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US Air may seek bankruptcy
Airline says it needs fed loan guarantees, employee and supplier concessions to continue operations.
May 10, 2002: 1:31 PM EDT

NEW YORK (CNN/Money) - US Airways Group said in a filing Friday that it may have to consider a bankruptcy filing if it does not win concessions from employees and suppliers and get federal loan guarantees.

The company's quarterly filing with the Securities and Exchange Commission does not explicitly say it is considering seeking bankruptcy protections, but it does say it is considering such a filing if it can't achieve its current restructuring plans. Airline spokesman David Castelveter stressed that the company is vigorously trying to win those concessions, but he added, "If we can't achieve that approach, we have an obligation to pursue and proceed with an approach under the U.S. bankruptcy laws."

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Shares of US Air (U: down $0.70 to $4.25, Research, Estimates) lost 12 percent in trading following the filing.

The company spelled out a relatively desperate financial situation in its filing, suggesting that the airline did not believe needed financing would be available elsewhere.

"The company continues to be highly leveraged. It has a higher amount of debt compared to equity capital than most of its principal competitors. Substantially all of its aircraft and engines are subject to liens securing indebtedness," its filing read. "The company and its subsidiaries require substantial working capital in order to meet scheduled debt and lease payments and to finance day-to-day operations.

"The company has not generated positive operating cash flows since September 11, 2001, the filing continued. "There can be no assurances that the company can achieve or sustain positive cash flow from operations. In addition, the company expects there to be pressure on its cash position later in the year, without taking into account the restructuring plan."

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Previously airline officials with the nation's seventh largest airline have insisted that they believed they could avoid bankruptcy court protections. But the company said at the time of its first-quarter results that it would seek both federal loan guarantees as well as help from both employees and suppliers in reducing its cost structure. Only one other major airline, America West Airlines, has sought federal loan guarantees.

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The Arlington, Va.-based carrier was one of the more financially troubled even before Sept. 11 terrorist attack. Its deal to be purchased by United Airlines owner UAL Corp. was blocked last summer, and the airline had announced a difficult and uncertain plan to cut costs and find a profitable niche even before the attack.  Top of page