US Airways files for Ch. 11 protection again

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ALEXANDRIA, Va. -- US Airways is back in bankruptcy. The airline filed here Sept. 12 to reorganize under Chapter 11 bankruptcy protection, citing "cash obligations quickly coming due and the potential for defaults with creditors imminent." The first court hearings are to take place Sept. 13.

Some industry analysts and observers wonder whether the carrier can emerge from its second Chapter 11 filing in just over two years, but US Airways is staying optimistic and said it expects to file a plan of reorganization before the end of the year. The airline said the filing will give it the opportunity to implement its transformation plan, "built on lower costs, a simplified fare structure, and expanded service in the eastern U.S., the Caribbean, Latin America and Europe."

"You should understand that US Airways is not going out of business," US Airways President and CEO Bruce Lakefield said in a letter to customers posted at www.transformingusairways.com. "The Chapter 11 process will allow US Airways to complete its restructuring initiatives while we continue normal day-to-day operations."

The filing, he said, will not change the airlines flight schedule, or reciprocal agreements with Star Alliance members, code-share partners and other carriers. It plans to ask the court to let it keep all its key agreements related to Dividend Miles, its frequent flyer program, as well as its co-branded Bank of America/Dividend Miles credit card.

The airline has been operating with cash obtained from a $1 billion loan, $900 million of which was guaranteed by the federal governments Air Transportation Stabilization Board (ATSB). US Airways said the ATSB and the other lenders, namely the Retirement Systems of Alabama and Bank of America, have agreed to authorize US Airways continued use of those funds. The airline said that means, in lieu of debtor-in-possession financing, it has access to a portion of $750 million in cash.

In its filing Sept. 12 in the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria, the company identified the creditors holding the largest unsecured claims as GE Capital Corp., GE Engine Services, Electronic Data Systems Corp., Sabre, Worldspan, Philadelphia International Airport, Amadeus, Rolls Royce, Charlotte Douglas International Airport and Galileo/Cendant.

US Airways last filed for Chapter 11 protection Aug. 11, 2002, emerging from Chapter 11 March 31 with a belief that it had become "more competitive and financially stronger."

Lakefield said US Airways has made "tremendous strides" since its emergence from Chapter 11. Lower labor costs, the expansion of regional jet flying, participation in the Star Alliance and lower aircraft lease and vendor costs all contributed to US Airways successfully securing a $900 federal loan guarantee from the ATSB, which it used to obtain a $1 billion loan.

But while the airline reduced its annual operating expenses by almost $2 billion during its previous restructuring, it must cut more because of the "dramatic growth" of low-cost carriers, "unabated" fuel price increases and the publics demand for lower, simpler fares.

The airlines passenger revenue this year is expected to be $450 million lower than forecast, while fuel costs are expected to be about $300 million higher. The court filing is designed, in part, to force more concessions from its unions, or have the cost cuts imposed on them.

To contact reporter Andrew Compart, send e-mail to[email protected].

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