"US Airways, Pittsburgh fight over value of airport agreement"

Wednesday, June 25, 2003

Airline, county fight over value of airport agreement
By Mark Belko
The Pittsburgh (PA) Post-Gazette


US Airways is disputing the value of the airline operating agreement it
rejected at Pittsburgh International Airport shortly before emerging from
bankruptcy in March. The county's Airport Authority maintains the agreement
is worth $1.4 billion; US Airways says it's worth zilch.

The airline valued the operating agreement at zero in a motion filed Friday
in U.S. Bankruptcy Court in Alexandria, Va. In April, about a month after
the airline rejected all its leases and contracts regarding its Pittsburgh
operations as of Jan. 5, the Airport Authority filed a proof of claim
against the carrier for $1.46 billion in damages, the biggest chunk
representing its valuation of the operating agreement.

US Airways has threatened to close its Pittsburgh hub unless it is able to
lower its costs at the airport and is engaged in negotiations with Gov. Ed
Rendell and local officials to try to achieve that goal and other capital
improvements.

The dispute between the airline and the Airport Authority over the value of
the operating agreement could be the subject of a court hearing on July 17
unless the parties are able to reach an agreement before then. The authority
has until July 3 to formally respond to the US Airways motion that was filed
Friday.

Chris Chiames, US Airways senior vice president of corporate affairs, said
the airline valued the agreement at zero because it has the right under U.S.
bankruptcy law to reject leases if it so desires.

"Should there not be a solution found to keep the hub in Pittsburgh and we
follow through on the rejection of the leases, under law, there is no
obligation to pay under those leases," he said.

But Eric Smith, the Schnader Harrison Segal & Lewis lawyer who is
representing the Airport Authority in the US Airways bankruptcy, said the
operating agreement was far more than a standard lease. He said the
agreement, which sets the rates and charges paid by the airlines operating
at the airport, was set up to pay off the debt on the new $1 billion
terminal. As the largest tenant, US Airways, which approved the
construction, pays off the bulk of the debt.

"They are more than leases. They are an agreement to service that debt until
that debt is retired," Smith said. "That's our battleground."

Should the Airport Authority succeed in pushing is claim for damages, it
could end up being one of the largest shareholders in the airline, Smith
said. 

However, Chiames said US Airways was hoping to resolve the dispute with the
authority before July 17.


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