Smaller Airline With A Strong Emphasis On Regional Jets
US Airways Group Inc. now has permission from a
federal bankruptcy court to come out of bankruptcy Monday, after
the government and a federal judge signed off on a new pension plan
for the carrier’s pilots.
The pension plan was the last major obstacle to restructuring US
Airways under Chapter 11 protection, a process which began last
August and ends Monday. That is when the company plans to emerge as
a smaller airline with a strong emphasis on regional jets.
“We will spend the next 72 hours executing hundreds of
transactions,” airline spokesman Chris Chiames said after a
hearing before Judge Stephen Mitchell of the U.S. Bankruptcy Court
for the Eastern District of Virginia.
Employee Pay Cuts
US Airways told employees it will immediately cut wages 5
percent across the board because the Iraq war has caused bookings
to fall. The cuts will take effect Monday or Tuesday, depending on
the start of the affected employees’ pay period, the No. 7
U.S. carrier said. U.S. Airways will restore the cuts after its
first profitable quarter or 18 months, whichever comes first, but
not necessarily if war ends.
US Airways, based in Arlington (VA), announced its wage
deferrals in a voice-mail message on Friday from Chief Executive
David Siegel. An airline spokeswoman said a letter from Siegel is
being sent this weekend to all of US Airways’ employees, who
numbered 37,100 at the end of 2002.
Working Out The Pension Problem
US Airways will emerge from bankruptcy protection
just as the airline industry flies into a new crisis, projecting $4
billion in travel-slump losses if the Iraq war lasts 90 days.
Mitchell set in motion the final steps of restructuring at US
Airways when he approved a pension agreement between the company
and the pilots union, the Air Line Pilots Association (ALPA). Under
that deal reached last week after difficult negotiations, the
company will contribute more than $950 million over the next seven
years to the new pension plan for more than 4,000 active and
furloughed pilots. The pilots got the company to sweeten its
initial offer by about $16 million per year. The airline said the
current pension plan will expire on Monday and a fraction of its
assets will be invested in the new fund. US Airways has said it
cannot afford to maintain the current retirement fund, which has
liabilities of $1.6 billion.
While most current shareholders lose will lose all of their
stake, the pilots have said some members could lose up to 75
percent of their retirement investments when the pension plan
termination takes effect.
The government agency that oversees corporate retirement
accounts, the Pension Benefit Guaranty Corp., approved the
company’s pension moves on Friday. “We did not realize
the amount of pain that would be required to get to where we
are,” said Richard Seltzer, an attorney for the pilot’s
group. Seltzer said it was the best deal the pilots’ could
get under the circumstances. Rank-and-file pilots have yet to vote
on the plan.
Out Of The Frying Pan?
Like other big carriers, US Airways is trying
desperately to shake the effects of the worst-ever industry
downturn by cutting costs and making the most of sliding revenues.
A sharp drop in travel since the 2001 hijack attacks has been
aggravated by the Iraq war, airlines say. This week, the
airline said, it will cut about 4 percent of flights. Company
executives said the service reduction would not affect its
reorganization or cost any jobs.
Still, US Airways will have some help as it emerges from Chapter
11 even though it is losing millions and forecasts even more
red-ink because of the effects of Iraq war on the travel industry.
The company is putting the finishing touches on its deal with its
lead investor, Retirement Systems of Alabama, for a $240 million
investment. The state pension fund will take a 37 percent stake in
the carrier.
GE Capital, the financing arm of General Electric Co., will take
a 5 percent stake in return for a big investment. US Airways is
also in line to receive a $900 million government loan guarantee as
early as Monday to underpin $1 billion in private financing. The
airline has an aggressive austerity plan in place for $1.8 billion
in annual cost cuts, including substantial wage and benefit
concessions from all its unions.