US Airways Circles for Time
US Airways (UAIRQ) is throwing itself at the mercy of a bankruptcy court, warning that it will be forced to liquidate in mid-February if employees don't immediately cut their pay by 23%.
In a court filing, the beleaguered airline asked U.S. Bankruptcy Court Judge Stephen Mitchell to sign off on its Section 1113(e) motion, which would temporarily rewrite the company's labor contracts, enabling it to cut costs immediately. US Airways wants to have these new agreements -- which include 23% pay cuts, lower pension obligations and the ability to fire employees regardless of seniority -- in place by Oct. 14.
With a weak balance sheet and heavy losses, US Airways entered bankruptcy without debtor-in-possession lending, which means the carrier is using cash to fund operations. But with high labor costs and oil above $50 a barrel, the airline is burning through its lifeblood and warned that it may have to liquidate in five months if it can't generate $200 million in cash to keep going.
The company said it anticipates "a neutral cash position through the end of 2004, but a substantial decline in available cash during January and February 2005 due to aircraft debt and lease payments and the seasonal decline in passenger revenue," US Airways said in a filing with the Securities and Exchange Commission. "With the immediate relief requested, however, the [company expects]to maintain sufficient cash to survive."The court will hold a hearing Oct. 7 on management's motion to dismiss its labor contracts. Under the accelerated process, labor and management will present their cases to the judge. Specifically, management must prove that it will be dealt "irreparable harm" if the court does not impose new labor contracts. "It's clear ... the company needs what they've asked for. Given that, the judge should -- and in my opinion will -- grant the relief the company requires," said Jon Ornstein, CEO of Mesa Airlines (MESA), which generates 35% of its revenue flying for US Airways. "If, for some reason, the unions that oppose this are successful, they will have basically shot themselves in the head."
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