updated 1/6/2005 3:40:48 PM ET 2005-01-06T20:40:48

A bankruptcy judge on Thursday canceled a collective bargaining agreement between US Airways and its machinists union, providing hundreds of millions of dollars in annual savings that the airline says will prevent the need for a quick liquidation.

The judge also approved a request to terminate the pension plans for machinists and flight attendants, as well as a frozen pension plan that was still providing benefits to 28,000 retirees for a potential savings for the airline of $1 billion over five years.

U.S. Bankruptcy Judge Stephen Mitchell said that “at bottom, it is clear that the debtor’s financial position is so precarious that even with the relief being sought, there will still be grave questions as to whether it can survive.”

The termination of the contract with the International Association of Machinists would result in pay cuts for union workers ranging from 6 percent to 35 percent and the loss of thousands of union jobs. The costs savings are expected about $270 million.

The termination of the three pension plans will free U.S. Airways — a unit of US Airways Group Inc. — from nearly $1 billion in future pension obligations from 2005 through 2009.

There still is a chance, however, that the machinists union and the airline will agree on a new collective bargaining deal.

US Airways lawyer Brian Leitch said Thursday that the machinists union had agreed to send the company’s best final offer to union rank and file for a vote. If the union accepts US Airways’ offer on Jan. 21, the judge’s action canceling the contract would be nullified.

The judge acknowledged the heavy job losses that canceling the machinists’ collective bargaining pact anticipated but said, “Which is worse, that half of the mechanics lose their jobs or that all of the mechanics lose their jobs” when the company would be forced to shut down.

Bruce R. Lakefield, US Airways’ chief executive officer, said after the hearing, “The judge was very much in tune with what is going on at US Airways.”

As Lakefield spoke briefly with reporters, dozens of retirees gathered and shouted at the executive, asking what kind of pay cuts he would be taking.

Leaders of the machinists union said they would respond later Thursday to the ruling.

The decision involving the machinists came one day after flight attendants approved a new labor contract that cuts their own pay by nearly 10 percent. he Association of Flight Attendants represents more than 5,000 workers at the airline.

US Airways management has said it would likely need to begin liquidating assets if it does not receive relief from its labor contracts by mid-January. The airline has been financing its operations while in bankruptcy under an agreement with the federal government’s Air Transportation Stabilization Board, which lent the airline $900 million in March 2003, when US Airways emerged from its first trip into bankruptcy.

That financing agreement with the ATSB expires on Jan. 15, and the airline said it has little hope of obtaining an extension if it cannot demonstrate that it has sufficiently cut its labor costs.

The airline says that the vast majority of those in the terminated pension plans will receive the same benefit from the federal pension agency, the Pension Benefit Guaranty Corp.

That was not the case when US Airways terminated the pilots pension plan in the airlines’ previous trip into bankruptcy in 2002-2003. In that case, many pilots had been in line to receive much greater annual benefits than had been provided by PBGC.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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