US Airways reorganization plan hinges on loan guarantee

ARLINGTON, Va. -- US Airways Group announced Saturday it had filed a proposed reorganization plan that hinges on the airline securing a $1 billion federal loan guarantee, a $240 million investment from the Alabama state pension fund and pay givebacks by airline employees.

The plan was filed in federal bankruptcy court after two more labor unions accepted cost-cutting measures Friday.

Hard hit by slumping travel following the Sept. 11 terrorist attacks, US Airways in August became the first airline to declare bankruptcy following the attacks that had put the industry in a tailspin.

The airline lost $2.1 billion in 2001 and said it needed to cut costs by $1.6 billion to remain a viable company.

US Airways on Saturday reiterated that it must receive $1 billion in loan guarantees by the Air Transportation Stabilization Board, a reduction in its Alabama pension fund liabilities estimated at $3.1 billion over the next seven years, and ratification of all the pay giveback agreements it negotiated with its unions to emerge from bankruptcy.

Asking for sacrifices

Another provision in its reorganization plan calls for cancellation of its existing common stock and a $240 million investment from the Alabama retirement system, which will retain ownership of 36.6 percent of new stock.

"Needless to say, many sacrifices have been made," US Airways President and Chief Executive David Siegel said. "Despite having to work to get more cost savings than originally anticipated because of the industry's prolonged downturn, I am actually more optimistic than ever about our proposal."

A new, 15-member board of directors will include eight nominees from the Alabama pension system, four representatives of the labor unions, Siegel and two independent directors to be named by the company "in consultation" with the airline's unsecured creditors.

A disclosure statement filed with the reorganization plan estimates that the reorganized company's new common stock and other securities will be worth between $425 million and $645 million.

Left unresolved is how much the company will pay on the $61 billion in claims filed by its creditors. The company said it expects to pay $2.1 billion to $2.2 billion for secured claims and $2.5 billion to $3.1 billion for unsecured claims; general unsecured creditors would receive about 2 cents on the dollar.

Also unresolved is the status of the company's subsidiaries, including its regional carriers, which still "must reach agreements with their respective labor unions on competitive labor contracts" that the company says are needed to make the transition to "an all-regional jet fleet."

US Airways employs about 32,000 workers, down from its pre-Sept. 11 work force of more than 46,000.