- The Washington Times - Wednesday, March 19, 2003

A U.S. bankruptcy judge yesterday approved US Airways' plans to emerge from bankruptcy by March 31, provided the Arlington-based airline can reach agreement with its pilots on a new pension plan.
The approval from Judge Stephen Mitchell, sitting in Alexandria, allows the airline to clear an important hurdle, but does not affect negotiations between the airline and the pilots' union. The pilots' current pension plan is underfunded by about $800 million over the next seven years.
Judge Mitchell also canceled $600 million of US Airways stock.
"Shareholders come behind creditors," Judge Mitchell said, referring to priorities set by bankruptcy law for paying off corporate debt.
He said US Airways was "hopelessly insolvent" when it filed for bankruptcy protection Aug. 11 but that it has acted in "good faith" to cut its costs and regain financial solvency. But continuing debts compelled cancellation of the stock, Judge Mitchell said.
"There was no possibility the debtor was going to be able to pay its creditors in full and have anything left over for shareholders," he said.
In a Jan. 30 court filing, US Airways listed debts of $10.65 billion and assets of $7.81 billion. The company has about 140,000 creditors and other claimants.
US Airways must eliminate much of its debt before it can qualify for a $900 million federal loan guarantee that company officials say is critical to their recovery.
Lending institutions are requiring the company to secure the loan guarantee before they will loan it another $1 billion.
United Airlines, another major airline in bankruptcy, said in court documents filed yesterday that it might be forced to liquidate unless it can cut labor costs by May.
US Airways officials said they believe they can avoid liquidation but only with drastic action such as the stock cancellation.
"That's one of the regrettable outcomes, but I think people are being treated fairly," said David Siegel, US Airways president and chief executive officer.
Mr. Siegel said war with Iraq would be asignificant threat for the airline.
"We developed contingency plans, but no one knows what is going to happen," he said. "It's a serious situation for the entire industry."
The Air Transport Association estimates war with Iraq would cost the airline industry $4 billion. Mr. Siegel estimated US Airways would suffer$360 million in war-related losses this year.
The war contingencies include a 5 percent deferral of payment on employee wages and a potential reduction of the airline's fleet. The degree of reduction would depend on the war's impact on fuel prices and number of customers.
"The pension is the largest hurdle," Mr. Siegel said, referring to the airline's March 31 target date for financial solvency.
The judge said federal labor laws prevent him from resolving the dispute over pilot pensions by court order. Instead, the airline and pilots must resolve it independently through mediation.
The Air Line Pilots Association, the union representing the pilots, has hired its own actuaries to dispute the company's figures on the money available through pension plan investments.

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