ARLINGTON, Va., Sept. 12 2004 LAWFUEL – Best for Law news, Attorney & Lawyer news, Law firm news, Bankrupcy, Tax & legal news US Airways Group, Inc.
(Nasdaq: UAIR) today announced that the Company and certain of its
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. The Company said that today’s action will provide
the nation’s seventh-largest airline the opportunity to implement its
Transformation Plan built on lower costs, a simplified fare structure, and
expanded service in the eastern U.S., the Caribbean, Latin America and Europe.
“We have devoted the last six months to building and implementing a
Transformation Plan that leverages our strengths and allows us to compete
successfully in a changing airline industry,” said US Airways President and
Chief Executive Officer Bruce R. Lakefield. “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.”
Customers should notice no changes to flight operations or customer
service programs because of the filing. The company intends to ask the Court
to allow it to assume all key agreements related to its Dividend Miles program
and the co-branded Bank of America/ Dividend Miles credit card. In addition,
employees will be paid and their benefits will continue, and the operation of
usairways.com will be unaffected. Vendors will be paid in ordinary course for
goods and services provided going forward.
US Airways faced Sept. 30 covenant tests relating to its Air
Transportation Stabilization Board (ATSB) loan. Additionally, expiring
financing agreements with General Electric, Bombardier and Embraer, among
others, required that the key elements of its Transformation Plan — including
lower labor costs — be implemented by September 30. With cash obligations
quickly coming due and the potential for defaults with some creditors
imminent, the Chapter 11 filing became necessary to preserve cash and allow
the Court to oversee the Company’s continued restructuring, including reaching
new labor agreements. Despite efforts undertaken for several months with its
major work groups, the company was unable to reach out-of-court negotiated
agreements.
Lakefield said that US Airways has made tremendous strides since its
emergence from Chapter 11 in March 2003, and that the key elements of that
original plan, such as lower labor costs, the expansion of RJ flying,
participation in the Star Alliance, and lower aircraft lease and vendor costs,
all contributed to US Airways successfully securing a federal loan guarantee
from the ATSB. The airline had already reduced annual operating expenses by
almost $2 billion during its 2002-2003 restructuring, but the dramatic growth
of low-cost carriers (LCCs), unabated fuel price increases and the public’s
demand for lower, simpler fares requires that the Company do more to achieve
an even more competitive cost structure that is competitive to LCCs.
As a result of these external factors, US Airways’ 2004 fuel costs are
expected to be approximately $300 million higher than envisioned in the
confirmed plan of reorganization, and mainline passenger revenues are expected
to be $450 million lower than forecast, as overall industry unit revenue
continues to decline.
“We are facing the difficult choices and the pressures that every legacy
airline is going to be facing over the next several years,” said Lakefield.
“It is no fun being first, and we take no pleasure in asking our employees to
make additional sacrifices. However, we have come too far and accomplished
too much to simply stop the process and not succeed. With our strong position
on the East Coast and our growing presence in Europe, the Caribbean and Latin
America, our dedicated employees, and more than 4 million active Dividend
Miles members, a restructured US Airways with low costs and low fares will be
a dynamic competitor.”
The Company filed its petitions on Sunday afternoon in the U.S. Bankruptcy
Court for the Eastern District of Virginia in Alexandria. The Company’s
petitions listed assets of approximately $8.8 billion, including $2.5 billion
of Goodwill, and liabilities of approximately $8.7 billion. The Court has
scheduled a hearing on the Company’s first day motions for 10:30 a.m. in
Courtroom #1 at the Martin Bostetter, Jr. U.S. Courthouse. Information on the
filing and related matters can be found at
http://www.transformingusairways.com.
The Company has been operating with cash obtained from a $1 billion loan,
$900 million of which was guaranteed by the ATSB. The ATSB and the other
lenders (Retirement Systems of Alabama Holdings LLC (RSA) and Bank of America,
N.A.) have agreed to authorize US Airways continued use of those funds.
Therefore, in lieu of debtor-in-possession (DIP) financing, US Airways will
have access to a portion of $750 million in cash — which serves as one
component of the collateral supporting the ATSB loan — as working capital.
The agreement between US Airways, the ATSB and the other lenders will be
presented to the Court at Monday’s hearing. In following bankruptcy
procedures, a final order on operating cash would then be presented to the
Court at a later date.
The Company’s current cash position is approximately $1.45 billion in
cash, cash equivalents and short-term investments. The outstanding portion of
the ATSB loan is $717.6 million.
“We have made it clear to union leaders and employees that we must have
competitive costs,” said Lakefield. “Labor cost reductions, including
participation by senior management, are no exception. We are committed to
reaching new labor agreements consensually because that is always in the best
interest of all parties, but if not, we will need to consider the other
alternatives provided for under the law.”
Lakefield added that while the employee sacrifices are difficult, they are
necessary in the changing airline industry, where low costs and low fares are
proving to be the most successful business formula. “Our employees continue
to do an outstanding job for this airline and for our customers,” said
Lakefield. “We have spent a tremendous amount of time on this Transformation
Plan because we want our loyal and dedicated employees to continue to have a
company and a career at US Airways. The alternative is to have these jobs
exported to a new generation of low-cost airlines, where any employees hired
would start at entry-level wages and without seniority,” said Lakefield.
