US Airways Cuts Union Deal

Under the 1113(e) filing, US Airways management seeks to cut pilot base pay rates by 23% and freeze them in place, replace current pension plan contributions with a 10% employer contribution and change a variety of work rules, allowing the airline to fly smaller planes flown by cheaper pilots. If the 1113(e) filing is cleared by the court, the new work rules would be in place until March 31, 2005, or until employees agree to a new deal -- that is, unless the court decides to allow a 1113(c) filing, which would make the changes permanent.

After US Airways files the motion, work groups and management will enter a two-to-three-week period of negotiations aimed at reaching consensus. If no agreement can be forged over that span, the bankruptcy court will hold a hearing and the judge must decide on the contracts within 30 days. From filing to finish, the process would take no longer than seven weeks -- and potentially less.

US Airways' situation is deteriorating fast. Without a lender on board to guide it through a second Chapter 11, US Airways has forged an interim agreement with the government, allowing it to fund operations.

Through Oct. 15, the carrier can tap the $750 million in cash that serves as collateral for a $900 million loan guarantee from the Air Transportation Stabilization Board. As a result, the ATSB is closely monitoring US Airways, holding it to a weekly minimum cash balance. If the airline fails to meet those targets, it runs the risk of defaulting on the loan and potentially having to cease operations.

According to union documents, the carrier must have $550 million in cash for the week ending Oct. 1. But in October, US Airways must stop the bleeding and begin generating cash -- no mean feat during a seasonally slow fall period. For the week ending Oct. 8, it must have $575 million in cash on hand, with $585 million the week ending Oct. 15, when the carrier's interim agreement with the ATSB expires.

While pilots are willing to negotiate, some members within the union may be willing to go on strike and cripple the airline, forcing it to liquidate. The pilots union has been at odds with itself, with four local members blocking a general vote on a wage concessions package that would have kept US Airways out of bankruptcy. Even though terms would likely be more onerous under bankruptcy, hardline elements within the union staunchly refused to give deeper paycuts to a management team that they charge squandered $1 billion in concessions during the first bankruptcy.

"What happens after Oct. 15 is, at this point, undetermined and subject to further negotiations between the company and ATSB," said Bill Pollock, chairman of the pilots union at US Airways. "Looking at this agreement, it's clear that the ATSB is holding the reins very tightly on this process to ensure that its cash is used only in the ways and to the extent to which it consents."