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.

FMI: www.usairways.com