US Airways Group Inc. attorneys and executives acknowledged in bankruptcy court yesterday that bookings had fallen more steeply than they had anticipated in reaction to their Chapter 11 filing last month as travelers — concerned about the airline's future — resist locking in reservations.
US Airways didn't specify the level of the drop-off in bookings and contended its efforts to conserve cash, largely through pay cuts, were aimed at maintaining travelers' confidence.
"If the public perceives us as running out of cash, there will be more booking away," said US Airways Chief Financial Officer David M. Davis.
During testimony in a crowded courtroom in Alexandria, US Airways executives outlined the airline's need for a court-imposed 23 percent, across-the-board pay cut for most of its employees for at least six months. Without the cuts, "there's a very high probability that (US Airways) will not survive," said US Airways lead attorney Brian P. Leitch. The action, the airline said, would save it about $38 million a month.
"Most debtors have nine lives, but this debtor has used up most of them and doesn't have many options," Leitch said.
U.S. Bankruptcy Judge Stephen S. Mitchell made no ruling on the pay-cut request as testimony will continue at a hearing Tuesday.
US Airways' argument was challenged repeatedly by a parade of labor attorneys who insisted the airline did not need such steep cuts from employees. The attorneys insisted that the carrier could find other ways to conserve cash and questioned the amount and duration of the pay cut sought by the airline.
Sharon L. Levine, an attorney for the airline's mechanics, said if the court grants the 23 percent cut, the average annual salary of a mechanic would decline to the point of "people losing their houses, their cars and making very difficult decisions about their health care."
Under cross-examination by labor attorneys, Davis acknowledged that the airline's top managers received a 4 percent pay increase in April, the same time the airline began seeking $800 million in concessions from its employees. Earlier this week, the airline implemented a 5 to 20 percent pay cut, with the majority of managers receiving the 5 percent reduction.
The airline said it needed to conserve its cash balance to pay about $260 million in aircraft leases that are due at the beginning of the year. The airline said it needed to start conserving cash now to offset the traditionally slow fourth and first quarters. Without the cuts, US Airways would have about $300 million at the beginning of the year, which Davis said would not be enough to sustain the airline. The carrier had about $699 million in cash at the end of September.
US Airways also is concerned that it may lose some of its 280 jets. The airline has built its restructuring plans and growth on its current fleet size.
Separately, Mitchell denied a request from the mechanics union to delay the proceedings, saying it was important to move forward in considering the airline's request for court intervention.
"I want to do what's right. I want to do what's fair. I want to see this airline survive," Mitchell said.
The Arlington-based airline said in court papers that it may liquidate in February if it fails to raise enough cash.
Because its assets are mostly tied up in financing from its previous reorganization, US Airways has virtually no chance of borrowing or attracting new equity.
Mitchell approved the company's plan to make its combined contributions of $29 million to its employee pension plans on Oct. 15 and Jan. 15, 2005, but did not rule on the airline's request to skip its $110 million pension payment that was due last month. That request was sharply contested by the labor groups.
Mitchell said legal issues related to pension obligations before and after the airline's Sept. 12 Chapter 11 filing were too complex to rule on immediately.
"One of the reasons people take the jobs that they do is the type of pension they're going to get," Mitchell said.
Leitch said employees should expect their current pension plan to be changed forever.
"I would not encourage any employee to continue working at US Airways if they expect the same benefit plans as presently set forth," Leitch said.