US Airways told the U.S. Bankruptcy Court today that the formal commencement of the Iraqi War requires the airline to take immediate steps to limit the war’s impact on its restructuring. The company said it is evaluating actions that must be taken to actively manage the economic and operating challenges presented by the war.
The company noted that all of the airline’s labor contracts contain a provision that allows it to implement a 5 percent pay deferral for up to 18 months for all union, management and administrative employees, in conjunction with a force majeure situation. The company said that it would disclose shortly cost-reduction or deferral initiatives, and that pay deferral and capacity reductions are among the actions being considered.
The company said that its passenger bookings had dropped almost 40 percent on Wednesday, March 19, 2003, compared to the previous Wednesday, March 12, 2003, as customers are delaying or canceling their travel plans. Transatlantic bookings are more heavily impacted, and total traffic is expected to drop by up to 20 percent for the near term. The disclosure was made to Judge Stephen S. Mitchell of the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria, at the monthly omnibus hearing of US Airways’ Chapter 11 reorganization.
“Our short-term survival and long-term success after we emerge from Chapter 11 are conditioned on our taking decisive, proactive steps to limit the airline’s financial exposure from the war,” said David Siegel, US Airways president and chief executive officer. “The entire airline industry is facing a dramatic drop in demand that will only further erode the financial standing of the major carriers. While we look to the Bush Administration and Congress to provide some relief from the war’s impact, that relief will only be forthcoming if we first take steps of our own.”
US Airways notified Retirement Systems of Alabama (RSA) today that the company failed to meet a critical financial covenant under its debtor-in-possession (DIP) facility. Under the terms of the DIP, RSA has certain remedies that it could exercise upon the occurrence of this default, including a cancellation of its commitment to lend under the facility, as well as the right, upon five business days` notice, to recover the collateral for the loan. To date, RSA has loaned US Airways $369 million under the DIP facility. US Airways is in discussions with RSA concerning a potential waiver of this default or a standstill agreement.
US Airways also reported that it did not make certain payments due today on its 2001-1 pass through trust certificates related to 14 Airbus aircraft totaling approximately $27 million. US Airways is currently in discussions with certain interested parties regarding these payments. The company anticipates reaching agreement on these payments during the five-business-day cure period allowed for these payments.
US Airways made previously missed payments on its 2000-1 and 2000-3 pass through trust certificates related to Airbus aircraft on March 7, 2003. These payments, totaling $67 million, were due on Feb. 20, 2003, and March 3, 2003, respectively, and were made prior to the end of the applicable cure periods. In connection with these previously missed Airbus aircraft payments, US Airways reached an agreement with the RSA DIP financing facility and drew down $69 million of the DIP to cover these payments. The remaining $131 million of the RSA DIP remains subject to applicable closing conditions.
US Airways told the Court that the company had rejected the latest proposal from the Air Line Pilots Association (ALPA) as part of negotiations over a replacement pension plan, following the Bankruptcy Court’s approval earlier this month of a distress termination of the existing pension.