Attorneys for US Airways Group Inc. hope to convince a bankruptcy court judge in Alexandria today that without substantial pay cuts, the airline will go out of business.
The argument will place the airline in a tricky position, analysts said, because issuing such a dire warning could prompt travelers and travel agents to avoid booking US Airways tickets for the holiday season.
But without the blunt forecast, the airline may be unable to persuade U.S. Bankruptcy Court Judge Stephen S. Mitchell to approve its request for a temporary 23 percent pay cut, the analysts said.
"US Airways is between the devil and the deep blue sea," said William J. Rochelle, a bankruptcy attorney with Fulbright & Jaworksi in New York.
The airline is seeking $950 million in temporary cuts. The airline's largest work groups -- its pilots, mechanics, flight attendants and reservation agents -- all face the possibility of the court-imposed pay cuts. In the past two weeks, US Airways dispatchers, flight-crew training instructors and flight engineers finalized contracts cutting their pay by nearly $5 million, and they would be exempt from the 23 percent reductions. Late Tuesday evening, US Airways pilot leaders agreed to send the union's new contract, which calls for 18 percent, or $300 million a year in pay cuts, to its 3,200 members for ratification. That vote won't be completed until Oct. 21, so the pilots will be included in today's motion.
David LeMay, a bankruptcy attorney with New York's Chadbourne & Parke, said it's often difficult for bankrupt companies to persuade a judge to impose such cuts, but US Airways' financial troubles have been well documented.
The airline industry has struggled with record-high fuel costs. Last month, US Airways said in a court filing that without the pay cuts, it faced a "high probability" of liquidation by mid-February. Also, before the Chapter 11 filing, a report prepared by a financial firm hired by the pilots said the carrier did not have enough cash to survive through spring if it filed for bankruptcy protection.
"The standard for getting these cuts is not easy," said LeMay, who worked on the bankruptcy cases of Continental, Eastern and United airlines.
If the court approves the cuts, the labor unions could still agree on terms before the contracts are imposed. Obtaining voluntary agreements is preferred, LeMay said, because that would have less of a long-term impact on employee morale. When it entered bankruptcy proceedings nearly two years ago, UAL Corp.'s United also planned to seek a court-imposed pay reduction, but United's unions agreed to cuts before the court interceded.
Industry analyst Mike Boyd said if the airline secures the pay cuts, US Airways could successfully restructure according to its new plan to become more of a low-cost carrier focusing on the East Coast. But the labor costs, he said, were only the first piece to the airline's overall restructuring.
In addition to the pay cuts, US Airways plans to seek permission not to make any back payments into its mechanics' and flight attendants' pension funds. If the hearing is not completed today, another hearing is scheduled for Oct. 12.
Joseph Tiberi, a spokesman for US Airways mechanics, said the group's attorneys plan to fight the airline's motion. In its court filing, the International Association of Machinists, which represents the mechanics, said the airline's claim that it could survive only with the pay cuts was based on "unsupported allegations" and that there was "no magic number representing the minimum cash balance required" for an airline to remain in business.
Last month, US Airways filed under Chapter 11 for the second time in nearly two years after it failed to secure $800 million in savings from its workers. During its first reorganization, the airline cut nearly $2 billion, $1.2 billion of which came from employees' salaries and benefits.
This is US Airways' third effort to cut millions of dollars in worker pay. Tiberi said if the cuts are approved, US Airways mechanics will have seen their pay decline by nearly 30 percent since the first filing.
Candice Johnson, a spokeswoman for the reservation agents, said the employees were fearful that even if the court grants the cuts, the airline could ask for additional savings from its workers before it emerges from reorganization.