US Air takes 2nd flight to Chapter 11

Airline has been unable to get more concessions from workers

`We are facing the difficult choices'

Carrier is seeking $1.5 billion in reductions of its expenses

September 13, 2004|By Meredith Cohn | Meredith Cohn,SUN STAFF

US Airways Group Inc. filed for bankruptcy reorganization yesterday for the second time in two years, an expected but grim response to fierce competition from low-fare carriers threatening most of the nation's large and traditional airlines.

Officials at the Arlington, Va.-based airline said that for now, passengers can expect no difference in service, from using tickets to cashing in frequent-flier miles. But the future is less certain for investors, whose stock likely will become worthless, and more than 27,800 employees, who are being asked to make wage and benefit concessions.

As many of the half-dozen so-called legacy carriers try to extract savings from labor, which is the industry's biggest cost, US Airways has made no progress in recent months, and talks with pilots hit a stalemate this weekend. The carrier wants $1.5 billion in savings annually, including $800 million from its unions of pilots, flight attendants, agents, machinists and other workers.

"We are facing the difficult choices and the pressures that every legacy airline is going to be facing over the next several years," US Airways President and Chief Executive Officer Bruce R. Lakefield said in a statement. "It is no fun being first, and we take no pleasure in asking our employees to make additional sacrifices. However, we have come too far and accomplished too much to simply stop the process and not succeed."

The filing puts US Airways in line with United Airlines, which has remained in bankruptcy for two years. Officials at Delta Air Lines, which announced up to 7,000 job cuts this week, have said bankruptcy is possible. Others continue seeking ways to cut costs.

Analysts and company officials have said the situation for many in the industry is dire, especially for US Airways, United and Delta. It's unclear if they all will survive, and US Airways Chairman David G. Bronner has already said liquidating the company is possible if restructuring does not work.

One analyst said yesterday that the carrier will likely emerge from bankruptcy with a smaller route system.

"The question for a lot of investors and creditors is how much of the airline is going to be liquidated," Sean Egan, managing director of EJR Research told Bloomberg News. "The restructuring that's going to take place this go-round is obviously much more significant than the last. We expect a significant restructuring of their routes."

Shares of US Airways dropped 29 cents, or 17 percent, to $1.46 Friday. They are down 81 percent this year.

The legacy airlines, those operating before deregulation in 1978, have faced tough times during the past few decades, and some familiar names such as TWA and Eastern have vanished. But since the terrorist attacks of Sept. 11, 2001, and the subsequent recession, low-fare carriers now represent more than a quarter of the market and they continue to grow.

Other factors have had an impact on all airlines, such as skyrocketing fuel prices. US Airways has said it will spend $300 million more than expected this year on fuel.

But the low-fare carriers still have the advantage. Internet booking has made it easy for passengers to shop. That includes business travelers, who have in the past returned to their big-spending ways after economic downturns. But those passengers now appear to be warming permanently to low-fare carriers.

US Airways filed its petition for Chapter 11 protection yesterday in the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria.

During the airline's 2002-2003 bankruptcy in the same court, US Airways was able to cut $2 billion from operating costs, mainly from labor, which is why the unions say they are reluctant to bargain now. The International Association of Machinists and Aerospace Workers has refused to open negotiations.

Airline officials said that they will continue to seek new labor agreements with their unions, but that they would possibly use the courts to force concessions if necessary.

"The pilots of US Airways have already provided more than $5 billion worth of concessions to the company to support its previous restructuring efforts," Bill Pollock, chairman of the negotiating committee for the pilots union, the Air Line Pilots Association, said in a statement.

"We are currently engaged in transformation plan negotiations with management, and I fully expect these talks to continue during the company's reorganization efforts."

The savings from the last bankruptcy enabled US Airways to win a $1 billion loan, largely guaranteed by the Air Transportation Stabilization Board, a government panel created after the Sept. 11 attacks to aid struggling carriers. The board, as well as the airline's lenders, plans to allow the airline access to its cash. The money, along with airline assets, had been used as collateral for the loan.

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