US Airways on Friday said it renegotiated terms of a $1 billion loan backed by the Air Transportation Stabilization Board, providing the carrier with breathing room as it continues reorganization efforts. Without restructuring the loan, US Airways was in danger of defaulting and losing financial support. The loan went into effect March 31, 2003, upon the airline's emergence from Chapter 11 bankruptcy protection
(BTNonline, March 31, 2003). The U.S. Department of the Treasury objected to the revisions.
Under the new deal, US Airways paid to ATSB and other lenders $250 million, reducing the loan balance to $726 million. In exchange, it received more time to meet financial covenants and looser restrictions on "pursuing asset sales
(BTN, Jan. 19)." The carrier also must "significantly narrow" losses in 2004, regain profitability in 2005 and maintain an unrestricted cash balance of $700 million. The company's current unrestricted cash balance is roughly $925 million.
"This agreement gives us a narrow window for management and labor to continue to work together to make the changes necessary to get this company back to profitability," said US Airways chairman David Bronner.
In approving the action with a 2-1 vote, ATSB said it "took steps to provide US Airways with flexibility to adapt to changing conditions in the airline industry." Brian Roseboro, acting Treasury undersecretary for domestic finance, cast the dissenting vote.
Following ATSB's approval, the Treasury Department issued a statement questioning the board's decision. "The presented waivers do not preserve many of the stronger taxpayer protections previously agreed to between the ATSB and US Airways and, therefore, Treasury cannot support their approval," the department said. "While the Department of the Treasury wishes to provide US Airways with the flexibility to manage this challenge, we would have preferred a structure of waivers that maintained a higher level of practical protections for the taxpayers."
The union representing US Airways' pilots has said it will participate in ongoing restructuring efforts. The flight attendants union has demanded a detailed business plan, while the mechanics union at this juncture appears less willing to agree to a third round of labor concessions.
Reducing costs, particularly labor costs, is key for all major U.S. carriers. "When the inevitable forces of consolidation kick in, it is important that we have a competitive cost structure," said US Airways president and CEO David Siegel, during a speech last month at the Potomac Officers Club. "Otherwise, we will be the awkward teenager at the school dance, hoping someone will come talk to us, but going home disappointed and lonely."