US Airways Warns It May Liquidate by February

US Airways Group Inc. (UAIR) warned in a bankruptcy court filing that it may have to liquidate by February if a judge does not impose a temporary 23 percent pay cut on its union workers.

The airline asked a judge on Friday to impose the pay cuts by Oct. 14 at the latest. On Monday, U.S. Bankruptcy Judge Stephen Mitchell scheduled an Oct. 7 hearing on the issue.

Without the reductions, the airline's cash reserves will dip so low by February that its lenders will likely withdraw the financing that has allowed the company to operate while in bankruptcy.

"If (US Airways) cannot accumulate cash during the next five months ... there is a high probability that they will suffer irreparable harm to their asset base and ongoing business, resulting in material downsizing, massive layoffs and potential liquidation by mid-February 2005," the airline's lawyers wrote in their motion seeking the emergency cuts.

The filing also indicates in a footnote that the airline will now seek $950 million in permanent annual cost reductions from its unions. Before it filed for bankruptcy, the company had sought $800 million a year in cost cuts.

Company officials have said greater cuts are needed because when it filed for bankruptcy the company lost financing to increase its fleet of regional jets, which it had hoped would be a strong source of revenue.

According to the filing, the average salary of US Airways employees would drop from $59,509 to $45,822. That would drop US Airways from third to seventh among major U.S. airlines, lower than the average pay for Southwest employees but higher than the average at JetBlue (JBLU).

The airline has said it needs a cost structure in line with those at low-fare carriers such as JetBlue Airways Corp. and America West Holdings Corp. if it is to successfully compete.

Average pilot pay would drop from $155,000 a year to $119,000 a year, while flight attendants' average salary would drop from $36,975 to $27,701, according to the motion.

The temporary relief would also include reductions to pension and retirement plans and eliminate the requirement that US Airways maintain a fleet of at least 279 mainline jets — possibly allowing for more layoffs.

US Airways, the nation's seventh largest airline, employs 28,000 workers in its mainline operations and 34,000 overall. About 84 percent of its employees are covered by union labor agreements, according to the company's annual report.

The Air Line Pilots Association (search), representing US Airways' 3,000 pilots, has said it will oppose the company's effort to impose the temporary pay cuts, but that it continues to negotiate with the airline.

The Association of Flight Attendants has said it is seeking to negotiate a smaller pay cut.

"None of us, as US Airways Flight Attendants, can afford a pay cut of the magnitude the company is seeking," Perry Hayes, president of the union's US Airways unit, told members in a letter last week.

The company's cash reserves reach precarious levels in January and February because that is when the company must make $260 million in debt and lease payments on its fleet of aircraft. If the company skips those payments, it would lose jets that constitute the core of US Airways' fleet.

The federal government — specifically a federal agency called the Air Transportation Stabilization Board (search) — is providing the bulk of the airline's financing while it is in bankruptcy. The agency also lent the airline $900 million in March 2003, when it emerged from its first trip into bankruptcy.

The court filing indicates that the ATSB financing is set to expire Oct. 15, and may not be extended unless the airline can show it has a credible business plan in place, which includes reduced labor costs.