Associated Press
Bronner: Fund Can Withstand US Airways Loss
Thursday September 9, 6:24 pm ET
By Jay Reeves, Associated Press Writer
Alabama Pension Fund Can Withstand Any US Airways Loss, Says Chief Executive
BIRMINGHAM, Ala. (AP) -- Alabama's retired teachers and government employees could lose a $240 million stake in US Airways if the airline can't pull out of its financial nosedive, but the high-profile head of the state's pension fund said Thursday the system is diversified enough to withstand the loss.
While huge for most investors, the loss would be small for the more than $25 billion portfolio of the Retirement Systems of Alabama, said chief executive officer David Bronner.
"It's less than 1 percent," he said. "Every point in the Dow is worth $1 million to me. When the Dow went down 300 points, that cost me more."
The difference this time is that Bronner's name is closely attached to the investment: Besides running the state pension system, he's also serving as chairman of the troubled carrier and created a stir a few weeks ago by publicly mentioning the possibility of liquidating the company.
Liquidation is still a possibility, Bronner said in an interview. But he expects US Airways to initially seek Chapter 11 bankruptcy protection unless unions agree to $800 million in cutbacks.
"It's either fix it before it goes into Chapter 11 or go into Chapter 11 and a judge gives you 60 to 90 days to come up with a plan to come back out," said Bronner, a veteran manager known in Alabama for his cigars and outspokenness on state issues.
US Airways Group Inc. is trying to avoid bankruptcy for a second time by cutting $1.5 billion a year, much of it in labor costs.
The airline is seeking $295 million annually in cuts from its 3,000 pilots, and $800 million from all its unions. But leaders of the pilots' union refused this week to send the company's proposal to members for a vote.
"We still absolutely have hopes of avoiding (Chapter) 11," Bronner said.
With more than 290,000 members, Alabama's retirement system has far-flung holdings that include broadcast outlets, newspapers, a Manhattan office building, golf courses and more traditional stocks and bonds. It bought into US Airways in December 2002 while the airline was in bankruptcy.
"Would I do it again? Absolutely," said Bronner. "It had $7.5 billion in revenues and we got controlling interest for $240 million."
An expert agreed with Bronner's assessment that the security of Alabama's public retirement system is not endangered by US Airways' condition.
"While it's a lot of money, it's not going to jeopardize the plan," said Robert McLeod, a finance professor at the University of Alabama and executive director of its MBA program. But state agencies and universities could have to contribute more to the plan per worker if the loss is too large, he said.
"That leaves less money for other things," said McLeod.
Bronner began seeking labor concessions almost immediately after the deal was announced, saying the fund could withdraw promised loans unless unions agreed to contract modifications. The company emerged from bankruptcy in March 2003, but the pressure for cutbacks didn't let up.
Standard & Poor's Rating Services lowered the company's debt classification on Wednesday, and share prices are down to below $2 from a high of $15.25 a year ago.
But the Alabama pension fund won't live or die by what happens to US Airways, he said. While the system could lose its entire investment, Bronner said it is too soon to determine what will happen.
"Will we make money or lose money? We're at halftime in a football game," he said. "But this is different than stocks. It sort of bothers me because there are 28,000, 29,000 (US Airways worker) families involved. I don't want to see them lose their jobs."
Like most any fund manager, Bronner has lost money -- lots of it -- on previous investments. But the university professor said the airline deal is different.
"It's the first time it's this visible," said McLeod.
Bronner: Fund Can Withstand US Airways Loss
Thursday September 9, 6:24 pm ET
By Jay Reeves, Associated Press Writer
Alabama Pension Fund Can Withstand Any US Airways Loss, Says Chief Executive
BIRMINGHAM, Ala. (AP) -- Alabama's retired teachers and government employees could lose a $240 million stake in US Airways if the airline can't pull out of its financial nosedive, but the high-profile head of the state's pension fund said Thursday the system is diversified enough to withstand the loss.
While huge for most investors, the loss would be small for the more than $25 billion portfolio of the Retirement Systems of Alabama, said chief executive officer David Bronner.
"It's less than 1 percent," he said. "Every point in the Dow is worth $1 million to me. When the Dow went down 300 points, that cost me more."
The difference this time is that Bronner's name is closely attached to the investment: Besides running the state pension system, he's also serving as chairman of the troubled carrier and created a stir a few weeks ago by publicly mentioning the possibility of liquidating the company.
Liquidation is still a possibility, Bronner said in an interview. But he expects US Airways to initially seek Chapter 11 bankruptcy protection unless unions agree to $800 million in cutbacks.
"It's either fix it before it goes into Chapter 11 or go into Chapter 11 and a judge gives you 60 to 90 days to come up with a plan to come back out," said Bronner, a veteran manager known in Alabama for his cigars and outspokenness on state issues.
US Airways Group Inc. is trying to avoid bankruptcy for a second time by cutting $1.5 billion a year, much of it in labor costs.
The airline is seeking $295 million annually in cuts from its 3,000 pilots, and $800 million from all its unions. But leaders of the pilots' union refused this week to send the company's proposal to members for a vote.
"We still absolutely have hopes of avoiding (Chapter) 11," Bronner said.
With more than 290,000 members, Alabama's retirement system has far-flung holdings that include broadcast outlets, newspapers, a Manhattan office building, golf courses and more traditional stocks and bonds. It bought into US Airways in December 2002 while the airline was in bankruptcy.
"Would I do it again? Absolutely," said Bronner. "It had $7.5 billion in revenues and we got controlling interest for $240 million."
An expert agreed with Bronner's assessment that the security of Alabama's public retirement system is not endangered by US Airways' condition.
"While it's a lot of money, it's not going to jeopardize the plan," said Robert McLeod, a finance professor at the University of Alabama and executive director of its MBA program. But state agencies and universities could have to contribute more to the plan per worker if the loss is too large, he said.
"That leaves less money for other things," said McLeod.
Bronner began seeking labor concessions almost immediately after the deal was announced, saying the fund could withdraw promised loans unless unions agreed to contract modifications. The company emerged from bankruptcy in March 2003, but the pressure for cutbacks didn't let up.
Standard & Poor's Rating Services lowered the company's debt classification on Wednesday, and share prices are down to below $2 from a high of $15.25 a year ago.
But the Alabama pension fund won't live or die by what happens to US Airways, he said. While the system could lose its entire investment, Bronner said it is too soon to determine what will happen.
"Will we make money or lose money? We're at halftime in a football game," he said. "But this is different than stocks. It sort of bothers me because there are 28,000, 29,000 (US Airways worker) families involved. I don't want to see them lose their jobs."
Like most any fund manager, Bronner has lost money -- lots of it -- on previous investments. But the university professor said the airline deal is different.
"It's the first time it's this visible," said McLeod.
.
