ARLINGTON, Va. - US Airways Group Inc., the nation's seventh largest airline, filed for bankruptcy protection Sunday for the second time in two years. The company's president vowed to continue restructuring the airline into a low-cost carrier during the bankruptcy process.
"We have come too far and accomplished too much to simply stop the process and not succeed," said Bruce Lakefield, US Airways' president and chief executive. "A restructured US Airways with low costs and low fares will be a dynamic competitor."
US Airways said customers would notice no operational changes as a result of the bankruptcy and that it will seek permission to continue its frequent flyer program.
The Chapter 11 filing in U.S. Bankruptcy Court in Alexandria came after US Airways was unable to obtain $800-million in annual cost cuts from its workers' unions that the airline said it needed to stay afloat.
The company's return to bankruptcy comes as several of its larger rivals also confront the need to repair weak finances. UAL Corp.'s United Airlines has been operating under bankruptcy for nearly two years, AMR Corp.'s American Airlines was on the brink of a filing 18 months ago and Delta Air Lines Inc. warned that it might seek similar protection soon if it cannot trim its labor costs.
Several weeks ago, US Airways Chairman David Bronner warned that the airline would most likely have to liquidate if it filed for bankruptcy. Lakefield subsequently backed off those comments, and on Sunday again sought to assure customers that the airline faced no immediate danger of shutdown.
"I believe that the light of day will convince our employees that sacrifices are needed to keep the airline flying," Lakefield said Sunday. "When you look at the other choices, I believe our employees will make the right choice."
Last Monday, a deeply divided pilots union refused to allow its membership to vote on a company proposal that would have cut pay by 20 percent and retirement plan contributions by 50 percent.
As recently as Friday, US Airways made a last-ditch effort to reach a deal with the pilots, offering a proposal with minimum pay cuts that would have required more flight hours each month, putting more pilots at risk of furlough.
Some pilot representatives who opposed the new deal said the pilots and other US Airways workers had made enough concessions during the company's first trip into bankruptcy in August 2002. Then, the unions collectively agreed to contract concessions of more than $1-billion a year.
Fred Freshwater, a pilots' union representative from Pittsburgh who opposed management's latest contract offer, said he wasn't surprised the company was unable to reach deals with labor and that it sought bankruptcy.
"When you look at the behavior of management, when you look at their proposals, they were seeking the total capitulation of labor," Freshwater said.
The bankruptcy filing also could cost federal taxpayers. The government loaned the airline $900-million last year as part of a special program to assist airlines after the Sept. 11 attacks.
The airline still owes Uncle Sam $718-million, and it will ultimately be up to a bankruptcy court to determine the government's place in line among creditors. But Lakefield said the Air Transportation Stabilization Board is a secured creditor, and would be first among those seeking repayment.
US Airways said Sunday that it has an agreement in place with the government and with other lenders to use some of its cash reserves to continue operations while in bankruptcy. In its filing, the company listed $8.8-billion in assets, including $1.45-billion in cash, and $8.7-billion in liabilities.
A hearing was scheduled for this morning in U.S. Bankruptcy Court.
The company said financial deadlines looming on Sept. 30 forced it to file now to conserve cash to navigate bankruptcy. The airline also had a $110-million pension payment due Wednesday if it had not sought protection.
While US Airways has an agreement with its lenders to use some of its existing cash reserves, it does not have a new investor lined up to provide additional financing. When the airline filed for bankruptcy in 2002, investment firm Texas Pacific Group had already agreed to invest $200-million in the airline. That plan was eventually supplanted by the Retirement Systems of Alabama, a pension fund for state workers, which invested $240-million for a 36 percent stake in the carrier and eight seats on its board.
Lakefield said Sunday US Airways likely will need to find an investor to provide additional financing, but with new labor deals, "we won't have any problem finding our way out" of bankruptcy.
Bronner acknowledged the Alabama fund could lose its entire investment, which amounts to less than 1 percent of the fund's portfolio.
"The reluctance of union negotiators to agree to concessions is understandable, but their refusal to acknowledge the realities of the airline industry is a mystery," he said in a statement. "There are thousands of jobs at stake, but if any of them are going to be saved, then all employees are going to have to make sacrifices, as difficult as that might be."
US Airways actually turned a small profit - $34-million - in the last quarter. But the April-June period is typically an airline's strongest, and its prospects appeared poor because of relatively high labor costs, expensive fuel costs and intense new competition from low-cost carriers.
When US Airways emerged from its first bankruptcy in March 2003, the airline made numerous changes, seeking to reinvent itself as a low-fare carrier in the mold of JetBlue Airways Corp. and America West, a unit of America West Holdings Corp.
If the airline liquidates, Freshwater said "it would be devastating to many, many people. ... But it's like I've told my kids many, many times, "Don't worry about things you have no control over."'
Freshwater said he expects the union to continue negotiations in bankruptcy.
TIMELINE
1939: All American Aviation brings the first airmail service to many small western Pennsylvania and Ohio Valley communities.
1953: Now known as All American Airways, its route system grows and the name is changed to Allegheny Airlines.
1979: Allegheny changes its name to USAir to reflect its expanding network.
1997: USAir changes name to US Airways Group Inc.
MAY 24, 2000: United Airlines' UAL Corp. announces agreement to buy US Airways for $4.3-billion.
JULY 27, 2001: US Airways and United call off their merger after the Justice Department says it would sue to block it.
SEPT. 11, 2001: Terrorist attacks ground airline industry. US Airways, as the largest carrier at Reagan National Airport, suffers added financial harm as the airport nearest the nation's capital remains closed for an additional three weeks because of security concerns.
AUG. 11, 2002: US Airways files for bankruptcy following a $2-billion loss in 2001.
MARCH 31, 2003: US Airways emerges from Chapter 11 bankruptcy protection, shedding $2-billion in operating costs.
SEPT. 12, 2004: US Airways files for Chapter 11 bankruptcy protection for second time.
