US Airways Inc. executives said yesterday that they have reached an impasse with the company's pilots union on negotiating a new pension plan, which could thwart the Arlington-based airline's plans to emerge from bankruptcy protection by March 31.
Also yesterday, at a hearing at U.S. Bankruptcy Court in Alexandria, US Airways lawyer Jack Butler said the airline's bookings have dropped 20 percent this week because of the war As a result, he said, the airline is considering further reductions in the number of planes it flies. That could also mean further reductions in flights and employees.
In an accord reached when it entered bankruptcy last August, US Airways agreed not to fly fewer than 279 planes in exchange for the pilots' giving up $646 million a year in pay and benefits. The carrier currently flies 280 planes. The only way US Airways could reduce its fleet below 279 would be to invoke a force majeure clause, a legal term for uncontrollable events that releases parties from their contractual obligations. It would allow an airline, during war or a similar catastrophe, to go outside of its labor agreements and make immediate job cuts.
If US Airways invokes the clause, it will be the first major airline to do so because of the impact of the Iraq war.
To emerge from bankruptcy, US Airways has said it must terminate its pilots' pension plan, which is underfunded by nearly $2 billion. The airline has proposed creating an alternative plan that could reduce the pilots' pension benefits by half.
The airline must resolve the pension situation to obtain a $900 million loan guarantee from the federal government, as well as a $371 million investment from its largest investor, Retirement Systems of Alabama. The airline also must emerge from bankruptcy by March 31 or its ability to accept credit card payments from travelers could be jeopardized. Its current agreement with a credit card processor, National Process Corp., expires on that date, and the airline must be out of bankruptcy to negotiate an extension with another credit card company.
At the hearing, Butler said the pilots proposed an alternative pension plan that would cost the company 50 percent more than allowed by the bankruptcy court or the federal Pension Benefit Guaranty Corp., which insures pension plans. Roy Freundlich, a spokesman for the pilots, said the counterproposal was only 10 to 15 percent higher and could meet the court's and PBGC's standards.
Freundlich also said it was too early for executives to start assessing the war's impact. "We hope the airline would find a way to keep everything together because of the tremendous sacrifices made by the employees," he said. "The last thing we need is a panicking management team acting in a harmful manner."
The nation's major airlines invoked force majeure immediately after the Sept. 11, 2001, terrorist attacks, collectively reducing their operations by 20 percent and laying off more than 100,000 workers.
The airline industry's trade group, the Air Transport Association, predicted last week that the war could cost the industry about $4 billion a quarter and force airlines to cut more than 70,000 additional workers and trim about 2,200 daily flights.
Since the terrorist attacks, US Airways -- which employs about 35,000 -- has eliminated more than 12,000 jobs.
While the airline industry is bleeding millions of dollars a day and could indeed reduce some short-term losses by grounding additional planes, Darryl Jenkins, head of George Washington University's Aviation Institute, said he doubted airlines would enact the clause because of the negative reaction it could cause among employees.
Several airlines, including American, United and Delta, are in cost-cutting negotiations with their employees. United is already operating under bankruptcy protection. American, which has secured bankruptcy attorneys, has said employee concessions were the only way it could avoid filing. The airline is currently trying to slash $4 billion in costs with nearly half of that coming from employees. American chief executive Donald J. Carty said yesterday in a speech to employees that the airline might have to cut flights and capacity because of the impact of the war.
"For the first time, the airlines and their unions are talking about long-term solutions to restructuring this industry through cost reductions," Jenkins said. Enacting force majeure, he said, would be "silly" and could jeopardize concession talks.
Also at yesterday's hearing, Butler said that US Airways would miss a $27 million lease payment on some of its Airbus aircraft but that airline executives are working through that issue.
Butler also said that the carrier was in violation of a financial covenant with the Retirement Systems of Alabama. But David G. Bronner, chief executive of the Alabama investment fund, said that although US Airways was in technical violation because its revenue missed forecasts, he does not plan to withdraw his investment.
"I technically have a legal right to say, 'Give me my financing back and pay me my money,' " Bronner said. "But what normally happens in these situations is you ask for patience and work it out."
Earlier this week, U.S. Bankruptcy Judge Stephen S. Mitchell approved the airline's reorganization plan, making the pension plan the last remaining obstacle in the airline's path to emerge from protection by the end of the month.