US Airways Group Inc. executives underestimated by about $1.3 billion the airline's needed revenue for healthy operations, a miscalculation made during its first Chapter 11 reorganization that helped pitch the carrier into bankruptcy protection a second time, an attorney for the Arlington-based airline told a bankruptcy court judge yesterday.
Despite the sharp shortfall, attorney Brian P. Leitch assured the court that US Airways' management team was "not here to preside over a liquidation." Instead, he said, the executives plan to use the bankruptcy court's protection to transform the nation's seventh-largest carrier into a "vibrant competitor in the marketplace."
The airline filed for bankruptcy protection Sunday for the second time in two years, citing its failure to secure needed cost cuts mostly from employees' pay and benefits.
Leitch said US Airways was unable to reach a successful revenue level because of competition from low-cost carriers, whose services have proliferated since its first Chapter 11 filing. Leitch said US Airways cut expenses by $2 billion during its first bankruptcy reorganization in an effort to get its cost structure more in line with other legacy carriers such as Continental Airlines Inc., Delta Air Lines Inc. and UAL Corp.'s United Airlines. US Airways previously had the highest cost structure of the major carriers.
Now, US Airways faces an even higher hurdle: It must slash its costs to a level competitive with the discount carriers such as Southwest Airlines Inc., Air Tran Holdings Inc. and JetBlue Airways Corp. Leitch noted, for example, that a low-cost airline could operate a flight to Florida for $70 a seat and charge a passenger about $99. By contrast, US Airways' costs on a similar flight are about $140 a seat.
"You can't be a low-fare airline without being a low-cost airline," he said. "The good news is this is not some extraordinarily complex problem to solve. If US Airways has competitive costs, it can be successful."
To reach its cost-cutting goals, US Airways may seek concessions from labor that are larger than the $800 million the carrier has sought -- and failed -- to get for months, the unions said.
"It wouldn't shock us if US Airways asked for more," said Jack Stephan, a spokesman for the airline's pilots union.
US Airways chief executive Bruce R. Lakefield said the airline would not rule out the possibility that it may need more cuts. "We're looking at everything. No decision has been made," he said during a lunch break in the nearly four-hour hearing yesterday.
US Airways won approval yesterday from Judge Stephen S. Mitchell of the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria to use its cash to pay for fuel, salaries and maintenance costs to keep its operations running smoothly during its reorganization.
US Airways also asked Mitchell, who presided over US Airways' first bankruptcy, to skip its $110 million pension payment due Wednesday to save cash. The airline had about $135 million in total pension payments due for its flight attendants and mechanics unions. The delay in payment was opposed by several groups, including attorneys for US Airways retirees and the Pension Benefit Guaranty Corp., the federal agency that insures corporate pension payments up to certain maximum levels. Mitchell ordered a separate hearing to review the matter on Oct. 7.
Leaders of US Airways' machinists union, which represents the carrier's mechanics, reiterated the group's opposition to cuts in employee pay and benefits.
"US Airways management has thus far demonstrated an overwhelming inability to look beyond labor costs for any means to replenish falling revenues," said Randy Canale, president of the union's District 141. "This coming fight to save US Airways could find employees and management on opposite sides of the table or on the same side. Management's choice in this matter will determine if the airline succeeds or fails."
US Airways is using for its operations about $750 million in cash that it obtained from the Air Transportation Stabilization Board, the federal panel that had approved a $900 million loan guarantee.
Brendan Collins, an attorney with the ATSB, said the agency "supported" US Airways' reorganization. The ATSB is one of the airline's secured creditors and has liens on its cash, planes and engines valued at more than the $750 million the carrier owes to the agency.