- The Washington Times - Tuesday, August 13, 2002

US Airways could emerge from Chapter 11 bankruptcy protection as "a very different airline" in the next six months, airline analysts predicted yesterday as passengers said they would remain loyal to the carrier.
Meanwhile, competitors may be poised to gain market share along the East Coast as the Arlington carrier cuts capacity by as much as 15 percent, according to one analyst's report.
A federal bankruptcy judge in Alexandria yesterday granted the nation's seventh-largest airline the right to continue operating and paying employees without interference from creditors.
"We're very confident we're going to be successful in reorganizing," President and Chief Executive Officer David Siegel said after the bankruptcy hearing. "We had a very successful day in court."
US Airways listed $10.65 billion in liabilities and $7.81 billion in assets.
The company has obtained a $500 million financing package from a group of banks to help it through the reorganization. Mr. Siegel said he was grateful for the institutions' support.
"It's a strong vote of confidence," he said.
The airline has an application for a $900 million loan guarantee pending before the federal government.
Bankruptcy protections US Airways won yesterday will allow it to continue honoring ticket purchases, frequent-flier miles and any other obligations to customers.
"That is the message we need to get out to our customers and we need to get it out today," company attorney Jack Butler said.
The September 11 terrorist attacks hit the already-struggling US Airways the hardest of all major carriers because of the temporary closure of Ronald Reagan Washington National Airport, a significant hub. The company filed for bankruptcy protection Sunday, exactly 11 months after the attacks.
Lines at the US Airways check-in counters and security were no shorter than normal yesterday. Most passengers said they were watching the airline's bankruptcy situation closely but that it would not yet dictate their choice of airline.
"I am concerned about that for now, but it's not going to affect me at this point," said Carl Manco, a software salesman flying to Greenville, S.C. Mr. Manco said he flies US Airways about 100 times year, because its planes go to many smaller cities in the Northeast that other airlines don't.
Analysts said that while the airline's business structure has been unprofitable, it has loyal customers, particularly for its shuttle service.
"US Airways has got a strong passenger population," said David Ralston, a former chairman of the Metropolitan Washington Airports Authority, which runs Reagan and Washington Dulles International airports. He now is partner at the Foley & Lardner law firm in the District. "Their customer base is very strong."
The big challenge coming out of bankruptcy, analysts said, will be to maintain that customer base while cutting costs and fending off competitors in the Northeast, particularly Delta and Continental.
Analysts said US Airways' popular shuttle service likely will remain intact, but other potential changes like the use of smaller regional jets instead of larger planes could turn off some travelers. Also, the airline may decide against flying into some smaller cities to save costs, Mr. Ralston said.
"This will probably be a very different airline," he said. "The markets they serve today will not be the same markets they serve in six months."
The company has monthly expenses of $700 million. It needs to reduce expenses by at least $1.2 billion a year. When all vendors, lease owners and contractors are counted, US Airways has more than 100,000 creditors, Mr. Butler said.
Corporate directors said they are taking 20 percent pay cuts. Five of the airline's six unions also have agreed to lower their wage demands.
"The sacrifices our employees are making are enormous," Mr. Butler said.
One of the few concessions granted creditors during the bankruptcy hearing was an unimpeded right to repossession of aircraft on which US Airways defaults in its payments. The aircraft consist mostly of Boeing 737s, MD 80s and Fokker 100s.
Richard Seltzer, a lawyer for the Air Line Pilots Association, said the pilots' union was "disappointed" at the bankruptcy but had not given up on the company.
"The pilots have made tremendous sacrifices," Mr. Seltzer said.
Pilots agreed to $465 million in labor-contract reductions to help the airline through bankruptcy. In return, they would get ownership of 20 percent of the company's stock if it emerges from bankruptcy, which the company predicts will occur in the first quarter of 2003.
Judge Robert G. Mayer set a series of hearing dates to monitor US Airways' progress toward profitability. The next is scheduled for Sept. 5.
Meanwhile, analysts are keeping an eye on other troubled airlines, particularly UAL Corp., which owns United, the second-biggest airline.
UAL lost $850 million in the first half of this year and $2.1 billion in all of 2001. It has sought a $1.8 billion loan guarantee from the federal government, but Deutsche Bank analyst Susan Donofrio said in a report yesterday that winning the loan was unlikely. She said there is an 80 to 85 percent chance UAL won't get the loan and that bankruptcy was a real possibility.
United's pilots have accepted some wage cuts to help the airline, but flight attendants, baggage handlers and mechanics have rejected similar concessions.
Shares of UAL Corp. fell $1.40, or about 27 percent, to close at $3.80 on the New York Stock Exchange yesterday.

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