NEW YORK (CNN/Money) -
US Airways Group headed to bankruptcy court Monday to seek permission to keep flying during its second bankruptcy filing in two years.
But shareholders, including state pension funds in Alabama and U.S. taxpayers, will see nearly all their investments wiped out by the problems at the No. 7 U.S. airline.
And some industry analysts say there is less than a 50 percent chance the airline will be able to reorganize and emerge from bankruptcy, as it did in March 2003.
US Air (UAIR: down $0.60 to $0.86, Research, Estimates) stock tumbled 44 percent on Nasdaq Monday, sinking below $1 a share.
The airline filed for bankruptcy Sunday afternoon after it was unable to win an additional $800 million in annual cost cuts from its unions. The airline had warned the concessions were needed to avoid another bankruptcy filing.
In federal court in Virginia Monday, the airline asked the federal judge overseeing its bankruptcy for permission to miss a $110 million pension payment due Wednesday. Such a move could be a step by the airline to terminate its underfunded pension plans. Competitor United Airlines, which is also operating in bankruptcy, is seeking permission to terminate its plans.
The bankruptcy filing gives US Air leverage to get rid of existing labor contracts and force union workers to accept lower pay. It said it must cut labor costs by the end of the month to avoid violating terms of its loans, including $900 million in federal loan guarantees.
"We have devoted the last six months to building and implementing a transformation plan that leverages our strengths and allows us to compete successfully in a changing airline industry," US Airways CEO Bruce Lakefield said in a statement.
"Since we still lack the new labor agreements that are needed for the transformation plan to succeed, we must preserve the Company's cash resources that are required to implement the Plan.
The airline listed assets of $8.8 billion and liabilities of about $8.7 billion in its filing.
Its largest unsecured creditors are Embraer and Bombardier, two overseas aircraft makers that produce the small regional jets US Air wants to make a mainstay of its fleet in the future. Embraer is owed $1.5 billion and Bombardier is owed $948 million, in future aircraft orders.
The next largest unsecured creditor is General Electric Co. (GE: Research, Estimates), which has various finance units owed about $336 million by the airline. A GE spokesman said the company had no immediate comment.
The $900 million in federal loan guarantees are secured, but federal taxpayers will likely lose a 10 percent equity interest in the airline they would have had if it had been able to avoid bankruptcy. The Retirement Systems of Alabama Holdings was its primary shareholder, with a $240 million investment that gave it 36.6 percent stake in the airline. GE held a 5 percent stake.
The impact on flyers
While some travel agents said last week they had started to book passengers on US Air competitors, the airline insisted Sunday that the bankruptcy should not inconvenience customers.
"Customers should not notice any changes to flight operations or customer service because of this filing," US Air said in a statement on its Web site. "All bookings will be honored and there are no changes to our ticketing policies."
But some experts said frequent flyer club members might want to take steps to protect themselves in case the airline stops flying, including booking trips for the middle of next year on partner airlines using US Air miles.
US Airways said it needed to cut costs by $1.5 billion to make its business more competitive with its discount rivals, about half of that coming from labor unions.
But the airline failed to get another penny from its pilots, flight attendants, mechanics and other union workers, who yielded nearly $2 billion to help the company out of its first bankruptcy.
The pilots union said it was disappointed with the decision to file for bankruptcy, but added it would keep negotiating for a new contract.
The airline could not arrange so-called debtor-in-possession financing to fund operations while it's in bankruptcy, a sign of an uphill slog to win new financing and investors. So-called DIP financing is common for most companies filing Chapter 11. Under Chapter 11 of federal bankruptcy law, a company is protected from creditors while it seeks to reorganize.
The airline said the federal Air Transportation Stabilization Board, Alabama's public pension fund and Bank of America have agreed to let it use $1 billion in loan money used to emerge from the previous bankruptcy to fund operations this time around.
US Air spokesman David Castelveter said it is too soon to say if the airline will be able to find additional financing it will need to emerge from bankruptcy this time.
"That will all key off of how successful we are at reaching cost-cutting objectives," he told CNN/Money. "We have tools available to us through the courts to get cost cuts in place. It would be premature to say what would happen."
But Ray Neidl, airline analyst with Calyon Securities, said forcing labor cost cuts on the unions is difficult in a service business such as an airline.
"Remember you can be the lowest cost airline in world and if you don't have cooperation of your work force you're going to fail," said Neidl. "They're being asked to sacrifice a lot, another 35 percent. But if they don't agree their jobs will go away."
US Air will probably keep operating through year-end, at least, but doesn't have much more than three to six months to assemble a turnaround plan, Neidl said, putting its chances at avoiding liquidation at "50-50, at best."
"Once they get the labor savings in place, their troubles aren't over," said Neidl. "They need to squeeze more out of secured creditors."
Troubled before Sept. 11
The filing came a day after the third anniversary of the Sept. 11 attacks, which propelled the already troubled industry into its worst financial crisis.
But US Air had been one of the most troubled major airlines even before Sept. 11. Its plans to merge with United Airlines was blocked by federal regulators earlier in 2001, leaving the airline to reshape itself and cut costs even before the terrorist attacks, which hit US Air harder than perhaps any other major carrier.
Its hub at Reagan National Airport in Washington D.C. stayed shut longer than any other airport, and the concerns about flying and security delays at the airport hit its shuttle, its most profitable business carrying passengers between Washington, New York and Boston.
The airline also faces the stiffest competition from low-fare carriers, notably Southwest Airlines, JetBlue and AirTran, as well as upstart Independence Air.
That competition, and this year's jump in fuel costs, spurred by rising oil prices, exacerbated losses. The airline said fuel costs will be $300 million more than projected this year, while discounting crimped $450 million from its revenue target.
The airline filed for bankruptcy protection in August 2002 and emerged about seven months later, in March 2003, using $900 million in federal loan guarantees set up after the Sept. 11 attacks and a $240 million investment from the Retirement Systems of Alabama.
But finding the financing it will need to emerge from bankruptcy this time will be far more difficult, and some analysts have suggested there is a good chance this trip to bankruptcy court could lead to liquidation rather than reorganization.
"Basically time is running out," said Phil Baggaley, airline analyst at credit-rating agency Standard & Poor's. "They have a whole series of deadlines coming up in September. The problem is would US Airways be able to attract financing to emerge from bankruptcy again, even with a new round of labor concessions?"
Even airline Chairman David Bronner, CEO of the Alabama retirement system, was quoted in August as saying the airline would probably face liquidation if forced into bankruptcy.
But some analysts believe even in its weakened state US Air may be able to dodge a shutdown.
"Liquidation is something that happens rarely in the airline industry," said industry economist David Swierenga, president of consulting group AeroEcon. "We've seen in the past, they can last for a long time even when they're losing money."
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The Arlington, Va.-based airline employs 28,000 people, who will be paid, the airline said in its statement.
-- Reuters contributed to this report