US Airways Group Inc. moved a step closer to emerging from bankruptcy yesterday after a federal board gave conditional approval for a $900 million loan guarantee that is considered essential to the company's reorganization plan.
The board's unanimous decision is contingent on the nation's seventh-largest airline wrapping up labor agreements and finding a solution to its pilot pension fund liabilities, among other things. But the vote of confidence should clear the way for the airline to tap into another $200 million in financing as it completes its reorganization.
"I think it's a reaffirmation of their interest in our succeeding," said David G. Bronner, chief executive of the Alabama pension fund that promised to provide Arlington, Va.-based US Airways with $500 million in bankruptcy financing in exchange for a 37 percent stake in the company. The airline has already tapped $300 million.
"But there are still a number of things to be done and they have to be done really in a matter of days to weeks to pull this thing off," Bronner said.
Set up after the terrorist attacks of Sept. 11, 2001, to aid struggling airlines, the Air Transportation Stabilization Board first granted conditional approval for US Airways' loan application in July, just before the airline's bankruptcy filing. The airline has since revised its business plan, prompting management to ask for another review by the loan board.
"We are on track to emerge from Chapter 11 protection by March 31, and while there is still much work to be done, today's vote of support from the ATSB is another momentum-building achievement in that effort," David Siegel, US Airways' chief executive officer, said in a statement.
The last major hurdle for the airline will be resolving the pension issue.
The company says it can't afford to make about $2 billion in pilot pension fund contributions over the next seven years. It has filed a motion with the bankruptcy court to terminate its pension plan and turn it over to the Pension Benefit Guaranty Corp.
The airline is negotiating with its pilots union to create a new supplemental plan, a move that would result in reduced retirement benefits.
If it succeeds, US Airways is poised to emerge a stronger airline with lower costs and a streamlined business, aviation experts said.
Once the dominant carrier at Baltimore-Washington International Airport, US Airways has been hammered in the past two years by a slumping economy and competition from low-cost carriers such as Southwest Airlines, JetBlue and others.
"From what we've seen of the plan, they're transforming themselves with a structure that will at least in part be able to avoid the hazard of competing head-to-head with Southwest and JetBlue," said Jon Ash, a Washington aviation consultant.
In a letter to Siegel, the federal loan board agreed, calling US Airways' revised business plan "financially sound."
"The board's action is based on the proposed achievement of substantial and diverse cost savings and the development of credible revenue assumptions to support the business plan submitted," wrote Daniel G. Montgomery, executive director of the board.