After losing a key battle with mechanics, US Airways ( UAWGQ) is gearing up for a war in bankruptcy court. Early Thursday morning, mechanics and related employees represented by the International Association of Machinists and Aerospace Workers, or the IAM, voted to reject the seventh-largest airline's restructuring plans. Two weeks ago , US Airways filed for Chapter 11 bankruptcy protection in hopes of restructuring the company and lowering costs by asking for concessions from labor. All told, the company planned to cut costs by $1.2 billion annually, with more than $840 million stemming from reductions in labor costs. Such cost savings are vital, since a $900 million federal loan guarantee from the Air Transportation Stabilization Board is contingent on the company's ability to carry out its cost-cutting plan.
For the most part, US Airways has come through on its promises, getting more than $560 million in concessions from pilots, flight attendants and transportation workers. On Thursday, fleet service workers, who are also represented by the IAM, became the latest to approve US Airways' restructuring plans, by a 3-2 margin. "Our fleet service workers have demonstrated outstanding personal commitment and vision in accepting this agreement. We are grateful for their decision to voluntarily participate in US Airways' restructuring," US Airways said in a press release. "Their personal sacrifice is an enormous contribution to help set US Airways back on the path to financial health." "We are extremely disappointed by the vote of our mechanics," the airline also said. "While we continue to work hard to achieve voluntary agreements with all of our labor groups, we now regrettably must pursue changes to the mechanics' contract through the bankruptcy court if we are unable to quickly reach a new agreement." With mechanics rejecting the deal, all US Airways has left to negotiate is $70 million in cost reductions from its 7,200 passenger service workers, represented by the Communications Workers of America. Without concessions from these two groups -- concessions which would be expected to account for at least a quarter of the total cost-savings needed -- the carrier may not receive the $900 million loan guarantee it needs to pay off creditors and emerge from bankruptcy with a chance at success.
US Airways is ready to play hardball to ensure that it gets what it wants. The company requested that the bankruptcy court nullify contracts already in place with unions that can't reach "mutually agreeable cost-reduction agreements." U.S. Bankruptcy Court Judge Steven Mitchell will hold a hearing on the request on Sept. 10. A decision to nullify worker contracts could send shock waves through the airline industry, giving a carrier like UAL's ( UAL) United, which is teetering on the brink of bankruptcy, an upper hand in negotiating with its unions. For their part, the unions are prepared to take the fight to court. "Our attorneys are prepared to defend our mechanical and related members and their contract in bankruptcy court," said IAM general vice president Robert Roach Jr. "The bankruptcy filing is only the first step of a long legal process, and our members can be assured we will defend their rights throughout these proceedings." In afternoon trading, the airline stocks were mixed. Losers included Northwest ( NWAC), down 11 cents to $9.98; America West ( AWA), down 15 cents to $2.08; and UAL, down 17 cents to $3.11. Winners included AMR ( AMR), parent of American, up 50 cents, to $10.49; Continental ( CAL), up 4 cents, to $10.29; and Delta ( DAL), up 53 cents, to $18.24. Low-cost carrier Southwest ( LUV) was up 24 cents, to $14.58, while rival JetBlue ( JBLU) was adding 13, cents to $38.02.