- The Washington Times - Sunday, September 12, 2004

US Airways Group Inc. filed for Chapter 11 bankruptcy protection yesterday for the second time in two years after having failed to negotiate agreements with its unions to cut labor costs.

The company’s president vowed to continue restructuring the airline into a low-cost carrier during the bankruptcy process.

“We have come too far and accomplished too much to simply stop the process and not succeed,” said Bruce Lakefield, US Airways’ president and chief executive. “A restructured US Airways with low costs and low fares will be a dynamic competitor.”

The Arlington-based carrier had threatened for months that enormous debt would force it to seek bankruptcy again unless it could trim costs and transform itself into an economy carrier.

US Airways, the nation’s seventh-largest air carrier, had said repeatedly it must cut costs by $1.5 billion to avoid bankruptcy. It hoped that labor unions would agree to $800 million in concessions.

But talks with its pilots union failed to produce an agreement, despite ongoing efforts to forge a compromise, and on Saturday its union of flight attendants rejected the airline’s latest proposal.

“We are not only disappointed with the company’s latest proposal, we are disgusted,” said Perry Hayes, president of the Association of Flight Attendants US Airways chapter. He said flight attendants want the No. 7 U.S. airline to survive, “but not at the cost of their own survival.”

As recently as Friday, US Airways made a last-ditch effort to reach a deal with the pilots, offering a proposal with minimum pay cuts that would have required more flight hours each month, putting more pilots at risk of furlough.

Some pilot representatives who opposed the new deal said the pilots and other US Airways workers had made enough concessions during the company’s first trip into bankruptcy in 2002. Then, the unions collectively agreed to contract concessions of more than $1 billion a year.

US Airways, which employs 28,000, said there will be no disruption in its service and it plans to present a reorganization plan to the court by the end of the year. It filed for protection in U.S. Bankruptcy Court for the Eastern District of Virginia, in Alexandria.

Mr. Lakefield said the airline had to seek bankruptcy protection in order to preserve its cash.

“We have made the difficult but necessary decision to complete this process with the help of the court,” Mr. Lakefield said.

The airline still owes the federal government $718 million, and it ultimately will be up to a bankruptcy court to determine Uncle Sam’s place in line among the airline’s creditors.

US Airways said yesterday that it has an agreement in place with the government and with other lenders to use some of its cash reserves to continue operations while in bankruptcy. In its filing, the company listed $8.8 billion in assets and $8.7 billion in liabilities.

A hearing was scheduled for this morning in U.S. Bankruptcy Court.

US Airways first filed for bankruptcy protection in August 2002 after the September 11 attacks devastated the airline industry as a whole and US Airways in particular.

The company had lost $2.1 billion in 2001 as it dealt with the prolonged closure of Ronald Reagan Washington National Airport, where it was the largest carrier, after September 11.

US Airways is one of the few airlines to file for bankruptcy more than once. Braniff International filed in 1982, 1989 and 1992 before going out of business. Continental Airlines filed in 1983 and 1990.

Airline industry analyst David Beckerman said the bankruptcy filing doesn’t mean the end of US Airways.

“I can’t say this is it for them. Airlines show an amazing ability to hang on. Continental was in bankruptcy more than once. US Airways may have the wherewithal to withstand this,” said Mr. Beckerman, director of consulting services for Back Aviation Solutions in the District.

The key to its reformation will be emerging with a new plan, said Terry Trippler, a Minneapolis-based airline industry analyst and consumer advocate for Sidestep.com, an airline fare search engine.

“If they come back as a typical legacy carrier, they’re not going to make it work. It has to be something different,” he said.

This article is based in part on wire service reports.

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