US Airways Group Inc sought bankruptcy protection after a travel slump following the Sept. 11 attacks made it impossible for the No. 7 US airline to carry some of the industry's highest costs.
A US$2.1 billion loss last year compounded problems for the airline. US Airways has lost money in every quarter but one since June 1999 and has tried unsuccessfully since May 2000 to persuade regulators to allow its sale to UAL Corp's United Airlines.
Chief Executive Officer David Siegel, who took the helm in March, sought to streamline the airline with concessions from labor groups and creditors and US$900 million in federal loan guarantees. Stacked against him were lower demand, fare wars and competition from discounters including Southwest Airlines Co in its main market, the US East Coast. Major US airlines lost a combined US$1.3 billion in the second quarter.
PHOTO: AFP
Siegel "has done well enough with what he's had to work with," said Bill Lauer, chairman of US Airways shareholder Allegheny Capital Management Inc. "I don't think he had a lot of options."
United Airlines, which is seeking US$1.8 billion in federal loan guarantees, is facing resistance from the Air Transportation Stabilization Board, which must approve the request, UAL's Chief Financial Officer Jake Brace told the Wall Street Journal.
"I wouldn't be surprised if there isn't a major airline restructuring in the next few months," said Peter Fitzsimmons, a turnaround consultant with AlixPartners LLC, before US Airways' filing. "US Air is one of them, but there are others."
US Airways listed US$7.81 billion in assets and US$10.65 billion in debts in Chapter 11 papers filed in US Bankruptcy Court in Alexandria, Virginia, spokesman David Castelveter said. The company's petition originally listed US$7.83 billion in debts. The carrier said it later amended that figure "to reflect both current and long-term liabilities as of March 31."
Texas Pacific Group will take a 38 percent stake in US Airways for a US$200 million investment when it emerges from bankruptcy, the Arlington, Virginia-based carrier said in a statement. Flight schedules will be maintained, the airline said.
The company said in a statement that its shares may become worthless as a result of the bankruptcy. US Airways rose US$0.05 to US$2.45 Friday in New York Stock Exchange composite trading.
The airline will try to emerge from bankruptcy by the first quarter of next year. The airline already has set up a bankruptcy court hearing for this morning.
Lenders led by Credit Suisse First Boston and Bank of America Corp agreed to provide a US$500 million credit line to help US Airways fund operations while it restructures debts. Texas Pacific will also provide US$100 million in the loan, US Airways said.
The US$100 million provided by Texas Pacific will become part of a US$200 million investment in new equity after the filing is complete, CEO Siegel said in an interview.
"If the smartest investors in aviation are putting money behind us, we think [our prospects] are pretty good," he said.
Texas Pacific Group is led in part by David Bonderman, an investor who has taken stakes in several struggling carriers in the past, including Continental Airlines Inc and America West Airlines, now a unit of America West Holdings Corp.
"We see the airline industry as a cyclical industry which we believe is at a low point," Richard Schifter, a partner with Texas Pacific, said in an interview.
"The recovery in the industry should come as the overall economy improves."
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