US Airways won permission to cut employee wages by 21 percent in bankruptcy court yesterday, but its executives would not rule out the possibility the airline would liquidate.
The federal judge approved almost all of US Airways’ requests as it revamps its business strategy during Chapter 11 bankruptcy protection.
The 21 percent pay cut for the next four months is 2 percent less than the Arlington airline requested.
Judge Stephen S. Mitchell also said pension fund payments could be reduced, maintenance work outsourced and pilots required to work longer hours, despite conflicting terms in union contracts.
He said his decision was a choice between reducing employee salaries and benefits or losing the airline as it runs out of cash, which witnesses said would occur early next year.
“Basically, what we have here is a ticking fiscal time bomb,” Judge Mitchell said.
He said the cuts were “essential to the continuation of the debtor’s business.”
After the ruling, US Airways’ chief executive officer called the cuts in pay and benefits “regrettable but necessary.” However, he was uncertain whether they would be enough to avoid liquidation.
“As we go along here, we will see what is necessary,” Bruce R. Lakefield said outside the Alexandria courthouse.
US Airways officials testified that the airline would save $38 million per month if the judge granted a 23 percent pay cut.
The smaller reductions allowed by the judge would save less than $38 million per month, but airline officials had not calculated the savings yesterday.
Mr. Lakefield held out hope that negotiations with unions would produce agreements for permanent cost-savings when the four-month deadline set by the court expires Feb. 15, 2005.
The airline’s pilots reached a tentative agreement in which they agreed to an 18 percent pay cut, benefit reductions and work rule changes.
A ratification vote by the pilots is scheduled to conclude Oct. 21. The 21 percent pay cut would apply to the pilots only if they reject the tentative agreement.
Under the 21 percent cut, the average US Airways salary would drop from $59,509 to $47,012. That would put US Airways employees below the other five major traditional airlines as well as low-cost carrier Southwest Airlines.
They still would earn average salaries higher than employees of JetBlue Airways and America West, two airlines US Airways is using as models as it reconfigures its business strategy to operate like a low-cost carrier.
US Airways, the nation’s seventh-largest airline, employs 34,000 workers, of which 84 percent are represented by unions.
The unions were disappointed with the court ruling. US Airways’ unions include the Air Line Pilots Association, the Association of Flight Attendants, the Communications Workers of America, and the International Association of Machinists and Aerospace Workers.
“I think it’s devastating,” said Sumanta Ray, a senior analyst for the Communications Workers of America, which represents US Airways customer-service employees. “It’s very severe.”
He predicted some of the airline’s employees would quit rather than endure the pay and benefit reductions.
“I think there will be some people who will vote with their feet on this,” he said.
Jack Stephan, spokesman for the Air Line Pilots Association, called the ruling “difficult for our pilots.” He also said negotiated agreements with the unions would be better than further court action.
The unions argued in court testimony this week that the cuts requested by US Airways were unfair to employees.
Judge Mitchell acknowledged the burden he was imposing on employees by saying the cuts would cause “severe financial hardships” for some of them and “one or more personal bankruptcies.”