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Tuesday, March 18, 2003

By Frank Reeves, Post-Gazette Staff Writer

A federal bankruptcy judge conditionally approved US Airways reorganization plan yesterday, clearing the way for the nation's seventh-largest airline to emerge out of Chapter 11 by the end of the month.

The court's approval was necessary for the airline to obtain the federal loan guarantees and equity investment it needs to survive. But U.S. Bankruptcy Judge Stephen Mitchell said that before US Airways could implement its reorganization plan, it must work out a pension agreement with its pilots union that would replace its current obligations with a much smaller plan.

"With the nation on the verge of war and the economy impacted by geopolitical uncertainties, the court's approval today is absolutely critical to our efforts to complete our restructuring plan," US Airways Chief Executive Officer David Siegel said yesterday.

Roy Freundlich, a spokesman for the Air Line Pilots Association, which represents the airline's unionized pilots, said negotiations were continuing with the company on a new pension plan for the pilots.

In confirming the plan, which would transfer ownership to creditors and employee groups, Mitchell rejected numerous objections that had been filed by more than 90 parties, including the pilots' union, the Bank of New York, the federal government and current US Airways shareholders.

Mitchell's ruling came at the end of daylong hearing in the U.S. Bankruptcy Court in Alexandria, Va. He acted after an independent auditor confirmed on Monday that the about 80 percent of the airline's creditors had approved the plan -- far more than the two-thirds majority required.

The reorganization plan is essentially a blueprint of how the airline intends to operate and eventually earn a profit once it no longer is shielded from its creditors. It's been almost a year in the making and reflects the $1.9 billion in annual savings the airline was able to extract from its unionized workers as well as concessions it was able to wring from its lessors and creditors.

Under the plan, the Retirement Systems of Alabama, which is investing $240 million and has provided interim financing during bankruptcy, would have a controlling 37 percent stake in the airline and a majority of 15 seats on the reorganized carrier's board of directors. ALPA and other US Airways unions would have a 30 percent stake in the reorganized company.