US Airways seen ready to seek 2nd bankruptcy in two years


Barring a last-minute change of heart by its recalcitrant unions, US Airways appears all but certain to seek bankruptcy protection Sunday, people who had been briefed on the situation said yesterday.

In that event, the airline is considering a bankruptcy filing without debtor-in-possession financing, a standard feature of most Chapter 11 cases. Instead, it would rely on cash on hand to finance its operations and would explore whether it needs additional financing in the future, these people said.

Christopher Chiames, the airline's senior vice president for corporate affairs, declined yesterday to say whether a bankruptcy filing, which would be the airline's second in two years, was imminent. "All along in this process, we've acknowledged that a bankruptcy filing might be necessary, but no decisions have been made," he said.

The final say is up to US Airways' board, which has not met to discuss the issue, he said. But the board can meet by telephone and could do so on short notice.

The airline sought Chapter 11 protection in August 2002, a filing that also took place on a Sunday. It emerged in April 2003, backed by a $900 million package of federal loan guarantees, the largest awarded by the Air Transportation Stabilization Board.

The airline's lead investor was the Retirement Systems of Alabama, which took a 36.5 percent stake in the airline and eight of 15 seats on its board in return for a $240 million investment. The pension fund's chief executive, David G. Bronner, became US Airways' chairman.

Last month, Bronner said a second bankruptcy filing could quickly turn into a Chapter 7 liquidation because the crippled airline would not be able to attract new investors.

Yesterday, Bronner said liquidation was still a possibility but that a Chapter 11 filing was more likely if any action occurs. He did not give a timetable.

"We absolutely still have hopes" of avoiding a bankruptcy filing, Bronner said in an interview with the Associated Press.

Any such hope rests with unions representing pilots, flight attendants, mechanics and other workers, from which the airline has been trying to win $800 million in wage and benefit cuts. Workers granted two rounds of concessions worth $1.9 billion while US Airways was in bankruptcy but have resisted further efforts to cut pay.

The chances of obtaining the cuts dimmed late Monday when pilots opposed to further concessions blocked leaders of the Air Line Pilots Association from letting members vote on the company's latest proposal for $295 million in cuts. Backing from the pilots is critical if the airline is to win support from other labor groups.

The leadership group is meeting today in Pittsburgh, home base to two of the four rebel pilots whose efforts prevented the offer from reaching the union's members.

One of those pilots, Fred Freshwater, said yesterday that he had not changed his stand against the proposal. He said speculation about a filing "may or may not be true" and accused the airline of trying to play on pilots' fears to coerce a vote.

US Airways has exchanged proposals with its flight attendants, but those talks are far from concluding. The International Association of Machinists, meanwhile, has refused to reopen its contract with the airline. A spokesman, Joseph Tiberi, said yesterday that no discussions had been held.

US Airways, once the dominant carrier at Baltimore-Washington International Airport, ended the second quarter with $925 million in cash, about $200 million more than it is required to have on hand under the terms of its federally backed loans and more than it had when it filed for bankruptcy protection last time.

But that floor would loom quickly if US Airways makes a $110 million contribution to its employee pension funds, something that seems unlikely because that would leave it with little cash cushion.

It cannot seek outside financing because its collateral is pledged to secure its remaining $700 million in federally backed loans. In fact, US Airways pledged assets worth $1.4 billion, or two times the guarantees' value. The board also received a 10 percent stake in the airline.

So, in the event it defaults on its loan package, the board essentially would have the right to claim US Airways' cash, as well as aircraft, gates, routes and other assets.

People involved in the panel's discussions said the board would watch any actions that the airline took in bankruptcy and determine its next steps.

US Airways sought the union concessions as part of a $1.5 billion revitalization plan, which Chiames has described as an "extreme makeover" meant to transform US Airways from a traditional airline into a rival to low-fare airlines.

The airline is planning to dismantle its Pittsburgh hub, eliminate service to some of the 34 small cities where it is the only airline and concentrate more on direct flights

Some industry analysts say US Airways could be seen as the first victim of its low-fare rivals, including JetBlue, which battles with the airline for East Coast passengers, and Southwest, which invaded US Airways' Philadelphia hub in May, forcing it to lower fares.

But Robert W. Mann, an industry consultant based in Port Washington, N.Y., said US Airways' problems stemmed from its strategy in the 1990s of relying on mergers to expand operations without streamlining its costs. "They're not a victim of low-fare competition; they're a victim of a decade of not getting around to solve their problems," Mann said.

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