US Airways to Emerge From Chapter 11
US Airways is poised to exit Chapter 11 today, becoming the first major U.S. carrier to make it through the bankruptcy process since the Sept. 11 attacks depressed air travel.
But another major carrier -- No. 1 American Airlines -- could be headed into Bankruptcy Court as soon as today unless it reaches concessions with its labor unions for cost reductions. As of Sunday evening, the airline was continuing negotiations.
Unions at American were scrambling over the weekend to reach concession deals with the carrier on the grounds that they were better off negotiating pay and benefit cuts with the airline than letting a bankruptcy judge possibly slash or revoke current contracts. The pilots union said it had made a proposal for $660 million in savings through changes in work rules and across-the-board pay cuts.
Although American has tried to cuts costs, banking sources have said the carrier, a division of AMR Corp., cannot easily recover from a drop in air travel bookings brought about by the war in Iraq. It would be the largest carrier ever to seek Chapter 11 protection.
A Chapter 11 bankruptcy filing allows a company to continuing operating while it reorganizes its finances.
AMR, based in Fort Worth, posted an industry record $3.5-billion loss in 2002, nearly a third of the more than $11 billion in losses of the top eight U.S. carriers. Since the Sept. 11 attacks, rivals UAL Corp., parent of United, and US Airways have filed for bankruptcy protection.
When Arlington, Va.-based US Airways filed for Chapter 11 less than eight months ago, it was the No. 6 U.S. carrier. It will exit as No. 7, with plans to deploy more regional jets, a greater focus on the East Coast, and $1.9 billion of annual cost savings.
“They’ve done a very good job of managing through the process for a company in that industry, of that size, and with the complexities they have,” said Joseph Luzinski, senior vice president at Development Specialists Inc., a New York-based management consulting company specializing in bankruptcy proceedings.
US Airways’ parent, holding company US Airways Group Inc., cleared its last major hurdles to exiting Chapter 11 on Friday. The government’s Pension Benefit Guaranty Corp. and Judge Stephen Mitchell of the U.S. Bankruptcy Court in Alexandria, approved a plan to terminate the company’s pilot pension plan and replace it with a less costly one.
Like other big airlines, US Airways has struggled with rising costs and shrinking revenue because of the Sept. 11 attacks and a weak economy, and now the Iraq war. Like most rivals, it expects to lose money this year.