S&P Cuts US Airways Grp Inc.; Outlook Neg
Dow Jones & Company, Inc. - September 8, 2004 The following is a press release from Standard & Poor's:
NEW YORK (Standard & Poor's) Sept. 8, 2004--Standard & Poor's Ratings Services today lowered its ratings on US Airways Group Inc. and its US Airways Inc. subsidiary, including lowering the corporate credit ratings of both entities to 'CCC-' from 'CCC'. The outlook is negative. The rating action reflects lack of progress in crucial labor negotiations and rapidly dwindling time to avert a second bankruptcy filing. Ratings on senior classes of enhanced equipment trust certificates, which are either bond insured or well collateralized, were not lowered.
"The apparent failure to reach a cost-cutting agreement with US Airways' pilots and a substantial upcoming pension payment on September 15 raise a clear near-term risk of bankruptcy," said Standard & Poor's credit analyst Philip Baggaley. On Sept. 6, 2004, US Airways Inc.'s pilots' union reported that it would not submit management's contract proposal to membership for a vote, as the company had requested. Although labor negotiations may resume, there is little time remaining to conclude an agreement with the pilots and other unions. Achievement of a cost-saving pact with the pilots is considered a necessary first step toward securing contract revisions with other labor groups. If the company is not close to agreement with its four major labor groups by Sept. 15, management may judge that it cannot further deplete its cash reserves by making the payment, and choose instead to file for Chapter 11.
The size of the pension payment has not been disclosed, but the company has said that it has pension payments of $133 million during the second half of 2004, and a substantial portion of that is due September 15. In addition, after September 30, US Airways could be in default under its federally guaranteed loan, lose access to financing arrangements for regional jet deliveries, and could be forced to post added cash collateral for a credit card processor. US Airways' liquidity is constrained; unrestricted cash totaled $975 million at June 30, 2004, but is expected to decline as the airline enters the seasonally weak period following Labor Day.
The company has no unsecured assets, as all available collateral is pledged to the loan guaranteed by the Air Transportation Stabilization Board. Loss of access to regional jet financing commitments, which very likely could not be replaced from other sources, would endanger the airline's new business strategy, which includes on deploying large numbers of regional jets, as well as substantial cost cuts. Failure by US Airways to secure material labor cost concessions very quickly as part of a broader transformation plan will very likely necessitate a second bankruptcy filing and a consequent downgrade to 'D'.
Dow Jones & Company, Inc. - September 8, 2004 The following is a press release from Standard & Poor's:
NEW YORK (Standard & Poor's) Sept. 8, 2004--Standard & Poor's Ratings Services today lowered its ratings on US Airways Group Inc. and its US Airways Inc. subsidiary, including lowering the corporate credit ratings of both entities to 'CCC-' from 'CCC'. The outlook is negative. The rating action reflects lack of progress in crucial labor negotiations and rapidly dwindling time to avert a second bankruptcy filing. Ratings on senior classes of enhanced equipment trust certificates, which are either bond insured or well collateralized, were not lowered.
"The apparent failure to reach a cost-cutting agreement with US Airways' pilots and a substantial upcoming pension payment on September 15 raise a clear near-term risk of bankruptcy," said Standard & Poor's credit analyst Philip Baggaley. On Sept. 6, 2004, US Airways Inc.'s pilots' union reported that it would not submit management's contract proposal to membership for a vote, as the company had requested. Although labor negotiations may resume, there is little time remaining to conclude an agreement with the pilots and other unions. Achievement of a cost-saving pact with the pilots is considered a necessary first step toward securing contract revisions with other labor groups. If the company is not close to agreement with its four major labor groups by Sept. 15, management may judge that it cannot further deplete its cash reserves by making the payment, and choose instead to file for Chapter 11.
The size of the pension payment has not been disclosed, but the company has said that it has pension payments of $133 million during the second half of 2004, and a substantial portion of that is due September 15. In addition, after September 30, US Airways could be in default under its federally guaranteed loan, lose access to financing arrangements for regional jet deliveries, and could be forced to post added cash collateral for a credit card processor. US Airways' liquidity is constrained; unrestricted cash totaled $975 million at June 30, 2004, but is expected to decline as the airline enters the seasonally weak period following Labor Day.
The company has no unsecured assets, as all available collateral is pledged to the loan guaranteed by the Air Transportation Stabilization Board. Loss of access to regional jet financing commitments, which very likely could not be replaced from other sources, would endanger the airline's new business strategy, which includes on deploying large numbers of regional jets, as well as substantial cost cuts. Failure by US Airways to secure material labor cost concessions very quickly as part of a broader transformation plan will very likely necessitate a second bankruptcy filing and a consequent downgrade to 'D'.