The Company’s Transformation Plan is built on several aspects of proven
success in the airline industry, beyond the necessary lower labor costs.
Those include:
* Lower, simplified pricing and lower distribution costs. US Airways has
already taken steps to simplify its fares by introducing its GoFares
pricing plan in many markets served from Philadelphia, Washington,
D.C., and Fort Lauderdale, and has stated its intent to expand that
pricing plan across its system in conjunction with achieving lower
costs. A redesigned Web site and more airport technology will also
lower distribution costs, enhance customer service and improve airport
processing.
* Enhanced low-cost product offering. US Airways customers will continue
to benefit from many product offerings that are unique among low-cost
carriers, including two-class service, international flights to Europe,
the Caribbean, Latin America and Canada, service to airports that
business travelers prefer, access to a global network via the Star
Alliance, a premium frequent flyer program and competitive onboard
service.
* Network enhancements. Leveraging its strong positions in the major
markets of Boston, New York, Philadelphia and Washington, D.C., US
Airways intends to use its airport slot and facilities assets to offer
nonstop service to more major business and leisure destinations.
* Lower operating costs. In conjunction with more point-to-point flying,
the airline will fly its fleet more hours per day as it decreases the
time aircraft sit on the ground at hubs, waiting for connecting
passengers.
US Airways is the nation’s seventh-largest airline, serving nearly 200
communities in the U.S., Canada, Europe, the Caribbean and Latin America. US
Airways, US Airways Shuttle and the US Airways Express partner carriers
operate over 3,300 flights per day. For more information on US Airways flight
schedules and fares, contact US Airways online at usairways.com, or call US
Airways Reservations at 1-800-428-4322.
As part of the Company’s timetable to emerge from Chapter 11
reorganization, US Airways intends to file its disclosure statement and plan
of reorganization by the end of this year.
There has been no determination as to whether the Company’s existing
equity securities will be preserved in any such plan of reorganization, and
there can be no assurance at this time as to what values, if any, will be
ascribed to the Company’s existing common stock and/or other equity
securities. Accordingly, the Company urges that the appropriate caution be
exercised with respect to existing and future investments in any of these
securities. Investors and other interested parties can monitor the progress
of the reorganization via the Internet at
http://www.transformingusairways.com. In addition, the investor relations
section of the Company’s web site can be accessed under the “about US Airways”
section of http://www.usairways.com.
Certain of the statements contained herein should be considered “forward-
looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995, which reflect the current views of US Airways Group (the
“Company”) with respect to current events and financial performance. You can
identify these statements by forward-looking words such as “may,” “will,”
“expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “could,”
“should,” and “continue” or similar words. These forward-looking statements
may also use different phrases. Such forward-looking statements are and will
be, as the case may be, subject to many risks, uncertainties and factors
relating to the Company’s operations and business environment which may cause
the actual results of the Company to be materially different from any future
results, express or implied, by such forward-looking statements. Factors that
could cause actual results to differ materially from these forward-looking
statements include, but are not limited to, the following: the ability of the
Company to continue as a going concern; the ability of the Company to obtain
and maintain any necessary financing for operations and other purposes,
whether debtor-in-possession financing or other financing; the Company’s
ability to obtain court approval with respect to motions in the Chapter 11
proceeding prosecuted by it from time to time; the ability of the Company to
develop, prosecute, confirm and consummate one or more plans of reorganization
with respect to the Chapter 11 proceedings; risks associated with third
parties seeking and obtaining court approval to terminate or shorten the
exclusivity period for the Company to propose and confirm one or more plans of
reorganization, for the appointment of a Chapter 11 trustee or to convert the
cases to Chapter 7 cases; the ability of the Company to obtain and maintain
normal terms with vendors and service providers; the Company’s ability to
maintain contracts that are critical to its operations; the potential adverse
impact of the Chapter 11 proceedings on the Company’s liquidity or results of
operations; the ability of the Company to operate pursuant to the terms of its
financing facilities (particularly the financial covenants); the ability of
the Company to fund and execute its Transformation Plan during the Chapter 11
proceedings and in the context of a plan of reorganization and thereafter; the
ability of the Company to attract, motivate and/or retain key executives and
associates; the ability of the Company to attract and retain customers; the
ability of the Company to maintain satisfactory labor relations; demand for
transportation in the markets in which the Company operates; economic
conditions; labor costs; financing availability and costs; aviation fuel
costs; security-related and insurance costs; competitive pressures on pricing
(particularly from lower-cost competitors) and on demand (particularly from
low-cost carriers and multi-carrier alliances); weather conditions; government
legislation and regulation; impact of the Iraqi war and the Iraqi occupation;
other acts of war or terrorism; and other risks and uncertainties listed from
time to time in the Company’s reports to the SEC. There may be other factors
not identified above of which the Company is not currently aware that may
affect matters discussed in the forward-looking statements, and may also cause
actual results to differ materially from those discussed. The Company assumes
no obligation to update such estimates to reflect actual results, changes in
assumptions or changes in other factors affecting such estimates other than as
required by law. Similarly, these and other factors, including the terms of
any reorganization plan ultimately confirmed, can affect the value of the
Company’s various pre-petition liabilities, common stock and/or other equity
securities. Accordingly, the Company urges that the appropriate caution be
exercised with respect to existing and future investments in any of these
liabilities and/or securities.
