• US Airways Conditionally Approved for ATSB Loan Guarantee
• Pittsburgh Post Gazette: US Airways loan plan given key approval
• New PHL Council 70 Office
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In the evening of Wednesday, 7/10, the Air Transportation Stabilization Board announced that it has conditionally approved a loan guarantee for US Airways. 

The conditions on the loan are two fold. First, the government wants more of a stake in the airline. 

Second, and most important to us, all labor agreements providing the airline with concessions must be finalized before the loan guarantee will become effective. That means every labor group must get a ratified agreement before US Airways actually gets a loan. 

Below are the airline's press release and a news story on the issue: 
 

US AIRWAYS GRANTED CONDITIONAL APPROVAL OF FEDERAL LOAN GUARANTEE 

ARLINGTON, Va., July 10, 2002 -- US Airways President and Chief Executive Officer David Siegel said that the conditional approval today of a $900 million federal loan guarantee of a $1 billion loan by the Air Transportation Stabilization Board (ATSB) is recognition of the carrier's "relentless, focused and comprehensive efforts to restructure our airline by cleaning up our balance sheet and implementing a successful business plan." 

"Obtaining the conditional approval of this $1 billion loan is one of the cornerstones of our restructuring plan and when closed, upon our satisfying the ATSB's terms and conditions, should provide us with the necessary liquidity and cash resources as we restructure our airline," said Siegel. "We are moving to implement domestic and international codeshare agreements and to vastly expand our regional jet fleet, which along with some other scheduling and marketing initiatives, will improve our ability to generate more revenue. Those efforts, coupled with significant labor cost reductions and more affordable aircraft lease and supplier costs, are part of our comprehensive turnaround strategy."

The ATSB loan guarantee program was enacted by Congress last September to provide financial stability to airlines impacted by the September 11 terrorist attacks. In the reporting periods since the September 11 attacks, the nation's seventh-largest airline has incurred net losses totaling $1.425 billion, much of it directly related to the post-September 11 drop in air travel, higher security costs, the prolonged closure of Washington's Ronald Reagan National Airport, and the disproportionate impact of the attacks on the airline's East Coast route network. 

Siegel said that the airline must now quickly and successfully conclude negotiations with labor unions and lessors, lenders and suppliers that satisfy the ATSB loan guarantee conditions in order to implement a voluntary restructuring plan that does not involve a Chapter 11 filing. The airline has implemented a strategic payment deferral program on aircraft that have either been grounded or might be eliminated from the fleet as part of a restructuring, and negotiations with those various financial parties continue. In addition, tentative agreements with several of the unions representing US Airways work groups have been reached, but agreements with all unions must be completed and ratified by the memberships. 

"Much has been accomplished in a very short period of time as we have worked to meet the very rigorous standards established by the ATSB, but now we must focus on completing the process quickly," said Siegel. "The support of elected officials, our corporate partners, airport officials and local community leaders has been a very big part of this process, and we are very appreciative of the literally thousands of individuals who have expressed their support for our loan guarantee application and our overall restructuring efforts. We are too important to the hundreds of communities that we serve to not successfully achieve this turnaround and our focus will remain on achieving a successful restructuring."

US Airways loan plan given key approval $900 million guarantees OK'd by federal board, but with many conditions 
Thursday, July 11, 2002 
By Frank Reeves and Jim McKay, Post-Gazette Staff Writers
 

US Airways yesterday received conditional approval for $900 million in federal loan guarantees that the troubled carrier says are crucial to its survival.

The Air Transportation Stabilization Board unanimously approved the guarantees on conditions that Pittsburgh's dominant carrier give the government a bigger potential stake in the airline and that US Airways is able to wring sizable concessions from its employees, suppliers and creditors. 

The Arlington, Va.-based carrier, which employs roughly 10,000 people locally after recent layoffs of about 2,000, has said the loan guarantees are a must for it to obtain $1 billion in private financing and avoid bankruptcy. 

If successful, US Airways would be the second major carrier to obtain loan guarantees from the board, established by Congress after Sept. 11 to administer a $10 billion loan guarantee program for the troubled airline industry. In December, it approved America West's request for $380 million in guarantees only after imposing several conditions, including obtaining a 33 percent stake in the airline. 

The government loan guarantees, coupled with $5 billion in cash also made available under the airline bailout legislation, are aimed at helping the nation's carriers recover from devastating losses they suffered following the plunge in air traffic after the attacks. 

In granting conditional approval, the federal board noted that US Airways "has demonstrated a reasonable assurance that it will be able to repay the loan according to terms" and will be able to achieve substantial cost savings from employees, lenders and suppliers. 

