A U.S. bankruptcy court judge approved an agreement yesterday that extends US Airways Group Inc.'s ability to draw on cash from its lenders to fund operations through mid-January.
Judge Stephen S. Mitchell approved the extension to replace an interim cash collateral deal that was set to expire today. The major lenders, including the Air Transportation Stabilization Board, the Retirement Systems of Alabama and Bank of America Corp., have stipulated that US Airways must maintain a $500 million cash balance for the financing extension to remain in force.
The Arlington airline, which filed for bankruptcy protection for the second time last month, is seeking an across-the-board 23 percent employee pay cut for at least six months in hopes of saving about $38 million a month. Company executives have testified that court-imposed cuts of that magnitude are essential to keep cash levels in line with lenders' requirements.
The cuts also are needed to preserve the airline's cash balance to remain in operation through the difficult winter months, executives said. Mitchell has the option of imposing cuts below the airline's requested level.
A decision on the cuts could come within days. Closing arguments began late yesterday. In an effort to "speed things along," Mitchell said he would postpone another trial that was set for today.
David M. Davis, US Airways' chief financial officer, said any delay in winning the request would mean that the amount of a future pay reduction would "have to go up."
In a day of often heated testimony yesterday, experts and executives from US Airways clashed with witnesses from labor groups over the need for the cuts.
US Airways contends that without the cuts, it will not be able to survive past February. Mitchell expressed concern that imposition of the cuts could prompt employees to depart, potentially posing fresh problems for the airline.
Attorneys for several labor groups, including the airline's flight attendants and its reservation agents, argued that the cuts were excessive and that the airline should negotiate "consensual" agreements with its employees.
"The drastic relief that is being considered by the court is not justified by the evidence and not appropriate," said Dan Katz, an attorney for the Communication Workers of America, the union that represents the airline's 6,000 reservation agents. Katz urged Mitchell to deny US Airways' request and instead "permit both parties to work it out."