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Fri, Jan 31, 2003

US Airways Wants to Scrap Existing Benefit Pension Plan

Asks Approval of a New Pilot Defined Contribution Pension Plan

US Airways has filed formal notice with the Pension Benefit Guaranty Corporation (PBGC) of its intent to terminate the existing defined benefit pension plan for its pilots effective March 31, 2003, and to replace that plan with a defined contribution plan that will commit the company to invest $850 million in pilot pension contributions for more than 3,700 pilots over the next seven years, consistent with an agreement made with the Air Line Pilots Association (ALPA) in December 2002. A similar filing was made in Bankruptcy Court, Thursday afternoon.

The airline says, "The intent to terminate was the only remaining option for the company after regulatory and legislative efforts to allow for a stretch-out of funding obligations for the plan through a restoration funding proposal were denied, on legal grounds by the PBGC and defeated by the U.S. Senate. Today's action initiates a 60-day process, by which if approved by the Bankruptcy Court and the PBGC, should result in termination of the current defined benefit plan in conjunction with US Airways' planned emergence from Chapter 11 on March 31, 2003, if no legislative relief is granted by that date.

"We are communicating directly with our pilots on the reasons for this action, as well as to underscore our commitment to fund a replacement defined contribution plan under the guidelines of an agreement that was made with ALPA in December, should a plan termination be required," said David Siegel, US Airways president and chief executive officer. "Under that agreement with ALPA, the company will contribute $850 million over the next seven years to a new defined contribution plan. While our preference was to find a way to prevent plan termination of the existing defined benefit plan -- and we will continue to seek a legislative solution should Congress address pension funding issues this year -- we believe we have constructed a replacement defined contribution plan that provides our pilots with a competitive pension that targets the equivalent of a $1 million pension package for a captain retiring after 30 years of service."

More in the future, if there is a future.

"I have tremendous admiration and appreciation for the leadership the pilots have shown in leading all employee groups with pay and productivity concessions, which is why we have worked so hard to find a solution. We are committing an amount equal to an average of 27 percent of total pilot wages to be contributed to new pension accounts that will be at a targeted contribution level for each pilot, based on age and seniority," said Siegel.

Siegel said that the PBGC has indicated that it will not oppose the proposed follow-on pension plan. The funding levels for the new pension plan are consistent with the company's plan of reorganization. Separately, the company is awaiting the final approval from the Air Transportation Stabilization Board (ATSB) on its application for a $900 million federal guarantee of a $1 billion loan. The proceeds from the loan, as well as a $240 million investment from the Retirement Systems of Alabama (RSA), would provide the airline with new capital, available upon emergence from Chapter 11.

The PBGC regulates pension plan terminations. The company said that during its discussion with the PBGC on a proposed replacement plan, it was made clear that a replacement plan must be a defined contribution plan and cannot replicate current defined benefit plan benefits. The company expressed appreciation to the PBGC for its expeditious review of its proposed replacement plan, and its flexibility in allowing a plan that takes into account the unique factors of the pilot work force, including federal regulations that require commercial airline pilots to retire at age 60.

Bad investments wiped out value of the last plan.

The company has made adequate contributions to the plan, but the value of the assets has declined with the prolonged bear market and the lowest interest rates in 40 years. Those factors led to future funding obligations the company could not meet under the emergence business plan contained in its Disclosure Statement that is being mailed to creditors on January 31, 2003, in connection with the plan solicitation procedures also approved by the Bankruptcy Court on January 17, 2003.

"In the coming weeks, we will be making more information available to current pilots and retirees about the proposed termination," said Siegel. "On an individual level, we will be able to give each active pilot an estimate of what their defined benefit from the existing plan will be as administered by the PBGC, as well as what the target contribution will be for the new plan. We completely understand how important this matter is to pilots and their families, which is why we want to quickly make detailed information available."

FMI: www.usairways.com

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