Update 2 - Fund Wins Majority on US Airways Board
December 05, 2002 9:00:00 PM ET
NEW YORK (Reuters) - Bankrupt airline US Airways Group Inc. has agreed to let its lead investor, an Alabama pension fund, fill more than half of its board seats once it emerges from bankruptcy, the fund's chief executive said on Thursday.
The airline's management has also surrendered two percent of its planned 10 percent equity stake in the company to appease unhappy unsecured creditors, David Bronner, head of the Retirement Systems of Alabama (RSA), said in an interview.
"The change that we've agreed to is basically that I have seven of the 13 board seats, said Bronner, who had expressed hesitation earlier in the week over "some problems" at US Airways related to its financing agreement with RSA.
The shrewd move awarded RSA two more seats on US Airways' board of directors than it had initially secured, and it will give the pension fund a majority block on the board if the airline emerges from bankruptcy.
"I think this is pretty significant," said Donald Workman, a partner at Foley & Lardner who represents airports in the US Airways bankruptcy case and also worked on TWA's bankruptcy.
"If RSA controls the majority of the board, they can control getting rid of all the officers if they want, the direction of the company, the strategic overview, and a fairly good list of other things,' Workman said.
A COSTLY TUNE-UP
Changes to the Retirement System of Alabama's financing deal with US Airways were approved in a meeting that stretched into Wednesday evening.
RSA, which manages money for Alabama teachers and state workers, has pledged to provide US Airways $500 million in emergency financing to keep its business running in bankruptcy. It has also agreed to offer $240 million for a 37 percent stake in the company upon its emergence from the bankruptcy courts.
The Alabama fund's bid trumped a bid for a similar stake in the company by high-flying restructuring group Texas Pacific.
Bronner and the airline's pilots separately expressed concerns this week that US Airways was having problems meeting terms of their agreement, particularly those related to revenue and cash balance targets.
US Airways confirmed on Wednesday that it was "fine tuning" its financing from RSA.
It said RSA was committed to offer $200 million remaining in its current facility, as long as a federal board reaffirms its conditional approval of US Airways' application for a desperately-needed $900 million federal loan guarantee.
RSA has offered to put up $75 million if necessary to help US Airways secure final approval for the guarantee, Bronner said.
The airline's request for financial aid from the Air Transportation Stabilization Board, which would come in the form of a 90 percent guarantee on a $1 billion loan, has already been granted conditional approval.
LOOSE ENDS
A major caveat of the board's willingness to guarantee airline loans, though, is that companies must secure the last 10 percent in backing themselves.
US Airways has secured $25 million in backing, but Airbus is "giving them a hard time on the $75 million," said Bronner, who has volunteered to step in with the $75 million himself if needed.
"Either Airbus is going to be realistic, or they're going to be out of the equation," Bronner said.
A spokeswoman at Airbus could not be reached for comment.
To win full approval, US Airways will also need to gather up at least another $200 million in new expense cuts from its workers, who have already offered the majority of the airline's $1.3 billion in annual concessions already secured. The airline was still in talks with its unions over changing work rules and benefits to save costs.
Bronner was confident US Airways would submit its plan of reorganization to the bankruptcy court within about two weeks. But the airline first needs to secure more concessions and solve issues with its underfunded pension, which it has said will require $3.1 billion in contributions from 2003 to 2009.
"I think we're there," Bronner said. "I really think if we can solve ... the pension problem, and we get the work rules changed, we can have our plan in court on or about the 20th of December."
US Airways' unsecured creditors are now poised to receive a 10.5 percent equity stake in the company, which was raised from 8.5 percent with help from management's concession.
To return the favor, Bronner said he agreed to yield back two percent of RSA's stake to US Airways management within two years of the airline's emergence from bankruptcy.
Chip comments: It appears with UAL on the verge of bankruptcy and a major Airbus customer, Airbus fears a major drop in U.S. orders and was using its pledge of providing $75 million in private funding to blackmail US Airways into agreeing to increased Airbus orders. However, RSA was willing to pledge more money to be included in the Plan of Reorganization in exchange for control of the Board of Directors.
US Airways appears to have solved a major problem to emerge from bankruptcy. From Bronner's comments the other issues are solving the underfunded pension problem with the PBGC, obtaining new union "work rule" accords, and obtaining final loan guarantee approval.
46 PM ForkTime2002 wrote: 
38 AM deelmakur wrote: 
