US Airways Files For Protection; Delta Teeters

“Since we still lack the new labor agreements that are needed for the Transformation Plan to succeed, we must preserve the company’s cash resources that are required to implement the Plan,” said US Airways President and CEO Bruce Lakefield, as the airline returned to U.S. bankruptcy court to file for protection for the second time in two years. The airline filed for Chapter 11 protection in August 2002 and emerged from bankruptcy in March 2003 after reducing expenses by $2 billion per year.

The potential for defaults with some creditors were likely by September 30th given the expiration of finance agreements with General Electric, Bombardier, and Embraer.

“We have made it clear to union leaders and employees that we must have competitive costs,” said Lakefield. Labor cost reductions would include senior management, he added. The airline had gained $800 million in concessions from labor groups, but had failed to reach consensual agreements for further concessions from its unions.

Though the carrier reported a net profit of $34 million for the second quarter (ended June 30), it warned at that time that the profit was inadequate and the company would likely face additional losses in the second half.

The U.S. airline industry as a whole faces $4.3 billion in losses in 2004, according to Robert Ashcroft, analyst for UBS. Ashcroft blamed the high price of oil. Excluding oil, Ashcroft estimated third-quarter performance would have been about average in terms of operating margin. Merrill Lynch analyst Michael Linenberg estimated industry losses would reach $770 million for third quarter.

Delta Air Lines, which analysts have expected to file for protection, was unable to obtain the consent of bond holders for the airline to buy back some of its debt. This was not a transaction to raise cash, the airline noted, it was an effort to include various certificates of certain bondholders in possible future restructuring steps. The airline will continue to seek solutions that will allow an out-of-court restructuring (i.e. without protection of Chapter 11).

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