Strapped US Airways may tap federal loan

By Matthew Barakat
Associated Press

ALEXANDRIA, Va. — A bankruptcy judge gave US Airways Group Inc. permission yesterday to tap a government loan to fund daily operations — a move expected to allow the airline to continue its normal flight schedule while it searches for additional financing.

"This management team isn't here to preside over a liquidation," said Brian Leitch, the airline's lead bankruptcy attorney, adding that the plan is to transform "into a vibrant competitor" that can match the low fares and low costs of competitors like Southwest Airlines Inc. and JetBlue Airways Corp.

US Airways, the nation's seventh largest airline, filed Sunday for bankruptcy protection for the second time in two years. The airline filed after it was unable to obtain $800 million in annual cost cuts from its workers' unions that the company said it needed to stay aloft.

The airline will continue to seek those labor concessions while in bankruptcy. US Airways chief executive Bruce Lakefield said outside the courtroom that the company is re-evaluating its financial targets, opening the possibility that the airline will seek even greater concessions from workers.

"We're looking at everything now," he said.

Lakefield said he still believes employees will voluntarily negotiate new labor agreements. If not, the airline can ask the court to cancel the existing labor contracts. Lakefield would not speculate on how long the company would continue to seek consensual agreements.

Meanwhile, the airline asked the court for permission to avoid payment on several of its retirement plans. That includes a $110 million pension payment to the plans for its machinists and flight attendants that would have been due tomorrow, and about $19 million in contributions to the pilots' 401(k)-style retirement plan.

The company's plan to skip those payments raised concerns from the Air Line Pilots Association and the federal Pension Benefit Guaranty Corp., which wants to ensure the pension plans' solvency.

"We strongly recommend that they reconsider their plan" to avoid retirement contributions, said Richard Seltzer, lawyer for the pilots' union. "It's unfortunate and it's counterproductive" as the airline continues contentious negotiations with the pilots' union.

PBGC lawyer Susan Birenbaum said the pension contributions "are mandated by federal law" and stressed "the importance of continuing to fund the plan while in bankruptcy."

Mitchell scheduled a hearing on the issue for Oct. 7.

Wall Street was skeptical about what will happen to the value of the company's stock if the reorganization plan is approved. US Airways shares plunged 44 cents, or 30 percent, to close at $1.02 per share on the Nasdaq Stock Market. An earlier version of US Airways stock was rendered worthless after its first bankruptcy reorganization.

Mitchell approved a motion that allows the airline to use cash from a $718 million federally guaranteed loan package to support its daily operations while in bankruptcy.

The motion was supported by the federal government's Air Transportation Stabilization Board, which lent money to the airline when it emerged from its first trip into bankruptcy in March 2003.

Justice Department lawyer Brendan Collins said the government is convinced that the airline retains sufficient collateral to repay the loan. The government's loan is secured, which puts the government at the front of the line for repayment among creditors.