US Airways Group files for Chapter 11 citing high fuel costs, labor costs, competition

By Jeff Pines

Washington, Sept. 13 - US Airways Group Inc. filed for Chapter 11 again on Sunday citing the high cost of fuel, high cost of labor and stiff competition from low-cost carriers. The airline previously filed for bankruptcy on Aug. 11, 2002 and emerged from bankruptcy on March 31, 2003.

The airline also faced Sept. 30 covenant tests relating to its Air Transportation Stabilization Board loan, and other financing agreements called for lower labor costs and other key elements of its transformation plan be completed by Sept. 30, the company said.

Rather than risk defaulting on its obligations, management decided to preserve cash and let the bankruptcy court oversee the restructuring efforts, US Airways said.

"Since we still lack the new labor agreements that are needed for the transformation plan to succeed, we must preserve the company's cash resources that are required to implement the plan. We have made the difficult but necessary decision to complete this process with the help of the court," said US Airways president and chief executive officer Bruce Lakefield, in a news release.

Besides lower labor costs, the transformation plan calls for a simplified fare structure, low-cost fares, an increase in its destinations and a reduction in operating costs.

The Arlington, Va.-based airline listed its assets at $8.61 billion and liabilities at $8.6 billion.

Major unsecured creditors include: General Electric Capital Corp. with a $149.75 million claim; GE Engine Services Inc. with a $129.45 million claim, Electronic Data Systems Corp. with a $16.41 million claim and Sabre Inc. with a $6.54 million claim. The General Electric claims are cross-collateralized and may be undersecured, according to the paperwork filed with the U.S. Bankruptcy Court for the Eastern District of Virginia.

The ATSB and the airline's other lenders, Retirement Systems of Alabama Holdings LLC and Bank of America NA have agreed to give the company continued access to a portion of $750 million in cash, a component of the collateral supporting its $1 billion loan, to use as working capital so it will not need debtor-in-possession financing. The ATSB guarantees $900 million of the loan.

The bankruptcy court on Monday gave preliminary approval to the use of cash and will hold a final hearing on Oct. 14.

The company's current cash position is about $1.45 billion in cash, cash equivalents and short-term investments. The outstanding portion of the ATSB loan is $717.6 million.

US Airways' case number is 04-13819.

US Airways emerged from its previous Chapter 11 proceedings on March 31, 2003. It had filed in August 2002.

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