'Business As Usual' For US Airways' Accounts

US Airways yesterday filed for voluntary reorganization under Chapter 11 bankruptcy code, 11 months to the day after the Sept. 11 terrorist attacks, though the attacks played only a factor in the carrier's economic woes. The airline, seen for months as the most likely bankruptcy candidate among the nine major U.S. carriers, said it will continue operations and that the reorganization process--targeted for completion by March--will be transparent to the consumer.

The carrier said the filing "will allow the company to effect cost savings from aircraft lessors and financiers and other key stakeholders as a means of ensuring the company's return to profitability."

"Our customers should be confident that we will continue service to the more than 200 communities in our network," said US Airways president and CEO David Siegel.

"It is business as usual," said one carrier sales executive, commenting on the immediate impact for US Airways' corporate accounts and travel agency partners, confirming that there are no current plans to reduce the schedule or discontinue service to any destinations.

The carrier said most operational activities and marketing arrangements will continue throughout the bankruptcy reorganization process, including its Dividend Miles frequent flyer program and the co-branded US Airways/Bank of America credit card.

US Airways said it has secured $500 million in debtor-in-possession from Credit Suisse First Boston, Bank of America Corp. and other entities. Furthermore, Texas Pacific Group, which in the past has been involved in bankruptcy restructuring at America West and Continental airlines, entered into a memorandum of understanding to inject $200 million of fresh equity into the airline upon its emergence from Chapter 11 protection. US Airways said the Texas Pacific Group's offer, which would result in 38 percent ownership and seats on the carrier's board of directors, is subject to higher offers and court approval.

Liquidity provided by Texas Pacific Group would complement the $1 billion in loans the carrier expects to receive should the Air Transportation Stabilization Board finalize a conditional approval of US Airways' loan guarantee request. "At the time the conditional approval was granted, the board recognized the possibility of a Chapter 11 filing by US Airways," ATSB said in a statement. "The board will review the reorganization plan when presented and will determine whether it meets the conditions for issuance of a guarantee."

Yesterday's filing in the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria listed company assets at $7.81 billion, $20 million less than existing liabilities. The court today is hearing US Airways' first-day motions and already approved bridge agreements, granting interim relief on a wide range of contracts and activities, including employee wages, the frequent flyer program, fuel needs and interline agreements with other carriers.

Though US Airways is the first major carrier to file for bankruptcy--smaller companies including Midway and Vanguard airlines already are seeking Chapter 11 protection--it may not be the last, according to industry observers. Many point to United Airlines parent UAL Corp. as another likely candidate. UAL, however, as of June 30 was sitting on a cash balance of $2.7 billion. By comparison, US Airways cash balance on June 30 was just $602 million.

Nevertheless, Deutsche Bank Securities analyst Susan Donofrio, in a research note today to investors, put United's odds of failing to secure its loan guarantee from ATSB at 80 percent to 85 percent. "We think this would pave the way for a possible bankruptcy," she said.

Donofrio continued that US Airways' filing in particular will not "meaningfully change the competitive landscape" because the carrier is not a leader in changing fares, but added that bankruptcy "may give the airline some breathing room" in considering fare rationality. She also suggested Delta Air Lines, with a network overlap of 30 percent, stands to benefit most from passengers booking away from US Airways.

US Airways said it will file its disclosure statement and "labor-friendly" reorganization plan by Dec. 31, which would include employee representation on the board.

In the meantime, the carrier will continue working toward resolving new agreements with the last of its labor unions, notably its mechanics union, and negotiating with regional jet manufacturers on increasing the size of its regional jet fleet. It also continues to seek U.S. Department of Transportation approval on a proposed codeshare agreement with United.