US Airways may have to file for bankruptcy

Airline views alternatives if it can't get federal aid

Difficult restructuring

Gloomy outlook sends stock plummeting 27%

May 11, 2002|By Paul Adams | Paul Adams,SUN STAFF

With its losses mounting, US Airways Group Inc. said yesterday that it might have to file for Chapter 11 bankruptcy protection if it is unable to cut costs and obtain new financing backed by the federal government.

The airline is putting the finishing touches on a restructuring plan and preparing to apply for a federal loan under a $10 billion program approved by Congress last year to help airlines recover from the terrorist attacks of Sept. 11.

The nation's seventh-largest airline will become the second major carrier to apply for such a loan, which probably would require wage concessions from employees and give the government partial ownership of the company.

US Airways Group, the airline's parent, lost $2 billion last year and reported a $269 million loss for the first three months of this year. The airline has eliminated more than half of its flights at Baltimore-Washington International Airport, where it was once the dominant carrier.

"It's a big deal because for the first time the company is admitting that it may be forced to file for bankruptcy," said James Corridore, an airline analyst with Standard & Poor's.

Analysts have been saying for months that US Airways was a high risk for bankruptcy. But until recently, the airline had more than $1 billion in cash reserves to see it through the current crisis.

The company spent cash at the rate of $3.5 million a day in the first quarter, leaving it with $561 million as of March 31.

US Airways, based in Arlington, Va., has been hit hard by low-fare competition in the Northeast and a decline in business travel.

"Clearly, our preferred approach, which we are vigorously pursuing, is to reach an accord with our stakeholders, including our employee groups, on a restructuring plan and to obtain the federal assistance," said David N. Siegel, US Airways president and chief executive officer, in a statement to employees yesterday.

If the company doesn't get government support, the airline might have to consider "alternative restructuring scenarios in the context of a judicial reorganization," the company said in a filing with the Securities and Exchange Commission.

"Simply stated, this means reorganization under the protection of the U.S. bankruptcy laws," Siegel said.

The company's shares fell $1.35, or 27 percent, to $3.60 per share yesterday. The shares have dropped more than 85 percent in the past year.

Analysts said US Airways' latest statement seems as much directed at labor leaders as at the Air Transportation Stabilization Board, which Congress established in the fall to review loan applications. The government set aside $10 billion in loan guarantees as part of a $15 billion airline bailout package.

The airline will have to show the loan board that it has a workable business plan before getting approval. In addition, analysts said, the loan board is likely to require concessions from employees and vendors, similar to concessions the courts would demand as part of a bankruptcy proceeding.

US Airways is expected to press its unions to accept wage concessions as part of its restructuring plan. US Airways has the highest operating costs of any major airline in part because of its shorter routes and expensive labor contracts.

Labor leaders have indicated that they will oppose wage cuts and have accused the company of not giving employees any voice in the restructuring plan.

"We have gotten no indication of what the restructuring plan is going to look like," said First Officer Roy Freundlich, a spokesman for the Air Line Pilots Association.

America West Airlines, the nation's eighth-largest, is the only major carrier to have received a loan guarantee. The airline borrowed $380 million but had to give the government the option of buying up to a third of its shares in exchange.

US Airways would be expected to face similar demands, but airline officials say they have no choice but to submit to the board's requirements. "In the past, we have had the ability to sell assets to tide us over. Today, we have none left to sell," Siegel told employees.

Airline officials are concerned about legislation introduced in Congress this week that would scrap the loan guarantee program. That would leave US Airways with few options other than bankruptcy.

"They would be signing a death warrant for US Airways if they did," said Ray Neidl, a New York airline analyst, referring to the proposal to kill the loan guarantees.

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