phillyd2
May 20, 05, 1:22 pm
•Bankruptcy court. US Airways must now file its plan for operating outside Chapter 11 as a merged company. It will have to demonstrate that the merger is feasible and is adequately financed, says Ken Coleman, restructuring lawyer at Allen & Overy in New York.
The judge overseeing the bankruptcy in Alexandria, Va., must determine that creditors will do "at least as well" under this plan as they would under a liquidation, he says. If there's widespread support for a well-financed merger from creditors, shareholders and employees, the judge is likely to approve.
Others could submit rival bids and may seek creditor support for an auction.
"We welcome that process, and believe that our bid at the end of the day will be better than anyone else's," Parker said.
One strong candidate to enter a rival bid is discount king Southwest Airlines, the archrival of both America West and, more recently, US Airways.
Southwest has made no secret of its interest in acquiring some of US Airways' assets, especially gates at Philadelphia International Airport, a US Airways hub it invaded in 2004.
Gary Kelly, Southwest's CEO, said Wednesday at his company's annual meeting that his airline "would be willing to look at anything except" buying all of US Airways.
•Antitrust enforcers. The U.S. departments of Justice and Transportation and the Federal Trade Commission will investigate antitrust issues.
Four years ago, the Justice Department sank a proposed merger of US Airways and United Airlines.
Elliott Seiden, who once headed the Justice Department's transportation antitrust unit, said the divergent route structures of US Airways and America West eliminate major antitrust issues. "If this one presents antitrust concerns, it means that the antitrust enforcers have concluded that there can never be another airline merger. And I don't believe that's the state of the law," he says.
If the government does express antitrust concerns, he said, US Airways could fall back on an argument available to it under antitrust law — that it can't survive without the merger.
•Federal loan board. The Air Transportation Stabilization Board, the airline industry aid agency created after Sept. 11, must sign off on the deal. As a secured creditor of US Airways, ATSB has the ability to force the airline to liquidate to repay its balance.
US Airways and America West owe a total of about $1 billion on separate loans guaranteed by the ATSB.
Parker said he anticipates negotiations with ATSB to settle outstanding debts. "I can't imagine the entire loan would be paid back," he said. A merged airline gives the government greater security on its loan guarantees, he said. ATSB earlier loosened the terms of its agreement with US Airways to permit it to spend its cash collateral through June 30, the date when it originally planned to exit bankruptcy.
Like most carriers, America West has struggled since 9/11, though it has registered some small successes. It reported a $33.6 million first-quarter profit, thanks mainly to a contract locking in a good price for of much of its fuel. Still, it has lost nearly $670 million since 2000, and avoided a Chapter 11 bankruptcy filing only by getting a $380 million federal loan guarantee in 2002.
US Airways filed for Chapter 11 bankruptcy protection last September, its second such filing since August 2003. The carrier's first turnaround plan came up short in part because the cost cuts — including $1 billion annually in labor concessions - did not go far enough to offset revenue sagging under intense fare competition. In particular, low-fare airlines such as Southwest and AirTran, sensing weakness, expanded rapidly throughout US Airways' home turf on the East Coast. It also has struggled with record fuel prices.
Thus far in its second run through Chapter 11, US Airways has cut its annual labor costs by another $1 billion. Yet it remains one of the highest-cost operators in the industry.
US Airways has reported official losses of $2.1 billion since 2000. But that doesn't tell the full story. In the nine months ended March 31, 2003, it reported profit of $1.6 billion. However, that was the result mostly of a $240 million investment by the Retirement Systems of Alabama and a $900 million federal loan guarantee that enabled its first bankruptcy reorganization. All told, US Airways has lost nearly $3.4 billion since 1999.
Some restructuring experts, like attorney Coleman, believe the merger to be US Airways' "only hope." A decade ago, when US Airways was teetering on the edge of bankruptcy, an improving economy helped pull it and other carriers out of the downturn, he said. But this time that's not happening, in larger part because of the rapid growth of discounters.
"US Airways is not going to survive on its own," Coleman says. "It's a no-brainer from their perspective."
But there are plenty of skeptics.
Robert Mann, an independent airline analyst and consultant, fears that "a war" could erupt as employees protest job losses that come with the merger. He expects America West employees to be angry by labor force integration terms that potentially could put many of them out of their jobs, or leave them in junior positions relative to their US Airways counterparts. Attorney Hugh McDonald, also of the Allen & Overy firm, says, "The real question is when you put these two entities together, can you make them profitable? Can they withstand competition from low-cost carriers like Southwest or JetBlue?"
