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USAirways hints at Chapter 11

norskman2

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Not to start a flamewar or worry people unnecessarily, but USAirways said in its most recent SEC filing that Ch.11 is a possibility. No surprise there. Negotiating tactic? You decide.

US Airways warns Chapter 11 may be coming

By Barbara De Lollis, USA TODAY

US Airways will brief its labor leaders this week on a survival plan that the carrier hopes to achieve without resorting to Plan B: bankruptcy reorganization.

Under new CEO David Siegel, US Airways is trying to line up support from employees, suppliers and lenders to its lower costs, boost revenue and obtain a federally guaranteed loan, but progress is uncertain and time limited.

Congress set a June 28 deadline for loan applications. If Plan A fails, it might seek protection from creditors under Chapter 11 of the bankruptcy law, US Airways said in a Securities and Exchange Commission filing Friday. It was the first time that US Airways had raised Chapter 11 as an option.

Chapter 11 companies go under Bankruptcy Court supervision while forming a reorganization plan. Debt and operating costs get reduced, and assets may be sold.

Some US Airways labor groups dismiss the Chapter 11 statement as a negotiating tactic. But industry observers have long said a US Airways' bankruptcy can't be ruled out.

"It's no surprise," says Ray Neidl, a former Wall Street airline analyst who has followed US Airways for years. "But having it in black and white did spook a lot of people."

US Airways' shares fell 27%, or $1.35, to $3.60 on Friday.

US Airways' troubles predate Sept. 11. It's losing customers to more cost-efficient, low-fare airlines, such as Southwest and JetBlue, that fly on about a third of its routes. Its regional airlines that fly many older turboprop planes are losing passengers to competitors with modern regional jets. Recently, US Airways' pilots union agreed to a contract change allowing US Airways Express carriers to fly up to 140 regional jets — twice as many as they do now but fewer than management wanted.

US Airways is scheduled to present the restructuring plan to its pilots union Thursday, says Air Line Pilots Association spokesman Roy Freundlich.

"ALPA is willing to work with the company on a restructuring plan, as long as that plan works for the pilots," Freundlich says.

Labor's cooperation will be key to a successful loan guarantee application, which will require a management plan to repay the loan within seven years. Some leaders are reluctant to support concessions.

"They need to find a way to run the carrier," says Robert Roach Jr., a senior official in the International Association of Machinists. "We have no reason to believe our members should be giving up anything."
 
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