US Airways to Complete Restructuring Plan in Chapter 11 Reorganization

US Airways Group, Inc. (NYSE: U) today announced that, in order to facilitate the prompt completion of its restructuring initiatives, the Company and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. The airline said today`s action will allow the company to effect cost savings from aircraft lessors and financiers and other key stakeholders as a means of ensuring the Company`s return to profitability.

“Ultimately, this effort is about our customers, employees, and the communities we serve, as we seek to fix the airline`s finances and return to profitability. US Airways will continue to operate while we complete our financial restructuring, and our customers should be confident that we will continue service to the more than 200 communities in our network,” said US Airways President and Chief Executive Officer David Siegel. “Our Dividend Miles program will continue to offer millions of fliers significant award benefits throughout the restructuring process and beyond, and the co-branded US Airways/Bank of America credit card and similar programs will be unaffected. Our employees, whose hard work and dedication are essential to the success of our restructuring, will continue to be paid on their regular payroll schedule and benefit programs will continue. Vendors will be paid in the ordinary course for goods and services provided going forward.”
The Company filed its petitions on Sunday evening in the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria. The Company`s petitions listed assets of approximately $7.81 billion and liabilities of approximately $7.83 billion. The Court has scheduled a hearing on the Company`s first day motions for 10:30 a.m. EDT on Monday, Aug. 12, 2002, before the Honorable Robert G. Mayer in Courtroom No. 3 at the Martin Bostetter Jr. U.S. Courthouse in Alexandria.
US Airways has secured commitments for $500 million in debtor-in-possession (DIP) financing from a group of institutions led by Credit Suisse First Boston and Bank of America Corp., with participation from Texas Pacific Group, among others. In a move to strengthen its balance sheet, US Airways announced that Texas Pacific Group has entered into a memorandum of understanding to provide a $200 million investment in the new equity of the airline upon its emergence from Chapter 11 protection, which the Company anticipates will be coupled with the $1 billion collateralized loan backed by the federal guarantee that has been conditionally approved by the Air Transportation Stabilization Board (ATSB). The Company expects that its court-supervised restructuring will be accomplished on a “fast-track” basis and has targeted emergence from Chapter 11 in the first quarter of 2003.


Siegel said that the participation of top-tier institutions such as Credit Suisse First Boston, Bank of America, and Texas Pacific Group was a strong endorsement of the Company`s restructuring plan, the airline`s franchise, and the overall confidence in the eventual rebound of the airline sector. Under the terms of its memorandum of understanding, Texas Pacific Group will make a $200 million investment in the equity of the airline upon its emergence from Chapter 11 protection. This investment, which remains subject to continuing diligence and final documentation, competing and/or higher offers, and court approval, would result in Texas Pacific Group owning about 38% of the airline post-emergence. In addition, Texas Pacific Group would hold seats on the reconstituted Board of Directors when US Airways emerges from Chapter 11 protection.
“In the face of an uncertain and trying time for the industry, we have been impressed by the major strides taken by US Airways` management and employees to significantly improve the competitiveness of the airline,” said Richard P. Schifter, partner, Texas Pacific Group. “Given the progress made to date, the time required in Chapter 11 to complete the restructuring should be relatively brief. We look forward to finalizing our arrangements so that, together with the ATSB financing, our capital and industry experience can contribute to the Company`s prompt emergence and long term prosperity.”


US Airways was the hardest hit of U.S. airlines by the aftermath of September 11. The prolonged closure of Washington Reagan National Airport, higher security costs, the economic recession, and the cutback in travel along the east coast, all contributed significantly to the Company`s financial losses. Siegel was appointed president and chief executive officer of the airline in March 2002, with the task of reversing financial losses which have exceeded $1.5 billion over the previous four reported quarters. After a thorough strategic, operational and financial review, the Company put in place a three-part restructuring plan that involves improving liquidity, increasing revenues, and reducing costs, to allow the Company to take advantage of its competitive strengths and return to profitability. So far, the following milestones have been accomplished
Improving Liquidity:
The Company said the $500 million DIP facility should provide it with ample liquidity in the interim during its Chapter 11 proceeding. Additionally, on July 10, 2002, US Airways received conditional approval from the ATSB for a federal guarantee of $900 million of a $1 billion loan. The Company expects to satisfy all conditions set forth by the ATSB in the context of a successful court-supervised restructuring in order to secure the loan`s proceeds upon emergence from Chapter 11. The $1 billion ATSB loan, and the Texas Pacific Group`s $200 million equity investment, coupled with significant cost reductions and revenue enhancement initiatives, will dramatically improve the Company`s cash flow and balance sheet, as it implements all aspects of the restructuring plan to achieve its goal of returning to profitability.


