US Airways Group Inc. filed for bankruptcy protection yesterday for the second time in two years after failing to win additional wage and benefits cuts from its unions.
The move raised new questions about the survival of the airline even as US Airways chief executive Bruce R. Lakefield said the carrier was determined to emerge as a streamlined operation, focusing on the East Coast, Caribbean and Latin America.
He also said there would be no disruption in service while the carrier was in Chapter 11 proceedings seeking to restructure $8.7 billion in debt.
"Our intention is to be the major carrier in the cities where we operate today and not to have any disruption in those cities," Lakefield said yesterday in an interview.
Industry experts said the bankruptcy filing raised the prospect that the Arlington-based airline could be forced out of business, throwing into jeopardy the carrier's routes, its 28,000 workers and millions of frequent flier miles. US Airways has to get new labor agreements with its workers within three to six months or it will not be able to emerge from bankruptcy protection, analyst Ray Neidl of Calyon Securities said.
"They have a 50-50 chance," he said. "To do it, they will need the full cooperation of employees."
In an e-mail yesterday to frequent fliers, Lakefield said: "You should understand that US Airways is not going out of business."
The airline's chairman, David G. Bronner, warned earlier this summer that the airline could have a hard time emerging from bankruptcy proceedings because of difficulty attracting the needed financing. The airline does not have financing already lined up, as it did when it slipped into the bankruptcy the first time in August 2002.
Former US Airways chief executive David N. Siegel said the airline must move quickly to lower its costs and shore up its finances because the traditional slower travel period following the summer is on the horizon.
"They have a tough road ahead," Siegel said. "It's going to be very difficult for them to emerge."
US Airways executives vowed the first time the airline went into bankruptcy that its operations would change little, but then travelers watched as numerous flights and jobs were cut and unprofitable routes dropped. Lakefield refused to speculate whether the airline would have to trim routes or jobs as part of its cost reduction. "We need to look at everything that we have," he said. "We need to cut expenses as fast as we can. The probability of success is higher the shorter that time frame is."
He declined to speculate how long the airline would remain in bankruptcy but said he hoped to "emerge quickly," adding that the time frame depends on whether the airline can reach new agreements with its workforce.
Under the bankruptcy filing, stockholders could lose their holdings, including Bronner, whose investment group, Retirement Systems of Alabama, became the airline's leading investor during its last bankruptcy after it provided in $740 million in exchange for a 37.5 percent stake in the carrier.
The Chapter 11 filing yesterday came as little surprise. The airline had begun meeting with outside attorneys and airline financing consultants weeks ago. Despite the on-again, off-again talks with its labor groups, the carrier has been unable to secure $800 million in pay and benefits concessions it sought as part of its $1.5 billion cost-reduction plan.
Under bankruptcy protection, US Airways buys time in facing some steep financial requirements. It had a $110 million payment due Wednesday on its pension plan. On Sept. 30, the airline was to show it had dramatically reduced its costs to meet its loan covenants with the federal government as part of its $900 million loan guarantee. By Sept. 30, the airline was to have implemented a lower cost structure plan to meet its financing agreements with its aircraft leaseholders, including General Electric Co., Bombardier Inc. and Brazilian-based Embraer.
The airline has cash of about $1.45 billion and assets totaling $8.8 billion. It also has an agreement with the Air Transportation Stabilization Board to use about $750 million in cash for operations as part of the $900 million loan guarantee that the federal panel approved for the airline. During its previous bankruptcy filing, the US Airways had about $600 million in cash, $7.81 billion in assets and $7.83 billion in debt.
US Airways becomes the second carrier to operate under bankruptcy protection. United Airlines, the nation's second largest carrier, has been restructuring in bankruptcy for nearly two years. Delta Air Lines Inc. said last week that it might also have to file for bankruptcy if it is unable to secure about $1 billion in cost cuts from its pilots.
The airline's first hearing is scheduled for today in Alexandria in the U.S. Bankruptcy Court for the Eastern District of Virginia.
US Airways is not the first airline to file for bankruptcy more than once. Continental Airlines, the nation's fifth-largest carrier, filed twice and is considered a financially strong airlines today. But Braniff International and Trans World Airlines both filed three times and eventually went out of business.
Lakefield said the restructuring will help US Airways reduce its costs enough to further implement its restructuring plan. In recent months, the carrier has increased its flights to the Caribbean, Latin America and Europe, downsized its Pittsburgh hub and implemented a lower-fare pricing structure called Go Fares that has slashed ticket prices by 60 percent and eliminated a Saturday-night stay requirement.
During its first bankruptcy filing, US Airways cut nearly $2 billion in cost, including $1.2 billion from employees' salaries and benefits. But within days of emerging from seven months in bankruptcy in March 2003, industry observers began criticizing the carrier's management for not cutting costs enough.
Siegel, who in June became head of Gate Gourmet, a meal service provider for airlines, said when he was chief executive that he tried to convince US Airways' workers that the industry had to changed and that lower costs were essential to the carrier's survival.
"I tried my best," Siegel said. "My hope is the employees and management team can pull together and fix the company. I feel for the employees and the families. It's a really a tough process to deal with."