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To All Employees ... Please
Post ... Special Bulletin
US AIRWAYS AND ATSB RESTRUCTURE LOAN
US Airways Prepays $250 Million of $1 Billion Loan
Agreement Allows Time for Company to Finalize and Implement
Transformation Plan By Midyear
US Airways Group Inc., has reached an agreement with the Air
Transportation Stabilization Board (ATSB) to revise the terms
of the $1 billion loan that was made to US Airways Inc., upon
its emergence from Chapter 11 on March 31, 2003.
Under the agreement, US Airways prepaid $250 million, causing
the remaining outstanding loan balance to be reduced to $726
million. The prepayment has been made to the lenders on a
prorated basis to both the ATSB guaranteed (90 percent) and
non-guaranteed (10 percent) portions of the loan. The ATSB's
exposure therefore was reduced by $225 million, and Bank of
America and Retirement Systems of Alabama received $6.25
million and $18.75 million, respectively.
In exchange for this prepayment, the financial covenants contained
in the loan were modified through 2005. The revised covenants
require that US Airways significantly narrow its losses in
2004 and return to profitability in 2005. The company and the
ATSB also agreed to modify other terms and provisions,
including lifting certain restrictions on the company's
ability to pursue asset sales.
The amended loan agreement was completed along with US Airways
filing its Form 10-K with the U.S. Securities and Exchange
Commission (SEC) for the fiscal year ended Dec. 31, 2003,
which includes the independent auditors (KPMG LLP) report to
shareholders. The auditors report indicates that the company's
significant recurring losses and other matters regarding,
among other things, the company's ability to maintain
compliance with covenants contained in various financing
agreements, as well as its ability to finance and operate
regional jet aircraft and reduce its operating costs in order
to successfully compete with low-cost airlines, raises
substantial doubt about its ability to continue as a going
concern. The
auditors report for 2002, issued while the company was in
bankruptcy, also contained a similar explanatory paragraph
discussing the company's ability to continue as a going
concern.
"It is essential for US Airways to significantly reduce
its costs and return to sustained profitability by 2005 to
secure continued availability of the ATSB loan," said
Executive Vice President Finance and Chief Financial Officer
Neal Cohen. "This agreement provides US Airways the
opportunity to continue its restructuring efforts, while
reducing the government's exposure and providing additional
loan protections to the ATSB." After this payment, the
company's unrestricted cash balance is approximately $925
million.
US Airways Chairman David Bronner said that these developments
have been discussed with the board of the company and labor
leadership. "This agreement gives us a narrow window for
management and labor to continue to work together to make the
changes necessary to get this company back to
profitability."
US Airways also agreed to a loan covenant that its minimum
unrestricted cash balance would not fall below the lower of
$700 million and the outstanding balance of the loan at each
month until its going concern paragraph is removed, at which
point the unrestricted cash covenant will be reduced to $500
million.
"We fully recognize and appreciate the enormous
sacrifices that our employees have already made. We share
their frustration that we all have more to do to turn US
Airways around," said US Airways President and CEO Dave
Siegel. "We are talking with all of our employees and
other key stakeholders on how to respond to the new
marketplace reality that only low-cost carriers are making
money. We need to make changes now in order to demonstrate
that US Airways will remain an important player in the airline
industry," said Siegel.
Special Bulletin for Friday, March 12, 2004
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