Airways fails to comply with its loan covenants, it
would be the first time a major airline reneged on its
commitments to the loan board, which was formed after the
September 2001 attacks to administer bailouts to the
nation's airlines. Mr. Bronner has pledged that the airline
will avoid that fate. But it must cut $200 million to $300
million in costs, or raise an equivalent amount of cash, in
the next 60 to 90 days.

The rating reflected the airline's "weak financial profile,
vulnerability to increasing competition from low-cost
airlines, and a relatively limited route structure," said
Philip Baggaley, S.& P.'s airline analyst.

Mr. Baggaley questioned whether US Airways would be able to
meet the loan covenants, which include a requirement that
the airline have slightly more than $1 billion in
unrestricted cash on hand on June 30; the airline has been
losing about $1 million a day.

In a letter to employees, the US Airways chief executive,
David N. Siegel, said yesterday that the airline ended the
year with $1.29 billion in cash. He said the airline
"cannot fritter that money away, and we cannot fool
ourselves into thinking we can simply spend that money,
hoping the world gets better."

Mr. Siegel also said it was not unusual for companies to
examine strategic alternatives, adding that if there were
strategic partnerships that would help the airline, "we
will examine them as well."

Even if it can sell assets - like the East Coast shuttle
service or one of its hub operations - or generate enough
business to keep its cash cushion, Mr. Baggaley said it
might still fail to meet other covenants, including one
requiring a certain ratio of debt to operating cash.

"If they simply continue on the current course and don't
renegotiate them, I'd think there is a better than 50
percent chance that they won't be able to meet the
covenants," Mr. Baggaley said.

If the company cannot, the loan board has the right to
demand immediate payment of the loans, according to federal
bankruptcy court documents that accompanied the loan
guarantees.

Even so, the board said in the documents that it would make
itself "reasonably available to consult in good faith" on
ways a default could be avoided. Mr. Baggaley said he
expected the airline would be able to reach new terms with
the loan board, perhaps agreeing to pay its debt more
quickly.

"I don't think the A.T.S.B. is eager to shut them down," he
said, "but they would like to see the company take some
self-help measures."

http://www.nytimes.com/2004/01/10/business/10air.html?ex=1074753136&ei=1&en=8b22a01fafbdf729


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