US Airways plan OK'd
ALEXANDRIA, Va. — Less than 24 hours after filing for Chapter 11 bankruptcy, US Airways Group received approval Monday from U.S. Bankruptcy Court here for a $500 million financing plan and other steps needed for its restructuring.
One of those steps was the go-ahead to tap $75 million of that credit between now and Sept. 25 — money that the struggling airline needs to help pay its bills, the court said.
US Airways also received approval to continue paying bills and depositing checks worth millions a day at PNC Bank of Pittsburgh. PNC will remain the airline's cash manager, said Judge Robert G. Mayer of the U.S. Bankruptcy Court for the Eastern District of Virginia.
"We had a very successful day in court today," said US Airways Chief Executive Officer David Siegel in brief remarks to reporters on the courthouse steps in Alexandria, Va., after daylong proceedings.
"This shows we have the cash on hand to see us through the restructuring," he said of the funding package.
US Airways, the nation's seventh-largest carrier, on Sunday became the only major carrier to file for bankruptcy since the Sept. 11 terrorist attacks crippled passenger revenue for airlines nationwide. The carrier sought protection from creditors because it couldn't reduce costs fast enough to reverse steep losses. The only major carrier to make money since Sept. 11 is Southwest Airlines.
In court papers yesterday, Siegel stated that US Airways realized it could not obtain concessions from various lenders, aircraft lessors and union groups "in a timeframe necessary to complete an out-of-court restructuring." The company also was starting to default on some of its bonds.
In May, US Airways management had laid out a restructuring plan that called for nearly $1 billion a year in annual concessions from labor. As of Friday, US Airways pilots had agreed to concede $465 million; flight attendants gave up $76 million; and salaried workers gave back $30 million.
Negotiations stalled, though, with lenders and lessors, as well as with aircraft mechanics, bag handlers, and ticket and passenger service agents.
The International Association of Machinists, which represent mechanics and bag handlers, agreed Sunday to take a ratification vote on a company proposal in the next two to three weeks.
Yesterday, the court failed to grant a US Airways' request for the right to reject collective-bargaining agreements with labor groups — such as the Machinists — that have not already agreed to concessionary contracts.
US Airways grounded roughly 20 percent of its flights after Sept. 11 and laid off nearly 11,000 of its roughly 45,000 workers. The carrier also retired a series of older aircraft, whose leases the carrier wanted to — but couldn't — reject.
Yesterday, Mayer postponed US Airways' motion for permission to toss out those aircraft leases until the next court hearing, scheduled for Sept. 5.
US Airways' decision to file bankruptcy came after company directors held a special board meeting by telephone Saturday that lasted three hours, according to bankruptcy documents. US Airways filed its Chapter 11 petition electronically the next afternoon.
But the haste produced mistakes. Its initial filing said US Airways had $7.81 billion in assets and $7.83 billion in liabilities.
After midnight Sunday, one of US Airways' prospective lenders noted the airline left out current debts. The correct liability figure is $10.65 billion — meaning the carrier is even more in the red than it said.
"It was a mistake made in the heat of pulling all the numbers together," said Chris Chiames, a senior vice president.
There are "tens of thousands of creditors in this case," said attorney John Butler Jr., partner with Chicago-based Skadden Arps Slate Meagher & Flom, which is representing US Airways.
The case fees for attorneys, financial analysts and other professionals is likely to cost about $16 million, he said. One of the 38 motions presented yesterday is that those people will get paid.
No trustee has been appointed yet or creditors committee formed. Among the largest unsecured creditors is the Allegheny County Airport Authority, which US Airways owes $4.6 million, according to court documents.
The Arlington, Va.-based airline also was the first airline to seek a loan guarantee — of $900 million — from the Air Transportation Stabilization Board, which was created to oversee loan guarantees to the troubled industry last fall.
The ATSB so far has only granted loan backing to one major carrier, America West. The government board has tentatively approved US Airways' application, on the condition it reaches the rest of its labor, lender and vendor agreements.
The $500 million in financing is supposed to last US Airways through late winter, when it hopes to re-emerge from bankruptcy protection. The money consists of loans totaling $250 million and a credit line of $250 million.
In addition, the Texas Pacific Group has tentatively agreed to invest $200 million in new stock that US Airways will issue. That would make the investor group US Airways' largest owner, at 38 percent of the stock.
US Airways expects to terminate its existing shares of stock and then issue a new class of shares after it reorganizes under bankruptcy law. The company is expected to file with the court a reorganization plan by Sept. 25.
Major US Airways events 2001-02
July 2: Facing increasing pressure from federal regulators, United Airlines calls off its proposed acquisition of US Airways that would have given US Airways investors $60 a share.
Aug. 15: US Airways unveils plans to return to profitability. The company's plan calls for replacing larger jets with smaller, regional jets and cutting $439 million from its annual operating budget.
Sept. 11: Terrorist attacks ground air transportation nationwide for three days. Reagan Washington National Airport, where US Airways operated more than half of the flights, is closed for weeks as security fears linger.
Sept. 17: US Airways says it will layoff 11,000 employees nationwide. Eventually, about 1,900 are laid off in Pittsburgh.
Sept. 23: US Airways says it will close its low-cost MetroJet unit, which operates 182 daily flights between 19 cities in the East and Midwest.
Nov. 16: US Airways announces it has received $404 million in financing from an undisclosed source. The airline anticipates the infusion will build its cash reserves to more than $1 billion by the end of the year.
Dec. 1-2: US Airways pilots stage a "sick out" that results in the cancellation of 216 flights.
Dec. 27: Gov. Mark Schweiker pledges $25 million in state funding for a $120 million US Airways maintenance facility being proposed for Pittsburgh.
March 6: US Airways names former Avis chief executive and former Continental Express executive David Siegel as its new chief executive. Siegel replaces Stephen Wolf, who remains at US Airways as chairman.
May 10: Backing off from a pledge by Wolf not to file for bankruptcy, Siegel says the company would be forced to file for bankruptcy if it does not receive federally backed loan guarantees and can't lower its industry-high operating costs.
May 30: US Airways announces it will form a new express carrier to be headquartered in Pittsburgh. The new operation would create 500 jobs.
June 24: Some lessors and lenders are told by US Airways that the airline will defer payments on some aircraft as part of its restructuring plan.
July 14: US Airways receives conditional approval for $900 million in federal loan guarantees that the airline says it will use to obtain $1 billion in financing.
Aug. 8: Pilots union ratifies contract that has them giving up $465 million a year in wages. Flight attendants agree one day later to $75.8 million in concessions.
Aug. 11: US Airways files for Chapter 11 bankruptcy protection. US Airways cites an inability to gain concessions from creditors as a prime reason for the decision. Separately, mechanics say they will vote to ratify concessions by the end of August, but the figure is expected to be less than the $182 million sought by the airline.
Aug. 12: A federal judge gives US Airways approval to continue operations as it tries to reorganize its finances under bankruptcy protection.