- The Washington Times - Saturday, March 22, 2003

A bankruptcy judge yesterday approved US Airways' plans to emerge from bankruptcy by the end of the month, provided the Arlington airline can reach agreement with its pilots on a new pension plan.
The approval from U.S. Bankruptcy Judge Stephen Mitchell allows the airline to clear an important procedural hurdle, but it does not affect ongoing negotiations between the airline and the pilots union. The pilots' current pension plan is underfunded by about $800 million over the next seven years.
US Airways President and Chief Executive David Siegel called yesterday's ruling "an important milestone."
"We heard from a lot of skeptics when we mentioned this date as our target for emergence back on August 11," when US Airways filed for Chapter 11 bankruptcy protection, he said.
United Airlines, also in bankruptcy protection, said in a motion filed yesterday seeking bankruptcy court approval to impose new labor contracts, that it may be forced to shut down unless it can cut labor costs by May.
Under the US Airways plan, the airline's unsecured creditors, who have filed $61 billion in claims against the company, will receive less than 2 cents on the dollar on their claims. Those claims will be paid in the form of stock in the reorganized company.
Shareholders will get nothing. About 100 stockholders objected to US Airways' plan, saying it was unfair they will get nothing when management will be given an 8 percent share in the reorganized company.
Judge Mitchell said he sympathized with stockholders, but bankruptcy law mandates that investors receive nothing unless creditors are fully repaid.
US Airways expects to lose more than $200 million this year and begin turning a profit beginning in 2004. Those plans, though, do not account for the lost revenue and increased fuel cost associated with a war against Iraq.
The company has since estimated that such a war will cost an additional $360 million in 2003.
"Nobody knows exactly what the impact of a war will be … but it will be dramatically more problematic than what the industry experienced during the first Gulf war," Mr. Siegel said.
He said he believes the airline can withstand the war, provided the company emerges from bankruptcy by March 31. The airline will receive $1.24 billion in financing once it emerges.
US Airways filed for bankruptcy protection in August after losing $2 billion in the previous year. Since then, the company has slashed its costs primarily by gaining wage concessions from its unions. Mr. Siegel said the airline had the industry's highest unit costs before bankruptcy, but will emerge from bankruptcy with the sixth-highest costs.
The reorganized company will be controlled by the Retirement Systems of Alabama, which is making a $240 million investment in the company in exchange for 38 percent of the company's stock and control over eight of the 15 spots on the board of directors.
Also yesterday, the airline agreed that the new board of directors will consider whether to try to recoup $35 million that was paid to former executives Rakesh Gangwal, Stephen Wolf and Lawrence Nagin when they left the company a few months before filing for bankruptcy. The company's unions had objected to those payments.

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