US Airways in 2nd Bankruptcy After Labor Talks Fail
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US Airways Group Inc., which failed to wrest a critical $800 million in concessions from workers, filed yesterday for Chapter 11 bankruptcy protection for the second time since 2002.
The company listed $8.81 billion in assets and $8.7 billion in debts in papers filed in U.S. Bankruptcy Court in Alexandria, Va., Judge Stephen S. Mitchell, who oversaw the carrier’s first bankruptcy, has been assigned to the case, according to the court’s electronic records.
US Airways, the seventh-largest American airline, filed ahead of a Wednesday deadline to make a $110 million pension payment, and about two weeks before it would have violated terms of aircraft-financing agreements as well as a $1 billion loan, most of it backed by the American government.
“Since we still lack the new labor agreements that are needed, we must preserve the company’s cash resources,” said the company’s chief executive, Bruce Lakefield, in a statement. “We have made the difficult but necessary decision to complete this process with the help of the court.”
Customers shouldn’t notice any changes in the carrier’s flight operations, Mr. Lakefield said.
US Airways sought protection from its creditors after pilots rejected a plan for $295 million in wage-and-benefit cuts last week, and on the same day that flight attendants rejected a proposal for $116 million in givebacks. The airline had not begun concession talks with its largest union, representing mechanics and baggage handlers.
The Arlington, Va.-based airline, which was trying to carve $1.5 billion from yearly spending to compete with low-cost carriers, said in the statement that the bankruptcy filing would let it lower costs, simplify fares, and expand service in the areas it already serves: the eastern U.S., the Caribbean, Latin America, and Europe.
US Airways joins UAL Corp.’s United Airlines, the world’s second-largest carrier, in operating under bankruptcy protection. Delta Air Lines Inc. said September 8 it was cutting as many as 7,000 jobs and slashing flights out of Dallas-Fort Worth to reduce costs by $5 billion by 2006. It said bankruptcy remains “a real possibility.”
American carriers have seen profits eroded by jet-fuel prices that have climbed 72% in the past year and competition from low-cost rivals like Southwest Airlines Co. and JetBlue Airways Corp. that have held down fares.
US Airways creditors have to be fully paid before shareholders get anything under federal bankruptcy law. In the airline’s first bankruptcy, unsecured creditors received about 2% of what they were owed in the form of new shares. Those shares are now likely worthless.
Retirement Systems of Alabama invested $240 million in US Airways when it emerged from bankruptcy and gained a 37% stake. US Airways’ chairman, David Bronner, who heads the retirement fund, said last month he would not boost its investment in US Airways in the event of a second filing.
The U.S. Air Transport Stabilization Board, set up after the 2001 terrorist attacks to oversee grants to American carriers, provided US Airways with a $900 million loan guarantee that let it emerge from the first bankruptcy. Violating terms of that agreement on September 30 would have let the board demand immediate repayment from the carrier.
In the first bankruptcy, bondholders and other unsecured creditors got 11% of equity. Company employees also received stock, including 19% for the Air Line Pilots Association, 11% for other workers and 8% for management.
The company filed for Chapter 11 protection, which shields a company’s assets from creditors while it formulates a bankruptcy recovery plan. US Airways shed $2 billion in debt during its last bankruptcy.
US Airways’s credit rating was reduced to CCC- from CCC, which is nine levels below investment grade, by Standard & Poor’s September 8 because of concerns that the carrier would not get worker concessions fast enough to avert the bankruptcy filing.
New York-based Standard & Poor’s has lowered the airline’s credit rating four times this year.