- The Washington Times - Friday, September 16, 2005

US Airways Group Inc. yesterday won approval to emerge from its second bankruptcy in two years.

Court approval of the airline’s reorganization plan means US Airways can complete its merger with America West, making the combined airline the nation’s sixth-largest carrier.

The outgoing chief executive of US Airways and the federal judge who presided over the airline’s reorganization each said it is unlikely the company will have to file for Chapter 11 bankruptcy protection from creditors a third time.

“I believe [another bankruptcy filing] is not likely to occur, but history tells us it could occur,” said U.S. Bankruptcy Judge Stephen Mitchell, who presided over US Airways’ first bankruptcy in 2002. “Certainly I have every hope and confidence the airline will prosper in the future and creditors will find their shares are worth something.”

US Airways Chief Executive Officer Bruce Lakefield said the airline is poised to compete with its low-cost rivals and that the bankruptcy process has produced a company that can compete with low-cost rivals including Southwest Airlines and JetBlue Airways.

“All the people in the company now have a future,” said Mr. Lakefield, who has had a short but lucrative time with the airline.

Many won’t.

US Airways is a much different company now than it was when it filed for bankruptcy Sept. 12, 2004.

More than 20,000 workers had wages and benefits cut by $1 billion when US Airways renegotiated labor contracts during the bankruptcy process; pensions for 50,000 current and former workers were cut; and medical benefits for 11,000 retirees were eliminated during bankruptcy.

About 3,000 people were fired or took furloughs in the first half of the year.

About 450 workers at US Airways corporate headquarters in Crystal City aren’t being offered jobs at the merged company or aren’t accepting positions at the new airline’s headquarters in Tempe, Ariz.

Delta Air Lines and Northwest Airlines, both of which filed for bankruptcy Wednesday, could copy US Airways’ approach and try to pry concessions out of union workers to cut labor costs. Delta already has won $1 billion in concessions from its pilots union.

Mr. Lakefield, who joined the airline in April 2003 as a director, will receive $1.7 million in severance as part of the reorganization plan Judge Mitchell approved early yesterday.

Unions argued this week that the severance payments were too generous. Ten other executives who aren’t getting jobs with the merged airline will split $10.3 million. But Judge Mitchell said yesterday the bonuses are justified because they are equivalent to bonuses given to executives throughout the airline industry.

The debate over executive bonuses was one of the final issues the judge ruled on before deciding US Airways can emerge from bankruptcy. The decision takes effect Sept. 27.

Under the terms of the deal between US Airways and America West, unsecured creditors of US Airways will obtain 12 percent of stock in the new company. That includes the Pension Benefit Guaranty Corp., which gets 5.7 million new shares. The PBGC has assumed $2.7 billion of US Airways’ pension obligations. The Air Line Pilots Association will receive 1.2 million shares.

Unsecured creditors receive shares in the merged airline worth 3 cents to 17 cents on the dollar for their claims against US Airways.

Shareholders of America West will get 37 percent of shares in the merged company.

Investors, who are making a combined $565 million investment of cash in the new company, will receive 52 percent of shares in the merged airline.

In all, the new company will funded with $1.5 billion in new equity.

Existing US Airways shareholders get no shares in the new company.

US Airways will emerge from bankruptcy with $2.5 billion in cash.

That places the company in a much stronger financial position than it was in when it emerged from its first bankruptcy in March 2003, said John Luth, a financial adviser to US Airways.

In 2003 US Airways exited bankruptcy with $1.5 billion.

The merged airline will have 44,000 employees, 360 mainline jets, and make 3,200 daily flights to 183 cities in the U.S., Canada, the Caribbean, Latin America and Europe.

US Airways hasn’t changed its flight schedule and consumers are unaffected by the court proceeding.

In candid remarks after the bankruptcy hearing, Mr. Lakefield said it is “very doubtful” US Airways could have survived without the purchase by America West.

Changes at US Airways’ headquarters in Crystal City won’t begin immediately.

“For the immediate future, there won’t be anyone relocating,” said Jerrold Glass, executive vice president in charge of human resources at US Airways.

US Airways has a lease on 206,000 square feet of office space in Crystal City through the end of April.

Mr. Glass said the company hopes to let employees at the airline’s headquarters know by Sept. 27, when the deal is scheduled to take effect, whether they have positions with the merged airline.

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