US Airways says it's considering termination of pension plans

Carrier planning to skip $110 million due this week

September 14, 2004|By BLOOMBERG NEWS

ALEXANDRIA, Va. - US Airways Group Inc. might seek to terminate pensions for flight attendants, baggage handlers and mechanics, and plans to skip a contribution to pension funds today in its second bankruptcy reorganization in two years.

The airline told U.S. Bankruptcy Judge Stephen Mitchell at a hearing today that it considers $135 million in pension obligations, including $110 million due this week, to be a debt incurred before its filing yesterday, making the payment unnecessary under bankruptcy law. The company said in a court filing that it might "freeze or terminate" the pension plans.

The airline said it can't meet the "obligations under the pension plans and survive," according to filings at the court in Alexandria. The plans cover 4,600 baggage handlers, 4,500 mechanics and cleaners and 5,200 flight attendants. Benefit payments to retirees continue at this point.

"We are determined that any restructuring should not be at the exclusive expense of employees who already provided $1.5 billion to fund US Airways' last bankruptcy restructuring," Robert Roach, general vice president of the International Association of Machinists, said in a statement. The union represents 9,100 workers at the airline.

The judge didn't make any ruling related to the pensions, and the issue will be taken up at a hearing Oct. 7.

US Airways needs to preserve cash partly because it doesn't have loans to fund operations during reorganization and will rely on cash and daily revenue, leaving it vulnerable to liquidation unless the carrier can raise exit financing. The company couldn't get new capital because most of its assets, including cash, were previously pledged as collateral.

"If they were to run short of cash, I would expect it would happen in the first quarter of next year," said Philip Baggaley, an analyst at Standard & Poor's who has followed the industry for almost 20 years.

The airline also said in a court filing that more than $19 million owed to the pilots' savings plan from September through November isn't required to be paid. Separately, the judge gave the airline permission to seek to create a committee of retirees that would renegotiate medical benefits.

Mitchell approved US Airways' request to use "a portion" of $750 million in cash collateral as working capital. Most of the airline's assets were pledged to a U.S. board that provided a $900 million loan guarantee last year, and to General Electric Co., which provided aircraft financing.

The judge approved a series of requests that will let US Airways continue paying everyday business expenses and honor obligations to customers. A hearing on the company's use of the cash collateral will take place Oct. 14.

Arlington, Va.-based US Airways has $1.45 billion in cash, cash equivalents and short-term investments. The airline listed assets of $8.8 billion, including $2.5 billion in goodwill, and liabilities of $8.7 billion, excluding $2.6 billion in aircraft purchase commitments and $4.9 billion in lease obligations.

"This management team isn't here to preside over a liquidation," US Airways bankruptcy lawyer Brian Leitch from Arnold & Porter said at the bankruptcy court hearing. "We have every intention to have a successful reorganization."

US Airways shares fell 44 cents, or 30 percent, to close at $1.02 yesterday in Nasdaq stock market trading, and have declined 84 percent this year. Standard & Poor's dropped the airline's rating to D from CCC- yesterday.

US Airways filed for bankruptcy protection after pilots and flight attendants rejected proposals to cut $800 million from labor expenses in a plan to slash annual spending by $1.5 billion. By tomorrow, the airline was supposed to make a $110 million pension payment, and in two weeks might violate terms of aircraft-financing agreements and a $1 billion loan, most of it backed by the government.

"Since we still lack the labor agreements that are needed for the transformation plan to succeed, we must preserve the company's cash resources," Chief Executive Officer Bruce Lakefield said in a statement at the time of the filing.

The airline said that flights will continue normal operation.

The airline's second bankruptcy may be prompting more travelers to make other arrangements, said travel experts such as David Stempler, president of the Air Travelers Association consumer group. "There has been a lot more concern expressed from my members about buying out into the future," he said in an interview.

US Airway risks running out of cash during the industry's slow U.S. winter season, and could fail to find financing to exit bankruptcy, Baggaley said.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.