US Airways Returns to Bankruptcy Court

September 13, 2004 ( - US Airways Group Inc., the nation's seventh largest airline that had been relying on a state pension fund for partial funding, has turned to US Bankruptcy Court for protection from its debts for the second time in two years.

The Chapter 11 filing came after US Airways was unable to obtain $800 million in annual cost cuts from its workers’ unions that the airline said it needed to stay afloat, the Associated Press reported. US Airways said in a  statement that customers would notice no operational changes as a result of the bankruptcy and that it will seek permission to continue its frequent flyer program.

Late yesterday US Airways Group Inc. also asked a judge for permission to skip a $110 million pension payment due this week, in its first move since filing for protection against creditors over the weekend (see below).  The payment is due Wednesday for pension plans covering members of the International Association of Machinists and the Association of Flight Attendants – and in its request to the court, USAirways said it may ask to terminate those plans.

In 2002, the first time the Arlington, Virginia air carrier ducked into bankruptcy court, the Retirement Systems of Alabama (RSA) invested $240 million in restructuring financing in exchange for a 36% stake in the carrier and eight seats on its board (See  US Airways Reaches Tentative Agreements with Unions, RSA ). RSA Chief Executive Officer  David Bronner assumed the role of chairman. Bronner acknowledged the Alabama fund could lose its entire investment, which amounts to less than 1% of the fund’s portfolio.

“We have come too far and accomplished too much to simply stop the process and not succeed,” Bruce Lakefield, US Airways’ president and chief executive, told the AP. “A restructured US Airways with low costs and low fares will be a dynamic competitor.”

Several weeks ago, Bronner warned that the airline would most likely have to liquidate if it filed for bankruptcy. Lakefield subsequently backed off those comments, and on Sunday again sought to assure customers that the airline faced no immediate danger of shutting down. “I believe that the light of day will convince our employees that sacrifices are needed to keep the airline flying,” Lakefield told the AP. “When you look at the other choices, I believe our employees will make the right choice.”

The bankruptcy filing also could cost federal taxpayers. The government loaned the airline $900 million last year as part of a special program to assist airlines after the September 11 attacks. The airline still owes Uncle Sam $718 million, and it will ultimately be up to a bankruptcy court to determine the government’s place in line among creditors.