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US Airways files for bankruptcy
By STEVE HUETTEL, Times Staff Writer
US Airways filed for bankruptcy protection from creditors Sunday to fix chronic financial problems that threatened its survival after the Sept. 11 terrorist attacks. The airline will continue to operate flights to more than 200 cities, pay employees on schedule and maintain its frequent flier program throughout the Chapter 11 reorganization, the carrier said. All major airlines have suffered huge financial losses as travel and air fares dropped in the wake of the attacks, but US Airways is the first to file for bankruptcy protection. The nation's No. 7 carrier and third-largest at Tampa International Airport, US Airways lost nearly $2-billion in 2001 and more than $500-million this year. The airline was hit particularly hard as the government closed Washington's Reagan National Airport, among its biggest money-makers, for three weeks, then reopened it with a limited schedule. US Airways and aviation experts said Sunday that the bankruptcy filing will immediately improve the carrier's finances and help secure a long-term future for the long-ailing airline. The airline said it has a commitment for $500-million in private financing while reorganizing. It also has a deal with a Texas company to invest $200-million after it emerges from bankruptcy court. "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 David Siegel, US Airways' chief executive. The reorganization won't come without pain, said Darryl Jenkins, head of the Aviation Institute at George Washington University. US Airways, which cut 11,000 jobs -- a quarter of its employees -- since Sept. 11, will inevitably lay off more workers, he said. The company said Sunday that investors might end up receiving nothing for their shares. But when US Airways comes out of bankruptcy court, Jenkins said, the airline will have the lower labor and operating costs it has long needed to compete. "They will come out being a very strong competitor against other network carriers," he said. "Some employees will lose their jobs, but those that hang on will have lifetime employment." US Airways has the industry's highest operating costs, largely because it was patched together from several different carriers. The airline had an odd mix of aircraft, three East Coast hubs and a system of costly short-hop routes. US Airways also has a senior work force and pays top wages even as its market share has declined. The airline originally said it needed $950-million in labor cost savings but has agreed to deals for slightly lower reductions. US Airways pilots and flight attendants approved new contracts that would cut $541-million in pay and benefits. The International Association of Machinists said it will submit a company proposal delivered Sunday to the airline's mechanics and related workers. "Our members will not give up on US Airways, and neither should anyone else," Robert Roach Jr., general vice president of the union said after the bankruptcy filing. "We believe US Airways can successfully restructure while it continues to serve the traveling public and provide employment for our members." That leaves only the airline's customer service agents and baggage handlers without proposed new contracts. The labor savings -- plus concessions from suppliers, aircraft lessors and lenders -- are a key part of the recovery plan. The Air Transportation Stabilization Board gave conditional approval for $900-million in federal loan guarantees last month, provided US Airways delivers on the cost reductions. The airline needs the money after emerging from bankruptcy to buy hundreds of money-saving, 44- to 78-seat jets to replace turboprop planes and compete in smaller markets. US Airways listed $7.81-billion in assets and $7.83-billion in liabilities in its petition, filed with the U.S. Bankruptcy Court for the Eastern District of Virginia. The court scheduled a hearing for today. Among other things, US Airways will be able to break contracts it thinks are too costly and work out deals to pay creditors pennies on the dollar for outstanding debts. The airline owes Tampa International for one month of landing fees and terminal rents, amounting to about $200,000, said Louis Miller, the airport's executive director. Though it will cost the airport some money, he said, the bankruptcy will assure US Airways' health. "It's probably a good thing," Miller said. "It was the only way they were going to make it." Once the airport's largest carrier, US Airways slipped behind Delta Air Lines and Southwest Airlines this year. The $500-million in interim financing will come from Credit Suisse First Boston and Bank of America, among others. Texas Pacific Group has agreed to invest $200-million after the airline emerges from bankruptcy court for a 38 percent share of the carrier. A principal in Texas Pacific is David Bonderman, who invested in Continental Airlines and reaped big profits as its recovered after a bankruptcy in the early 1990s. "These are not people who just fell off the turnip truck," said Michael Boyd of the Boyd Group, an aviation consulting company in Evergreen, Colo. "It's a real message that US Airways is out of the woods." -- Steve Huettel can be reached at huettel@sptimes.com or (813) 226-3384.
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From the Times Business report
From the AP
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