"US Airways Considers Bankruptcy Again"

Saturday, May 8, 2004 

US Airways Considers Bankruptcy Again 
Struggling Airline Seeks To Cut Costs Further, Pacify Its Creditors 
By Keith L. Alexander
The Washington (DC) Post


US Airways Group Inc. said yesterday that it is considering another
bankruptcy filing if it is unable to further reduce its costs. 

In the filing with the Securities and Exchange Commission, the
Arlington-based airline said it was considering all options in its efforts
to trim at least 25 percent, or about $1.5 billion, of its costs annually to
better compete with low-cost carriers. 

"Failure to achieve the above-described competitive cost structure will
force the company to reexamine its strategic options, including but not
limited to asset sales or a judicial restructuring," the company said in its
filing. 

US Airways, which lost $177 million in its first quarter, has not made a
profit from operations since it emerged from Chapter 11 in March 2003 after
seven months in bankruptcy protection. 

Airline analysts have criticized US Airways executives for not cutting costs
enough while in reorganization. US Airways executives have said they needed
to emerge from bankruptcy when they did to secure ongoing financing. During
bankruptcy, US Airways trimmed about $1.9 billion of costs, $1.2 billion of
which came from workers' pay and benefits. 

US Airways began preliminary talks with its labor groups Wednesday. So far,
only the pilots have agreed to talk about additional concessions. 

With the increased competition from low-cost airlines and continued weak
pricing environment, it would be difficult for US Airways to emerge from a
second bankruptcy, said analyst Helane Becker of the Benchmark Co. "It's
another disaster," she said. 

Adding to US Airways' troubles, Becker said, was the fact it replaced its
chief executive and chief financial officer within the past two weeks. David
N. Siegel, the president and chief executive, abruptly resigned late last
month and Neal S. Cohen left as chief financial officer last week. Both men
steered the airline through its bankruptcy. US Airways board member Bruce R.
Lakefield immediately replaced Siegel. Dave Davis, senior vice president of
finance, replaced Cohen. 

"US Airways is telling labor: Either agree to the concessions now or agree
to it later in bankruptcy," Becker said. 

US Airways would not be the first carrier to file bankruptcy more than once
-- Continental Airlines made it out of reorganization twice, and Trans World
Airlines filed three times before finally being sold to American Airlines. 

Meanwhile, the airline is trying to pacify creditors. In the filing, the
airline said it paid $40 million to American Express, for a reserve fund to
reimburse cardholders who purchased US Airways tickets, in case the airline
should fail. 

US Airways is also in talks with its largest creditor, GE Capital Aviation
Services, the aircraft-financing arm of General Electric Co. On Wednesday,
the airline's credit rating was downgraded by Standard & Poor's to a level
that allows GE Capital Aviation Services to withdraw financing of US
Airways' purchases of regional jets. As part of its cost restructuring, US
Airways has sought to add 170 of the 5o- to 70-seat planes to handle shorter
flights. 

US Airways is under pressure to cut its costs quickly. On Sunday, Southwest
begins flying out of Philadelphia, one of US Airways' most profitable hub
airports. The airline also must reduce its costs during the remainder of the
year and report a profit next year, or risk defaulting on its agreement with
the federal Air Transportation Stabilization Board. The ATSB backed $900
million of the airline's $1 billion in post-bankruptcy financing. 

In his weekly recorded message to employees, Lakefield said he did not want
to sell any of the airline's assets, but that the airline has to reduce its
costs to avoid such a move. "This is not going to be easy. It's going to be
very tough and there are those out there betting against us hoping we will
fail," he said. "I hate to lose. I'm here to win." 

Lakefield told union leaders this week that the airline will not sell its
East Coast shuttle, the Communications Workers of America union said in a
note to US Airways members. In December, US Airways hired an investment
banker to identify interested buyers of assets including the shuttle and hub
operations. Earlier this week, US Airways said it planned to drastically
reduce operations in Pittsburgh, one of its hubs.


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