US Airways files for Chapter 11 Bankruptcy protection

By: Bhoy - 12th August 2002 at 00:01

from CNN.com

USAir files for bankruptcy

Carrier says it will continue operations, obtains $500M in debtor financing.
August 11, 2002: 7:40 PM EDT

NEW YORK (CNN/Money) - US Airways Group Inc. filed for bankruptcy Sunday, saying it will continue to operate while it tries to restructure its finances and emerge from protection early next year.

"Ultimately, this effort is about our customers , employees and the communities we serve as we seek to fix the airline's finances and return to profitability," said US Airways President and CEO David Siegel in a statement.

Siegel said Arlington, Va.-based US Airways will continue to serve the more than 200 cities in its network. The Dividend Miles frequent flier program will continue, as will the company's co-branded credit card with Bank of America. US Airways says its 40,000 employees will receive scheduled paychecks and all other benefits, and that vendors will continue to be paid for goods and services as delivered.

The carrier says it has secured $500 million in debtor financing from a group led by Credit Suisse First Boston and Bank of America. It also says it will receive a $200 million equity investment from Texas Pacific Group upon emergence from Chapter 11 protection.

"In the face of an uncertain and trying time for the industry, we have been impressed with the major strides taken by US Airways' management and employees to significantly improve the competitiveness of the airline," said Richard P. Schifter, a Texas Pacific partner, in a statement released by US Air. "Our capital and industry experience can contribute to the company's prompt emergence and long-term prosperity."

US Air is also expecting a $1 billion collateralized loan backed by a federal guarantee that has been conditionally approved by the Air Transportation Stabilization Board, provided the company is able to get cost-cutting accords with its unionized employees.

US Airways says it expects the court-supervised restructuring will be accomplished on a "fast track" basis, and that it will emerge from Chapter 11 protection in the first quarter of 2003.

The filing was made Sunday at the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandra. US Airways says a hearing before Judge Robert G. Mayer is scheduled Monday at 10:30 a.m. ET. In its petition, US Air says it listed assets of $7.81 billion and liabilities of about $7.83 billion.

US Air says the bankruptcy filing will allow it to derive cost savings from aircraft lessors, financiers and "other key stakeholders."

Unions making concessions
Among those stakeholders are the airline's employees. US Air says it has negotiated cost savings from several of its unions, with those representing pilots, flight attendants and flight crew training instructors ratifying the accords. In exchange, it has promised union representation on its board of directors.

The International Association of Machinists and Aerospace Workers (IAM) said Sunday it will put a cost-cutting proposal to a vote of its 6,800 mechanics, and that a meeting is scheduled Monday between the carrier and officials representing an additional 5,450 fleet workers.

"Our members will not give up on US Airways, and neither should anyone else," IAM General Vice President Robert Roach Jr. said in a statement. "We believe US Airways can successfully restructure while it continues to serve the traveling public and provide employment for our members."

US Airways says it has not received a formal response to its request that one other union, the Communications Workers of America, submit a cost-cutting measure to its members. The carrier also says that officers, management and non-union employees are taking pay cuts and foregoing bonuses and benefits.

"We recognize the impact the sacrifices they are making will have on them and their families," Siegel said. "In exchange for their participation, we have committed that this will be a labor friendly Chapter 11 reorganization, in which we will honor new agreements that have been ratified, and provide labor a voice in the company's governance."

The airline, already hit by a drop in business travel, suffered with the overall drop-off in travel after the Sept. 11 terrorist attacks. One of US Airways' major bases -- Washington Reagan National Airport -- did not completely reopen to commercial flights for months after the attacks because of security concerns.

The closure hurt the airline; US Airways lost nearly $2 billion last year and losses continue to mount. The bankruptcy filing will allow the airline time to get back on its feet.

US Airways shares closed Friday at $2.45, up 5 cents.