The US Airways plan to get out of bankruptcy protection by summer took a step forward when a judge cleared its reorganisation plan for creditor approval.
In the court submission, US Airways estimates that it will earn a $127 million profit by 2004 and post a $405 million net profit three years after that as revenues grow from $7.2 billion this year to $7.7 billion by 2007.
After the review by creditors, final approval could come in mid-March, and the deal requires US Airways to emerge from bankruptcy by 1 July. Current shareholders lose their entire stake.
As part of the plan, US Airways won a major investment from GE Capital, whose GECAS leasing arm is the airline's biggest single creditor. GE will take a stake of up to 5% in exchange for financing worth $830 million. It will provide US Airways with $120 million in emergency debtor-in-possession financing to help it operate during bankruptcy. GE would provide $360 million once US Airways emerged from bankruptcy and another $350 million of equity to allow it to lease regional jets.
Its stake is in addition to the $500 million already being provided to the airline by its largest investor, the state pension fund of The Retirement Systems of Alabama. The fund would get a 36% stake in the new company. The Air Transportation Stabilization Board would get a 10% stake in the reorganised company in return for the board's guarantee of $900 million of a $1 billion loan package, a key element of the recovery plan.
The plan does not offer a solution for the US Airways pension dilemma, in which it owes $2.1 billion to a pilots fund. US Airways had sought congressional approval to stretch out payments, but met initial resistance. Resolution of the pensions issue will be major test case for the industry, which collectively faces an $18 billion pension shortfall, according to Fitch Ratings.
DAVID FIELD WASHINGTON
Source: Airline Business
