US Airways Gets OK to Emerge From Chapter 11

ALEXANDRIA, Va. – US Airways received approval Friday to emerge from Chapter 11 protection, clearing the way for the nation's seventh-largest airline to merge with America West Holdings Corp (AWA).

US Airways Group Inc. (search) , which has its largest hub in Charlotte, N.C., must wait at least 10 days before formally emerging from bankruptcy. It expects to emerge and formally close on its merger with America West, the nation's eighth largest airline, late this month or in early October.

After Friday's hearing, Bruce Lakefield, chief executive of US Airways, said he is confident that the merger will succeed despite record fuel prices and tough competition in the industry.

"Ticket prices are going up," he said. "You've got to face the fact that customers will have to pay for the product."

U.S. Bankruptcy Judge Stephen Mitchell's ruling came just two days after Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWAC) filed for bankruptcy protection.

"I have every hope and confidence that the airline will prosper in the future," Mitchell said.

The judge's approval came after he ruled on the last remaining objections to the airline's plan of reorganization. Most significantly, the airline's unions had objected to an executive severance package that would provide $12 million in pay to 11 top executives who will not be given jobs with the merged airline.

Mitchell approved the severance package, saying it was in line with executive contracts in the airline industry.

This was US Airways' second Chapter 11 filing since August 2002. The first filing came after federal regulators rejected a proposed merger with UAL Corp.'s United Airlines (search), followed by the industrywide collapse caused by the Sept. 11 attacks.

US Airways thought it had corrected its problems in the first bankruptcy, but it failed to anticipate rising fuel costs and rapidly increasing competition from low-cost carriers like Southwest Airlines, which began flying out of US Airways' hub in Philadelphia.

US Airways is one of four major U.S. carriers in bankruptcy protection, along with United Airlines, Delta and Northwest.

Delta and Northwest filed for Chapter 11 in New York on Wednesday. United Airlines filed for bankruptcy protection in 2002.

America West and US Airways believe their merger will be successful because US Airways — which just four years ago had the highest labor costs in the industry — now pays salaries equivalent to those at low-cost carriers like Jet Blue and America West.

The airlines say the merger will create the nation's first full-service, low-fare airline.

Shareholders of America West, based in Tempe, Ariz., will own about 37 percent of the new company. Outside investors, who supply $565 million in financing, will get an estimated 52 percent, and unsecured creditors of US Airways will receive about 12 percent stake.