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US Airways' Grim Warning

Chairman Foresees No Rescue From Another Bankruptcy

By Keith L. Alexander
Washington Post Staff Writer
Thursday, August 19, 2004; Page E01

If US Airways files for bankruptcy a second time, its chairman says, there will be no outside investor, other airline or government aid to rescue it.

The employees, said David G. Bronner, have heard that from US Airways executives before -- so many times that many of them, he fears, have tuned out management's pleas for another round of pay and benefit cuts, which US Airways says it needs before the end of September to avoid filing for Chapter 11 for the second time in two years.

Chairman David G. Bronner, shown last fall, sees a 50 percent chance of a new filing, a near-zero chance of surviving one. (Dave Martin -- AP)

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And if US Airways does file, Bronner said, the Arlington-based airline only has a "1 to 2 percent" chance of surviving.

Speaking from his Montgomery, Ala., offices earlier this week, Bronner, who is also chief executive of the airline's largest investor, Retirement Systems of Alabama, compared the sentiment among many of US Airways' 28,000 employees to that of people reacting to changes in terrorist code alerts.

"After a while, people don't believe it," he said. "The employees aren't believing that it's not different than any other time. People believe you can live happily ever after in Chapter 11."

US Airways, plagued by soaring fuel prices and price competition from lower-cost carriers, says it must cut about $1.5 billion in annual costs, with some $800 million coming from its employees. It's the third time US Airways has sought concessions from workers in three years. During the airline's bankruptcy reorganization last year, employees gave up $1.2 billion a year in pay and benefits.

Bronner said US Airways has a "50-50 chance" of filing for bankruptcy again. "For an employee to think going into bankruptcy will be the same as it was the last time is a mistake," he said. "The probability of emerging is about 1 to 2 percent. The world has changed that dramatically."

When US Airways filed for bankruptcy in 2002, the Retirement Systems of Alabama and Texas Pacific Group, the Fort Worth-based private equity firm led by financier David Bonderman, offered competing bids for the airline. Bronner's pension fund invested $240 million in the airline and put up $500 million in financing in exchange for a 37.5 percent stake, beating out Texas Pacific's $200 million bid.

The government also helped US Airways emerge from bankruptcy by granting it an $800 million loan guarantee. However, the airline has had trouble complying with terms of the loan, and it must show consistent reduction in its costs this year to avoid a default.

Other big U.S. carriers are in no position to become major acquirers, thanks in large part to increased fuel costs and weak passenger revenue.

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