USAir's unions are given an $800 million ultimatum

Airline may liquidate unless labor bows to cuts

August 19, 2004|By NEW YORK TIMES NEWS SERVICE

The chairman of US Airways said yesterday that its employees must agree to a third round of wage and benefit cuts worth $800 million in the next 30 days or the airline could be liquidated.

Absent a deal with its unions, David G. Bronner, who runs Alabama's pension fund, the airline's biggest shareholder, said he would not invest any more money to rescue US Airways.

Bronner's comments came as US Airways made a new contract proposal to its pilots' union, the only labor group with which it has opened formal talks. Other unions, notably the Machinists union, have been reluctant to grant another round of cuts on top of the two made while the airline was in bankruptcy.

US Airways emerged from bankruptcy last year, financed in part by $240 million invested by the Retirement Systems of Alabama. Some analysts have theorized the Alabama fund would come up with new capital rather than have the airline seek a second Chapter 11 filing.

But in an interview yesterday, Bronner disputed that thinking. "Why would you put new money in if they won't make a deal?" Bronner asked.

Bronner said agreements with the airline's unions were needed well before Sept. 30, when US Airways faces a series of covenants in its federally guaranteed loans, which secure its arrangements with aircraft lenders. To be assured that cost cuts will be coming, unions have about 30 days to craft agreements, he said.

In response, US Airways' pilots union said yesterday that it would not be pushed into making a quick deal. "We know where we are, and we know where we need to be," said Jack Stephan, a spokesman for the Air Line Pilots Association.

Robert Roach, a Machinists' union vice president, reiterated his union's willingness to help US Airways save money, short of reopening its contracts. In an interview, Roach said Bronner, whose fund had not invested in airlines before taking the controlling stake in US Airways, did not "fully appreciate or understand this industry."

Bronner said many union members thought the airline was acting like Chicken Little, falsely proclaiming that the sky was falling. These people believe US Airways "can go into Chapter 11 again and try to find somebody willing to throw so much money at it and see what drain it goes down," he said. "Good luck."

He said union members were mistaken to think that successful restructurings were commonplace. "What most people don't understand is that when companies go into bankruptcy, they don't come out," he said.

Bronner said he agreed with a report by the pilots union's financial adviser, which warned last week the airline was in danger of a second bankruptcy filing and could end up going out of business unless it can reduce costs and adopt a new business model similar to that of low-fare airlines.

Bronner said he and other investors would potentially be better off with the airline in liquidation, where they could snap up its planes, gates and routes at fire sale prices but not have to take on labor contracts.

"It's a whole lot cheaper for me to have the assets and start over than to have the liabilities," he said.

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