US Airways Group Inc., burdened with the highest operating costs in the industry and still reeling from the Sept. 11 terrorist attacks, filed for Chapter 11 bankruptcy protection yesterday.
Once the dominant carrier at Baltimore-Washington International Airport, the Arlington, Va.-based airline said it has received $500 million in financing to keep its planes flying while it completes a sweeping restructuring plan that began last fall with the elimination of thousands of employees and its entire Baltimore-based MetroJet fleet.
The nation's seventh-largest airline lost $2 billion last year as an industrywide slowdown in air travel and competition from low-cost carriers eroded its East Coast market. It was especially hard hit by the terrorist attacks, which shuttered its lucrative shuttle operations at Washington's Reagan National Airport for three weeks.
"We have a plan in place that will allow us to continue operations without interruption," US Airways President and Chief Executive David N. Siegel said in an interview.
"We have largely achieved the other elements of our restructuring, so we're well-positioned to get through this quickly by the first quarter of next year," he added.
Siegel said customers shouldn't notice any difference in the short term, and frequent-flier plans will not be affected. But the airline will likely shrink further as it completes its restructuring. That will mean fewer planes and the potential for more layoffs.
The airline, which employs 40,000 people and owns 340 jets, is now BWI's second-biggest carrier behind Southwest Airlines.
"Regretfully, we will shrink the airline a bit, and there will be some layoffs, though we haven't finalized what that will look like yet," Siegel said.
The 14th-largest airline in the world, US Airways said it has $7.81 billion in assets and $7.83 billion in liabilities. The company's bankruptcy filing is scheduled for a hearing today before the U.S. Bankruptcy Court for the Eastern District of Virginia.
'Competitive force'
Analysts said the airline is likely to emerge stronger as a result of labor agreements and other cost-cutting measures put into effect since Siegel took over in March.
Shareholders will likely see their equity wiped out by the filing, but consumers may benefit from lower fares resulting from a reinvigorated US Airways.
"For the first time, US Airways will be a competitive force on the East Coast," said Darryl Jenkins, executive director of the Aviation Institute at George Washington University.
US Airways has said for months that bankruptcy was a possibility if it could not complete its restructuring plan fast enough to hold creditors at bay. The company began deferring payments on certain public and private debts about two months ago, prompting concern that key creditors might force the company into bankruptcy.
Concessions
Siegel and his new management team have pressed labor unions for $950 million in annual concessions in a bid to secure $1 billion in new financing. So far, agreements have been reached with pilots, flight attendants and a few smaller labor groups, giving the airline $540.8 million in concessions - something previous management was never able to do.
But to make the restructuring plan work, the airline also needed about $300 million in concessions from aircraft lessors. Ultimately, those agreements didn't come fast enough.
Siegel said the airline is paying more than market rate for some of its planes, which have lost value as airlines worldwide have reduced their fleets in order to save money. If the airline is unable to renegotiate its aircraft leases, some planes will be returned to their owners. That has pilots concerned.
"If they get rid of that many airplanes, the job loss to the pilots would be significant," said Roy Freundlich, a spokesman for the Air Line Pilots Association.
The airline still must obtain concessions from its machinists union, which announced over the weekend that it will present the company's proposal for concessions to its 12,250 members for a vote.
"Our members will not give up on US Airways, and neither should anyone else," said Robert Roach Jr., general vice president of the International Association of Machinists and Aerospace Workers.
Financing
The airline's debtor-in-possession financing of $500 million will come from a group led by Texas Pacific Group, Credit Suisse First Boston and Bank of America Corp.
Founded in 1993, Texas Pacific has a reputation for rescuing foundering companies that other investors wouldn't dare touch. Co-founder David "Bondo" Bonderman earned a reputation for turning around Continental Airlines.
The investment firm has signed a memorandum of understanding to provide $200 million in equity when US Airways emerges from bankruptcy. In exchange, the firm will get a 38 percent stake in the company and a seat on its reconstituted board of directors.
"In the face of an uncertain and trying time for the industry, we have been impressed by the major strides taken by US Airways' management and employees to significantly improve the competitiveness of the airline," said Richard P. Schifter, a Texas Pacific partner.
Loan guarantee
In addition to the $200 million from Texas Pacific, US Airways has received conditional approval for a $900 million federal loan guarantee that will help secure $1 billion in new financing.
The Air Transportation Stabilization Board, which was set up after Sept. 11 to help struggling carriers, said yesterday the board had anticipated a potential bankruptcy filing when it conditionally approved US Airways' application for a loan guarantee in July.
The airline would be eligible for the loan guarantee after it emerges from bankruptcy.
"The board's conditional approval of US Airways' application for a federal loan guarantee remains in effect subject to the conditions set forth in the board's July 10 letter to US Airways and to the bankruptcy court's confirmation of a plan of reorganization," the ATSB said in a statement yesterday.