The airline initially sought savings from all three groups totaling $1.2 billion to $1.3 billion, but tentative agreements with its pilots and flight attendants union suggest it will fall short of that target. Both of those groups have agreed to concessions representing about 85 percent of what management had sought. 

US Airways Chief Executive David Siegel praised the board's decision, saying its action "is one of the cornerstones of our restructuring plan" that, when combined with other savings, "should provide us with the necessary liquidity and cash resources as we restructure our airline." 

Since taking over the helm of US Airways in mid-March, Siegel has spent much of the last four months meeting with the federal board and its staff to understand the requirements for the loan guarantees. He also has made the rounds with political leaders in Pennsylvania and other states where US Airways has hubs and major operations to boost congressional and local support for its loan application. 

Allegheny County Chief Executive Jim Roddey said he had been expecting the board's approval, mainly because he continuously heard favorable comments about the restructuring plan during his numerous contacts with government officials. 

Roddey said the "timing of the approval was a little surprising since it came as early as it did. It's very good news, it's very positive." 

The two unions that have reached tentative agreements with the airline, the Air Line Pilots Association and the Association of Flight Attendants, welcomed the board's decision but noted there's a lot of work to be done. 

"Our interest is to have jobs in the long run, and if this loan guarantee helps [the company] survive and compete, that is good for every employee of US Airways," said Jeff Zack, spokesman for the flight attendants. 

In its letter to Siegel notifying the airline of the conditional guarantees, the board said the company still must: 

Conclude legally binding agreements with its unions, suppliers and lenders that are satisfactory to the board; 

Boost the government's equity stake in the company, which it did not state but has been reported to be well below the 33 percent stake sought in America West;

Resolve issues concerning some of US Airways airport slots and gates; 

Conclude final loan documents with the board. 

The board announced its decision late yesterday, shortly after Siegel warned the airline's labor leaders that US Airways is in default of a growing number of debt obligations and may be forced into bankruptcy by its creditors if it doesn't quickly strike concessionary agreements. 

"The time for brinkmanship by any of us is over," Siegel told the union leaders in a five-minute conference call that came after the stock market closed. "We simply must get these agreements finalized. And we must get these agreements ratified quickly." 

His statement was met by silence, according to some of the participants in the call. 

The executive said the beleaguered airline is having trouble persuading lenders and suppliers to participate in a voluntary restructuring that aims to reduce labor and other costs by more than $1 billion. Some have extended the airline grace periods, but that time is running out. 

Two weeks ago, Siegel said the airline was stopping payments on some of its aircraft to selected creditors involved in negotiations with the airline to reduce its operating costs. 

But yesterday, he said, "The reality is that we are now in default on a growing number of public and private debt obligations." 

When the payment deferrals initially were announced, the airline said the move could lead other creditors to accelerate demands for payment, a situation that could push the company to enter bankruptcy reorganization on its own or be forced into it by the creditors. 

In a message to employees following his meeting with union leaders, Siegel said filing for Chapter 11 bankruptcy protection may be required to preserve newly negotiated labor agreements while obtaining relief from lenders and suppliers who are unwilling to work with the company on a financial restructuring. 

While talks are continuing with the pilots union on job security and stock option issues, the pilots have agreed to a $465 million package of annual wage and benefit concessions over 6 1/2 years. 

The flight attendants union has settled on $77 million a year in cost savings pending employee ratification. The company also has reached agreements with small units of the Transit Workers of America. 

The largest holdouts remain the International Association of Machinists, which represents unionized mechanics, aircraft cleaners, ramp workers and baggage handlers, and the Communications Workers of America, which represents reservationists, ticket takers and other service employees.

Based on the pilots deal, Siegel said the airline will likely secure about 85 percent of the initial target of roughly $950 million in annual cost savings from its more than 30,000 unionized workers. 

Even if the company obtains 85 percent of its original target, it may not be enough to generate enough profits to pay back the loans and protect the government from having to bail out the airline should it default, said William Lauer, chairman of the Tarentum-based money manager Allegheny Capital Management. 

US Airways' application with the federal board shows that it can earn a 7 percent profit over seven years and obtain an investment grade bond rating from credit rating agency Fitch Ratings. 

Lauer said US Airways, while securing wage and benefit concessions, appears to have backed away from demanding major changes in pilot work rules that could improve productivity and help it return more quickly to profitably.

New PHL Council 70 office 

PHL Council 70 has moved to a new office: 

Address: 
Association of Flight Attendants 
3751 Island Ave. 
Philadelphia, PA. 19153 

New phone numbers: 
215-492-0840 
215-492-0842 Fax 
 
 

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