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Tue, May 11, 2004

Back To Bankruptcy?

US Airways Tells SEC It Might Re-Enter Chapter 11

US Airways, which just emerged from bankruptcy little more than a year ago, may be headed back to federal court for a repeat performance. The company filed notice with the Securities and Exchange Commission Friday, saying it's trying to figure out how to cut costs by 25-percent, $1.5 billion a year.

"Failure to achieve the above-described competitive cost structure will force the company to reexamine its strategic options, including but not limited to asset sales or a judicial restructuring," the company said in its filing, according to the Washington Post.

The question, of course, is: How?

With the departure of CEO David Siegel, who left the company under pressure from the very unions he was asking to give up more wages and benefits, negotiations resumed on Wednesday. But so far, only the airline's pilots have agreed to even consider further concessions.

During seven months of bankruptcy protection, US Airways cut $1.9 billion in annual costs -- mostly by getting union members to agree on $1.2 billion in give-backs.

Fresh from losing $177 million in the first quarter of this year, US Airways plans to once again go to the labor well, hoping to draw even more concessions.

"US Airways is telling labor: Either agree to the concessions now or agree to it later in bankruptcy," Helane Becker of the Benchmark Company told the Post.

 It's happened before. Continental went bankrupt twice. TWA filed for protection three times before finally being purchased by American Airlines. But Becker doesn't think the market is ripe for a repeat court performance by US Airways. "It's another disaster," she said.

US Airways is also negotiating with its biggest creditor -- GE Capital Aviation Services. That company had earlier agreed to lease US Airways 170 regional jets. But, since the airline's credit rating has dropped so low, GE can, by contract, pull out.

On top of that -- and the government's insistence that US Airways repay the $900 million in financing backed by the Air Transportation Stabilization Board last year -- US Airways faces a new threat from rival Southwest Airlines. Over the weekend, Southwest inaugurated its service to and from Philadelphia (PA), a bastion of US Airways' strength in the East.

The company's new CEO, Bruce Lakefield, appears to be digging in, pleading with unions to support US Airways with just one more round of concessions. "This is not going to be easy. It's going to be very tough and there are those out there betting against us hoping we will fail," he said. "I hate to lose. I'm here to win."

FMI: www.usairways.com

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