Increasing Revenues:
In late July, the Company entered into an agreement for a marketing alliance with United Airlines and submitted the plan to the U.S. Department of Transportation (DOT) for review. The alliance includes a codeshare agreement to allow passengers to book tickets on both carriers to a wider array of destinations, as well as to access both carriers` frequent flier programs and airport lounges. Patterned after existing marketing alliances among other domestic and international carriers, the alliance is expected to increase the Company`s revenues up to $200 million per year as it helps the airline expand its network beyond its focus in the eastern U.S. and the Caribbean, providing broader service to its customers.
In addition, US Airways continues to negotiate with two regional jet manufacturers - Embraer and Bombardier. Both manufacturers remain committed to providing the airline with a large number of regional jets (RJ). While commercial terms are nearly complete, final selection of manufacturers, aircraft size and type depend on the successful conclusion of an overall restructuring plan and specific financing terms. US Airways plans to execute an order for up to 200 firm deliveries and 300 options for regional jets, consistent with the RJ scope clause provisions negotiated in the recently-ratified agreement with the Air Line Pilots Association (ALPA).
Reducing Costs:
The Company`s restructuring plan is predicated upon achieving binding commitments for cost-savings from employees, aircraft lessors and financiers and other parties. On the labor front, the Company has ratified agreements with ALPA, the Association of Flight Attendants (AFA), and the Transport Workers Union (TWU) unit which represents flight crew training instructors. The Company is awaiting the ratification of agreements with TWU units for dispatchers and simulator engineers. In addition, officers, management and non-union employees are taking pay cuts, foregoing bonuses, and taking benefit cuts similar to unionized workers
The International Association of Machinists (IAM) has informed the Company that it will put out for ratification the final restructuring package for the mechanics and related work group, fleet service, and maintenance trainers, which will be comparable to the cost savings targets set for all other labor groups. The remaining union, the Communications Workers of America (CWA), has not yet reached an agreement with US Airways. However, the Company has asked the CWA to put out for ratification the restructuring package for customer service and reservations agents, but has not yet received a formal response. The Company remains committed to either reaching an agreement with the CWA, or ensuring that savings are obtained through the bankruptcy process.
While US Airways was able to successfully negotiate cost-savings from many of its employee groups, the Company determined that is was unlikely to conclude consensual negotiations with certain vendors, aircraft lessors and financiers in a timeframe necessary to complete an out-of-court restructuring. Siegel cited as factors the large number of lessors and financiers and the Company`s inability to reject surplus aircraft leases and return excess aircraft outside of Chapter 11.
“Our employees have not only been running a great airline, but have also committed themselves to the Company`s successful restructuring. We recognize the impact the sacrifices they are making will have on them and their families. In exchange for their participation, we have committed that this will be a labor-friendly Chapter 11 reorganization, in which we will honor new agreements that have been ratified, and provide labor with a voice in the Company`s governance through representation on the Board of Directors,” Siegel said. “Our efforts will now be focused on renegotiating favorable terms with certain large vendors, lenders and aircraft lessors, which is essential to accomplish our restructuring initiatives. Our reorganization is critical not only to our employees, but also to the economies of the communities we serve.”
US Airways continues its exceptional service record, consistently placing near the top in the DOT`s monthly statistics for on-time performance, baggage delivery, and customer service throughout 2002. In 2001, US Airways finished first in three of the four DOT quality measurements and was ranked as the top network carrier by the Airline Quality Rating index. The largest air carrier east of the Mississippi where more than 60 percent of the U.S. population resides, US Airways operates the seventh largest airline in the United States and the fourteenth largest airline in the world with approximately 40,000 full-time and part-time employees. US Airways carried approximately 56 million passengers last year with regularly scheduled service to approximately 200 destinations in 38 states across the United States and in Canada, Mexico, the Caribbean and Europe. Operating revenues for the year ended December 31, 2001 were approximately $8.3 billion.


As part of the Company`s timetable to emerge from Chapter 11 reorganization, the Company intends to file its disclosure statement and plan of reorganization by December 31, 2002. The Company presently contemplates that one of the elements of any plan of reorganization may be the cancellation of the Company`s existing equity securities without the prospects of any distribution to existing holders. There is no assurance as to what values, if any, will be ascribed in the Chapter 11 cases as to the value of the Company`s existing common stock and/or any other equity securities. Accordingly, the Company urges that the appropriate caution be exercised with respect to existing and future investments in any of these securities as the value and prospects are highly speculative.

ADVERTISEMENT


——-