A return to bankruptcy is a distinct possibility for US Airways as some unions resist further cost-cutting measures and the main financier rules out further investment.
This is a cruel month for US Airways. A key union, representing pilots, fears it will re-enter bankruptcy without further concessions from other unions. Meanwhile, the other unions are holding off on agreeing to the cuts and chief executive Bruce Lakefield has said the carrier "could just run out of steam".
US Airways asked the Internal Revenue Service for permission to reduce a $110 million mid-September pension payment by almost $28.6 million and has warned it could default on the $900 million federally guaranteed loan if it does not meet benchmarks on progress in cutting costs by the end of September.
The Air Line Pilots Association has co-operated on this round of concessions, but other unions have not. The pilots pressured their sister unions to co-operate by releasing a consultant report that concluded the airline would be forced into bankruptcy again by the middle of September without compromises.
A return trip to bankruptcy, however, may not be the death sentence some fear, according to Fulbright & Jaworski lawyer Bill Rochelle. A leading bankruptcy attorney, Rochelle says: "The smartest thing for an airline right now may just be to file bankruptcy and plan on staying in court reorganisation for three years." The law has no limits on either the frequency or the duration of a Chapter 11 bankruptcy.
The main financier of US Airways, Robert Bronner, who runs the Retirement Systems of Alabama, the pension fund that owns a controlling stake in the airline, has said he is not inclined to invest further. He says that US Airway's financial dilemma is far more dire than it was in 2003, when it emerged from bankruptcy with his help.
Bronner, an outspoken pension fund manager, fought off rival bidder Texas Pacific to provide $240 million in equity in the airline. His stake is now worth less than $100 million. The mere comparison to those days - the very thought that investors would seek to outbid each other for US Airways - seems stark. The airline has seen its operating assumptions assaulted again and again by lower- fare competition, rising fuel costs and labour recalcitrance.
In response, US Airways has recast itself in its advertising - saying it offers more than "other low-fare airlines" - but its East Coast airport strongholds are under attack. Its Philadelphia dominance is rapidly vanishing as Southwest builds up at the largest US Airways hub. The airline is all but abandoning Pittsburgh, the city once synonymous with predecessors US Air and Allegheny, as international flights serving London Gatwick and Frankfurt disappear later this year along with more than a third of the Iron City's domestic flights.
DAVID FIELD WASHINGTON
Source: Airline Business
