- The Washington Times - Monday, September 13, 2004

Airways received a federal judge’s permission yesterday to continue normal business operations during the airline’s second trip to bankruptcy court in Alexandria in two years.

Other issues, such as how the Arlington airline will restructure to stay in business, were scheduled for future hearing dates.

“No one realized just how competitive they would become,” Bruce Lakefield, the company’s chief executive officer, said in explaining that low-cost airlines like Southwest Airlines and JetBlue Airways had eaten away at US Airways’ revenue.

The airline’s executives underestimated the revenue they would earn by $1.3 billion since they emerged from earlier bankruptcy protection in April 2003, the company’s attorneys said during the court proceeding.

The nation’s seventh-largest airline hopes to reorganize to become more like its low-cost competitors who are thriving while the biggest airlines — like United Airlines and Delta Air Lines — use a “hub-and-spoke” structure in which planes fly to and from the big-city airports where they are based.

The low-cost business model allows airlines to make money with inexpensive fares while the big carriers lose money on similar routes and fares.

“Bankruptcy is just another tool to get to the right place,” Mr. Lakefield said.

He also said the airline’s customers would not be inconvenienced during the bankruptcy reorganization.

“Operations are normal,” Mr. Lakefield said. “We’re running 95 percent on-time arrivals.”

During the hearing yesterday, Judge Stephen S. Mitchell granted US Airways’ requests to continue serving its customers and to pay its bills for fuel, maintenance and supplies. Fuel costs ran $220 million higher than US Airways’ earlier estimates.

However, issues such as the terms under which the airline can continue its agreements with unions and vendors are set for an Oct. 14 hearing.

US Airways listed $8.8 billion in assets and $8.7 billion in debts in its bankruptcy papers filed Sunday.

Among the debts are a $110 million payment to two pension funds due today. The airline also faces a Sept. 30 deadline for meeting conditions of a $900 million federal loan guarantee from the Air Transportation Stabilization Board (ATSB), the federal agency set up after the September 11 attacks to save the airline industry from financial collapse.

“ATSB supports US Airways’ efforts to reorganize,” Brendan Collins, a government attorney representing the ATSB, told the judge during the hearing.

US Airways is operating on its $1.45 billion cash reserve. It has few unsecured assets left that it can use as collateral because of its prior commitments to the ATSB.

An inability to win labor contract concessions from its unions was a primary issue in US Airways’ return to bankruptcy.

The airline sought $800 million in concessions from its pilots, flight attendants and mechanics and another $700 million in cost cuts from suppliers and other expenses.

The unions negotiated over management’s counterproposals through the weekend but failed to reach an agreement that would avoid bankruptcy.

“We’re certainly disappointed that we’re back here today,” Jack Stephan, spokesman for the Air Line Pilots Association, said outside the courthouse. “We were making some progress.”

Now, a bankruptcy judge will decide whether to force concessions on the unions by court order.

Mr. Stephan said he is holding out hope continuing negotiations will avoid court intervention.

“There are no foregone conclusions,” Mr. Stephan said.

During the hearing, Brian P. Leitch, attorney for US Airways, said the airline met nearly all the goals it outlined in its reorganization plan after the August 2002 bankruptcy filing.

However, he said “the industry has really transformed” since US Airways’ earlier bankruptcy.

He was referring to the steady growth of low-cost airlines, which operate with a “point-to-point” flight structure. They change flight schedules and routes often to fill the greatest customer demand and return their planes to the air quickly after landing to avoid “down time.”

“Even though we’re flying more passengers and more miles, we’re flying them with less revenue,” Mr. Leitch said. “As legacy carriers are shrinking, that space is being taken over by the low-cost carriers.”

The airline’s stock closed down 30.1 percent yesterday to close at $1.02 per share on the Nasdaq Stock Market.

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