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US Airways Seen as Likely to Declare Bankruptcy
By MICHELINE MAYNARD
B <http://graphics7.nytimes.com/images/dropcap/b.gif> arring a
last-minute change of heart by its recalcitrant unions, US Airways
appears all but certain to seek bankruptcy protection on Sunday, people
briefed on the situation said yesterday.
In that event, the airline is considering a bankruptcy filing without
debtor-in-possession financing, a standard feature of most Chapter 11
cases. Instead, it would rely on cash on hand to finance its operations
and would explore whether it needed additional financing in the future,
these people said.
Christopher L. Chiames, the airline's senior vice president for
corporate affairs, declined to say yesterday whether a bankruptcy
filing, which would be the airline's second in two years, was imminent.
"All along in this process, we've acknowledged that a bankruptcy filing
might be necessary, but no decisions have been made," he said.
The final say is up to the US Airways board, which has not met to
discuss the issue, he said. But the board can meet by telephone and
could do so on short notice.
The airline sought Chapter 11 protection in August 2002, a filing that
also took place on a Sunday. It emerged in April 2003, backed by a $900
million package of federal loan guarantees, the largest awarded by the
Air Transportation Stabilization Board.
The airline's lead investor was the Retirement Systems of Alabama, which
took a 36.5 percent stake in the airline and eight of 15 seats on its
board in return for a $240 million investment. The pension fund's chief
executive, David G. Bronner, became US Airways' chairman.
Last month, Mr. Bronner said a second bankruptcy filing could turn into
a Chapter 7 liquidation because the crippled airline would not be able
to attract new investors.
Yesterday, Mr. Bronner said liquidation was still a possibility but that
a Chapter 11 filing would be more likely if any action occurred. He did
not say what the timetable would be. "We absolutely still have hopes" of
avoiding a bankruptcy filing, Mr. Bronner said in an interview with The
Associated Press.
Any such hope rests with unions representing pilots, flight attendants,
mechanics and other workers, from which the airline has been trying to
win $800 million in wage and benefit cuts. Workers granted two rounds of
concessions worth $1.9 billion while US Airways was in bankruptcy but
have resisted further cuts.
The chances of obtaining the cuts dimmed late Monday when pilots opposed
to further concessions blocked leaders of the Air Line Pilots
Association from allowing members to vote on the company's latest
proposal for $295 million in cuts. Backing from the pilots is critical
if the airline is to win support from other labor groups.
The leadership group is meeting today in Pittsburgh, home base to two of
the four rebel pilots whose efforts prevented the offer from reaching
the pilots.
Yesterday, one of those pilots, Fred Freshwater, said he had not changed
his stand against the proposal. He said speculation about a filing "may
or may not be true" and accused the airline of trying to play on pilots'
fears to coerce a vote.
US Airways has exchanged proposals with its flight attendants, but those
talks are far from concluding. The International Association of
Machinists, meanwhile, has refused to reopen its contract with the
airline. A spokesman, Joseph Tiberi, said yesterday that no discussions
had been held.
US Airways ended the second quarter with $925 million in cash, about
$200 million more than it is required to have on hand under the terms of
its federally backed loans and more than it had when it filed for
bankruptcy protection last time.
But that floor will quickly loom if US Airways makes a $110 million
contribution to its employee pension funds, due Wednesday, a move that
seems unlikely because that would leave it with little surplus cash.
It cannot seek outside financing because its collateral is pledged to
secure its remaining $700 million in federally backed loans. In fact, US
Airways pledged assets worth $1.4 billion, or two times the value of the
guarantees. The stabilization board also received a 10 percent stake in
the airline. So in the event it defaults on its loan package, the board
would essentially have the right to claim US Airways' cash, as well as
aircraft, gates, routes and other assets.
People involved in the discussions said the board would watch any
actions that the airline took in bankruptcy and determine its next
steps.
US Airways sought the union concessions as part of a $1.5 billion
revitalization plan, which Mr. Chiames has described as an "extreme
makeover" meant to transform US Airways from a traditional airline into
a rival to low-fare airlines.
The airline is planning to dismantle its Pittsburgh hub, eliminate
service to some of the 34 small cities where it is the only airline and
concentrate more on direct flights.
Some industry analysts say US Airways could be seen as the first victim
of its low-fare rivals, including
<http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://cust
om.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=JBLU>
JetBlue, which battles with the airline for East Coast passengers, and
Southwest, which invaded US Airways' Philadelphia hub in May, forcing it
to lower fares.
But Robert W. Mann, a consultant based in Port Washington, N.Y., said US
Airways' problems stemmed from its strategy in the 1990's of relying on
mergers to expand operations without streamlining its costs.
"They're not a victim of low-fare competition," he said. "They're a
victim of a decade of not getting around to solve their problems."
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