Judge lets US Air cut pay

He allows company to suspend union pacts

`A ticking fiscal time bomb'

Wages to be trimmed 21 percent for 4 months

October 16, 2004|By BLOOMBERG NEWS

Alexandria, Va. - US Airways Group Inc. won a bankruptcy judge's approval yesterday to suspend its union contracts for four months and cut worker pay 21 percent, as the seventh-largest U.S. airline struggles to avoid going out of business.

"What we have here is a ticking fiscal time bomb," U.S. Bankruptcy Judge Stephen S. Mitchell said. "Because the meltdown might happen some months from now does not mean that the relief is not needed."

The company had sought a six-month suspension and pay cuts of 23 percent to provide enough cash to operate during the slow winter travel season. Talks on longer-term concessions are continuing.

US Airways faced "the very real prospect of liquidation," company lawyer Brian Leitch told Mitchell earlier. US Airways, which filed its second bankruptcy in two years Sept. 12, wants $950 million a year in long-term labor concessions to help it reorganize and compete with low-cost carriers such as Southwest Airlines Co.

"We do not celebrate or take joy in this decision," Chief Executive Officer Bruce Lakefield told workers in a recorded message. "I know full well that the pay cuts that result from this measure will hurt, and I sincerely regret that the company had to take this path."

Without the cuts, the risk to workers' livelihoods "would be far worse as the chances of successfully exiting bankruptcy would be next to impossible," he said. The company will continue to pursue permanent concession agreements, Lakefield said.

The Arlington, Va.-based airline warned in a Sept. 24 court filing that it could be forced out of business by mid-February without immediate cuts totaling about $200 million over six months. US Airways couldn't secure traditional bank financing when it filed for bankruptcy because nearly all of its assets are backing existing loans. Instead, it is using cash and daily revenue to fund operations.

In addition to the pay reductions, US Airways won the right to alter pension-plan contributions and 401(k) matches for some workers, send some mechanics' work to outside companies, require pilots and flight attendants to work longer hours if needed and remove a January 2003 agreement to operate at least 279 planes.

The International Association of Machinists and the Association of Flight Attendants fought US Airways' bid for court approval of the cuts, arguing that the carrier failed to prove it needs the temporary reductions to avoid going out of business. The two groups are the company's largest labor unions.

US Airways management "will immediately begin pressing workers for additional, longer-term cuts in pay, benefits and working conditions," said the Communications Workers of America, which represents customer service and reservations agents.

The cuts approved yesterday are "unfair and excessive," and will be devastating to some workers, reducing wages to 1982 levels, said Perry Hayes, president of the Association of Flight Attendants.

"Flight attendants have been targeted for punitive treatment by a company that awarded pay raises to its non-contract employees just prior to its bankruptcy filing, while sticking our members with an overwhelming burden for its inept management practices," Perry said in a statement.

The US Airways pilots union will announce results Oct. 21 of voting on a plan to provide $300 million a year in permanent, long-term cost savings. Three small groups represented by the Transport Workers Union have approved concessions.

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