(usatoday)
The judge overseeing the bankruptcy in Alexandria, Va., must determine that creditors will do "at least as well" under this plan as they would under a liquidation, he says. If there's widespread support for a well-financed merger from creditors, shareholders and employees, the judge is likely to approve.
Others could submit rival bids and may seek creditor support for an auction.
"We welcome that process, and believe that our bid at the end of the day will be better than anyone else's," Parker said.
One strong candidate to enter a rival bid is discount king Southwest Airlines, the archrival of both America West and, more recently, US Airways.
Southwest has made no secret of its interest in acquiring some of US Airways' assets, especially gates at Philadelphia International Airport, a US Airways hub it invaded in 2004.
Gary Kelly, Southwest's CEO, said Wednesday at his company's annual meeting that his airline "would be willing to look at anything except" buying all of US Airways.
•Antitrust enforcers. The U.S. departments of Justice and Transportation and the Federal Trade Commission will investigate antitrust issues.
Four years ago, the Justice Department sank a proposed merger of US Airways and United Airlines.
Elliott Seiden, who once headed the Justice Department's transportation antitrust unit, said the divergent route structures of US Airways and America West eliminate major antitrust issues. "If this one presents antitrust concerns, it means that the antitrust enforcers have concluded that there can never be another airline merger. And I don't believe that's the state of the law," he says.
If the government does express antitrust concerns, he said, US Airways could fall back on an argument available to it under antitrust law — that it can't survive without the merger.
•Federal loan board. The Air Transportation Stabilization Board, the airline industry aid agency created after Sept. 11, must sign off on the deal. As a secured creditor of US Airways, ATSB has the ability to force the airline to liquidate to repay its balance.
US Airways and America West owe a total of about $1 billion on separate loans guaranteed by the ATSB.
Parker said he anticipates negotiations with ATSB to settle outstanding debts. "I can't imagine the entire loan would be paid back," he said. A merged airline gives the government greater security on its loan guarantees, he said. ATSB earlier loosened the terms of its agreement with US Airways to permit it to spend its cash collateral through June 30, the date when it originally planned to exit bankruptcy.
Like most carriers, America West has struggled since 9/11, though it has registered some small successes. It reported a $33.6 million first-quarter profit, thanks mainly to a contract locking in a good price for of much of its fuel. Still, it has lost nearly $670 million since 2000, and avoided a Chapter 11 bankruptcy filing only by getting a $380 million federal loan guarantee in 2002.
US Airways filed for Chapter 11 bankruptcy protection last September, its second such filing since August 2003. The carrier's first turnaround plan came up short in part because the cost cuts — including $1 billion annually in labor concessions - did not go far enough to offset revenue sagging under intense fare competition. In particular, low-fare airlines such as Southwest and AirTran, sensing weakness, expanded rapidly throughout US Airways' home turf on the East Coast. It also has struggled with record fuel prices.
Thus far in its second run through Chapter 11, US Airways has cut its annual labor costs by another $1 billion. Yet it remains one of the highest-cost operators in the industry.
US Airways has reported official losses of $2.1 billion since 2000. But that doesn't tell the full story. In the nine months ended March 31, 2003, it reported profit of $1.6 billion. However, that was the result mostly of a $240 million investment by the Retirement Systems of Alabama and a $900 million federal loan guarantee that enabled its first bankruptcy reorganization. All told, US Airways has lost nearly $3.4 billion since 1999.
Some restructuring experts, like attorney Coleman, believe the merger to be US Airways' "only hope." A decade ago, when US Airways was teetering on the edge of bankruptcy, an improving economy helped pull it and other carriers out of the downturn, he said. But this time that's not happening, in larger part because of the rapid growth of discounters.
"US Airways is not going to survive on its own," Coleman says. "It's a no-brainer from their perspective."
But there are plenty of skeptics.
Robert Mann, an independent airline analyst and consultant, fears that "a war" could erupt as employees protest job losses that come with the merger. He expects America West employees to be angry by labor force integration terms that potentially could put many of them out of their jobs, or leave them in junior positions relative to their US Airways counterparts. Attorney Hugh McDonald, also of the Allen & Overy firm, says, "The real question is when you put these two entities together, can you make them profitable? Can they withstand competition from low-cost carriers like Southwest or JetBlue?"
(usatoday)