US Airways accepts investment

ALEXANDRIA, Va. -- Alabama's public-employee pension fund is set to take a controlling interest in US Airways, although the deal approved in bankruptcy court Thursday makes it easier for other investors to make a better bid.

US Airways agreed Thursday to accept a $240-million investment from the Retirement Systems of Alabama. In return, RSA would receive 37.5 percent of US Airways shares when it emerges from bankruptcy, and would control 70 percent of the seats on the board of directors.

The deal, approved by U.S. Bankruptcy Judge Stephen Mitchell, replaces a previous $200-million investment from the Texas Pacific Group, a buyout firm whose founder, David Bonderman, has close ties to US Airways chief executive David Siegel.

Even though the pension fund's offer was 20 percent higher than the one from Texas Pacific, US Airways officials treated it with skepticism when they received it Sept. 18. As recently as Tuesday, airline lawyers filed papers opposing the pension fund's efforts.

But the airline and a committee of creditors were forced to take the fund seriously when it agreed to also provide $500-million in financing to the airline while it's in bankruptcy, in addition to the $240-million investment that kicks in when the airline emerges from bankruptcy. The $500-million replaces a financing package backed by Credit Suisse First Boston for the same amount.

Any would-be investor who wants to top the pension fund's offer has 60 days to do so. The deal with the pension fund removes several restrictions that would have been in place with the Texas Pacific Group, making it easier for another bidder to enter the picture.

For instance, Texas Pacific would have received a $7.5-million "breakup fee" if it were supplanted as the lead investor; RSA won't receive any fee. Also, Texas Pacific had the right to review any bids that were made and match them; RSA will not have that option.

"We certainly believe ... it will now be easier for other investors, if they're so inclined, to make an offer," said Lorraine McGowen, a lawyer for RSA. The fund had previously objected to the hurdles to outside investors that had been put in place under the proposed deal with Texas Pacific and for that reason agreed to a more open process.

Texas Pacific granted a waiver to US Airways that allowed the airline to negotiate with the pension fund.

"We continue to believe that Dave Siegel, the rest of the management team, and the employees of US Airways have done an excellent job in addressing the challenges the Company faces in a difficult industry environment," Texas Pacific said in a statement.

The fund, which has a history of high-profile investments, agreed as part of the deal to restructure $340-million in debts from US Airways. The fund was one of the airline's largest creditors.

US Airways, the nation's seventh-largest airline, has said it hopes to emerge from bankruptcy in the first three months of 2003. When it does, it will have access to a $1-billion federally guaranteed loan package in addition to the investment from the pension fund or any investor that might supplant the fund as lead investor.

UNITED UNIONS' OFFER: The offer by United Airlines' unions to slash labor costs by $5-billion to help stave off bankruptcy got a mixed public reception Thursday as the carrier's management and board huddled to review the proposal.

Investors drove United's lagging stock up more than 30 percent, restoring several weeks of losses. But numerous analysts said the concessions might be too little, too late, for an airline that was seeking even bigger cuts to end its two-year money-losing streak.

United chairman and CEO Glenn Tilton didn't publicly tip his hand whether the $1-billion-a-year concessions are enough or would likely satisfy the federal panel that's weighing United's application for a $1.8-billion loan guarantee. The board of directors discussed the plan at a regularly scheduled meeting Thursday but made no announcement.

Spokesman Joe Hopkins said it probably will be several days before the airline responds. "We need to take some time to assess what they've presented to us," he said.

AMERICAN TRANS AIR LOAN: A federal panel on Thursday conditionally approved a $148.5-million loan guarantee for Indianapolis-based American Trans Air Inc.

The Air Transportation and Stabilization Board unanimously agreed to provide federal backing on a loan of $165-million subject to certain conditions. The airline must, among other things, pay the board additional fees and stock warrants, details of which were not disclosed.

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