US Airways outlines cost-saving changes to retention program in response to objections

By Caroline Salls

Pittsburgh, May 31 - US Airways, Inc. and its official committee of unsecured creditors replied to the numerous objections to its proposed transaction retention program in connection with its merger with America West Holdings Corp., according to Friday filings with the U.S. Bankruptcy Court for the Eastern District of Virginia.

Four labor unions and several individual US Airway's employees have objected to the proposed program on the basis that they feel it is unfair to spend $55 million in administrative expenses to retain management and salaried employees when the employees have made pay and benefit sacrifices throughout the bankruptcy proceedings.

According to US Airways' response, it has negotiated changes to the program with the committee that will cut in half the administrative expenses.

The company and the committee have also agreed to change how severance benefits are calculated for officers, lowering the cost of the program by about $4 million "under the unlikely assumption all officers ultimately were terminated and received benefits under the program."

With the changes, the committee has agreed to support the retention program.

In its response in support of the program, the committee said its original concerns that the retention program, including the proposed $55 million in administrative costs, was too expensive were satisfied with the negotiated changes.

The company said it proposed the program so it can retain the minimum number of officers and salaried employees necessary to ensure the consummation and implementation of the merger.

Also, the company said it believes that most eligible employees will not receive payments under the program because they will either accept employment elsewhere or leave prior to being terminated.

"In any event, most of the actual expenditure for the TRP benefits will occur after the successful consummation of a transaction and will not be borne by [US Airways'] estates," according to the response.

The company said the retention program is necessary to make sure salaried employees "many of whom are literally working themselves out of a job as a merger transaction proceeds" do not leave prematurely in a "chaotic and uncontrolled fashion."

US Airways said the merger transaction could be "lost or compromised" if the salaried employees leave this way.

The Arlington, Va.-based carrier filed for bankruptcy on Sept. 12, 2004. Its Chapter 11 case number is 04-13819.

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