================================================================= US AIRWAYS BANKRUPTCY NEWS Issue Number 5 ----------------------------------------------------------------- Copyright 2002 (ISSN XXXX-XXXX) September 3, 2002 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 609-392-0900 FAX 609-392-0040 ----------------------------------------------------------------- US AIRWAYS BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtor's cases. New issues are prepared by Geoff J. Bailey, Frauline Sinson-Abangan and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of US AIRWAYS GROUP BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00063] DEBTORS' MOTION TO PROVIDE UTILITIES ADEQUATE ASSURANCE [00064] DEBTORS' MOTION TO ASSUME 15 CRITICAL AIRLINE CONTRACTS [00065] DEBTORS' MOTION TO REJECT 10 MORE AIRCRAFT LEASES [00066] DEBTORS' MOTION TO EMPLOY ORDINARY COURSE PROFESSIONALS [00067] DEBTORS' MOTION TO FIX NOVEMBER 4, 2002 CLAIMS BAR DATE [00068] DEBTORS' MOTION TO ASSUME 4 SPECIAL TRUST FUND AGREEMENTS [00069] DEBTORS' MOTION TO GIVE PRIORITY TO RECLAMATION CLAIMS [00070] RICHARD SWEET ET AL'S MOTION FOR RESTRAINING ORDER [00071] DEBTORS' APPLICATION TO EMPLOY O'MELVENY AS LABOR COUNSEL [00072] DEBTORS' MOTION FOR ORDER TO MAINTAIN CONFIDENTIALITY [00073] DEBTORS' APPLICATION TO EMPLOY LOGAN AS CLAIMS AGENT [00074] DEBTORS' MOTION TO REJECT 57 AIRCRAFT LEASES [00075] DEBTORS' MOTION TO REJECT 25 REAL PROPERTY LEASES [00076] US AIRWAYS RENEGES ON TENTATIVE AGREEMENT WITH ALLEGHENY [00077] US AIRWAYS IMPLEMENTS PRICING CHANGES [00078] US AIRWAYS MAKES CHANGES DUE TO DEMAND & AIRCRAFT RETURNS [00079] MACHINISTS AT US AIRWAYS SPLIT ON RESTRUCTURING PROPOSALS [00080] MACHINISTS & US AIR DISCUSS MECHANIC'S PROPOSAL REJECTION KEY DATE CALENDAR ----------------- 08/11/02 Voluntary Petition Date 09/25/02 Deadline for filing Schedules of Assets and Liabilities 09/25/02 Deadline for filing Statement of Financial Affairs 09/25/02 Deadline for filing Lists of Leases and Contracts 10/10/02 Deadline to make decisions about lease dispositions 11/04/02 [PROPOSED] Bar Date for filing Proofs of Claim 11/09/02 Deadline to remove actions pursuant to F.R.B.P. 9027 12/09/02 Expiration of Debtors' Exclusive Plan Proposal Period 02/07/04 Expiration of Debtors' Exclusive Solicitation Period 08/10/04 Deadline for Debtors' Commencement of Avoidance Actions First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [00063] DEBTORS' MOTION TO PROVIDE UTILITIES ADEQUATE ASSURANCE ----------------------------------------------------------------- In the normal conduct of its business operations, US Airways Group obtains natural gas, water, electric, telephone, fuel, sewer, cable, telecommunications, internet, paging, cellular phone, and other services from hundreds of utility companies and other providers. The Utility Companies service the Debtors' corporate offices, operations and numerous facilities around the country. Uninterrupted utility services are essential to ongoing operations and to the success of the Debtors' reorganization. Should the Utility Companies refuse or discontinue service, even for a brief period, the Debtors' business operations would be severely disrupted. The impact on the Debtors' businesses operations and revenue would be extremely harmful and would jeopardize the Debtors' reorganization efforts. It is therefore critical that these utility services continue uninterrupted. By this motion, US Airways Group asks the Court for an order prohibiting its Utility Companies from altering, refusing or discontinuing services because of its Chapter 11 filing or any unpaid prepetition invoice. For those Utility Companies seeking adequate assurance in the form of a deposit or other security, the Debtors ask the Court to require these Utility Companies to make a written request by September 5, 2002. The request must include a payment history for the most recent 6 months, a list of deposits or other security currently held by the Utility Company, and a description of any prior payment delinquency or irregularity. The Debtors contend that the administrative expense priority provided pursuant to Sections 503(b) and 507(a)(1) of the Bankruptcy Code, their prepetition payment history, and their proposed debtor-in-possession financing, adequately assure continued payment for utility services provided by the Utility Companies without the need for deposits or other security. In particular, the Debtors have enough funds to make timely postpetition payments to all Utility Companies. John Wm. Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, argues that Section 366 of the Bankruptcy Code protects a debtor against termination of its utility service immediately upon the commencement of its Chapter 11 case. At the same time, Mr. Butler says, Section 366 also provides adequate assurance of payment to utility companies. Section 366 provides that: (a) Except as provided in subsection (b), a utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee or the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to a utility for service rendered before the order for relief was not paid when due; (b) The utility may alter, refuse, or discontinue service if neither the trustee nor the debtor, within 20 days after the date of the order for relief, furnishes adequate assurance of payment, in the form of a deposit or other security, for service after the date. On request of a party in interest and after notice and a hearing, the court may order reasonable modification of the amount of the deposit or other security necessary to provide adequate assurance of payment. Mr. Butler also relates that courts have recognized that no deposit is required when: (a) the debtor has a history of prompt and complete utility payments, (b) the debtor owes insignificant amounts for prepetition utility services, (c) an administrative expense priority is granted to the utility, and (d) the debtor has substantial and liquid assets. Mr. Butler asserts that the Debtors' history of consistent and regular payment to the Utility Companies, coupled with their demonstrated ability to pay future utility bills from ongoing operations and postpetition financing, constitute adequate assurance of payment for future utility services within the meaning of Section 366 of the Bankruptcy Code -- without the need to provide additional security deposits, bonds or any other payments to the Utility Companies. * * * The Debtors don't have to fear the lights going out. Judge Mitchell grants the motion in its entirety. ----------------------------------------------------------------- [00064] DEBTORS' MOTION TO ASSUME 15 CRITICAL AIRLINE CONTRACTS ----------------------------------------------------------------- See prior related entries at [00038] and [00018] (Debtors' Motion to Assume Interline Agreements). John Wm. Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, explains that while the Debtors have received authority to assume clearinghouse arrangements with the International Air Transport Association, the Debtors also need to assume some other agreements that are essential to their ongoing operations. Pursuant to Section 365(a) of the Bankruptcy Code, the Debtors seek the Court's authority to assume these executory contracts related to critical ongoing international ticketing, cargo and other related operations. 1. IATA Membership Agreement; 2. IATA Clearing House Membership; 3. Multilateral Interline Traffic Agreement -- Passenger; 4. Multilateral Interline Traffic Agreement -- Cargo Interline Traffic Participation Agreement -- Passenger (MITA One-Way); 5. Interline Cargo Claims Agreement; 6. Multilateral Agreements for Passenger and Cargo Interline Services Charges -- United States; 7. Amended and Restated Universal Air Travel Plan Participation Agreement; 8. IATA Currency Clearance Service; 9. All BSP regions that US Airways is currently a participant; 10. All CASS regions that US Airways is currently a participant; 11. Cargo Network Services Corp. Agreements; 12. Air Traffic Conference Interline Traffic Agreement -- Passenger; 13. Air Traffic Conference Interline Air Cargo Procedures Agreement; 14. International Air Transport Association Airlines Clearing House, Inc. Interclearing House Agreement; and 15. Agreement for Settlement of Interline Accounts through Airlines Clearing House, Inc. The Debtors propose to cure all defaults under these Contracts through the continued performance and payment of amounts due in the ordinary course of business. The Debtors intend to continue flights and transportation service in the ordinary course of business during these Chapter 11 cases to preserve consumer confidence. To do so, these Contracts are vital. The International Air Transport Association Agreements The Debtors and all major air carriers participate in interline agreements with other air carriers. Interline agreements allow airlines to accept tickets for another carrier's system, providing numerous benefits for the airlines and their customers. For example, interline agreements allow travel agents to purchase tickets, help airlines coordinate luggage transfers from one airline to another, and outline reciprocal exchange of ground handling, special maintenance and skycap services. Payments related to interline agreements are reconciled through clearinghouses -- the ICH and Airlines Clearing House Inc. The ACH serves as a settlement bank for domestic carriers and the ICH serves as a settlement bank for international carriers. The Debtors' business relies on their participation in the ACH and ICH Clearinghouse Agreements. The Debtors also have executory contracts with IATA relating to Bank Settlement Plans. The BSPs are organized to facilitate sales by foreign travel agents of the Debtors' services, whether interline or online, and settle payments for tickets sold by foreign travel agents. Not all payments for tickets sold through the BSPs are settled through the ICH. In addition, the Debtors are party to executory contracts with IATA relating to Cargo Agency Settlement Systems. CASS helps the Debtors report and settle sales of cargo services by cargo intermediaries. As the IATA Agreements are critical to the Debtors' ability to sell their services internationally and are closely related to the Debtors' participation in the ICH, it is essential that the Debtors continue to participate in the BSPs and CASS and to comply with the IATA Agreements. Deeds of Undertaking Mr. Butler tells the Court that the Debtors are also party to Deeds of Undertaking. Deeds of Undertaking provide international travel entities assurance that, should the issuer of the ticket -- usually a travel agent -- fail to remit monies paid by the customer to US Air, US Air will nonetheless honor the ticket. Absent Deeds of Undertaking, the regulatory agencies require a travel agent to be bonded in order to provide assurances to customers. Because most travel agents abroad are not bonded and refuse to become bonded, without the Deeds of Undertaking, travel agents abroad will be prohibited from selling the Debtors' tickets. The Universal Air Travel Plan UATP is a program under which participating "contractor" airlines like US Airways, issue Air Travel Cards that cardholders may use to pay for tickets and other travel services purchased directly from participating airlines or through travel agents. Pursuant to the Amended and Restated UATP Participation Agreement dated April 15, 2002, the Debtors are an authorized contractor. UATP cards are issued to corporate subscribers, whose employees may purchase air transportation from the Debtors or any other airline that is a contractor under the UATP Agreement. Each Signatory Airline is responsible for administering its own UATP program -- including subscriber account approval, card issuance, billing, servicing and collection of payments. US Airways collects from its UATP subscribers for all charges made on its UATP cards. The accounts of all Signatory Airlines are settled through the IATA Clearinghouse and/or the ACH. Net trade receivables from UATP sales for the first 4 months of 2002 reach $88,500,000. The Company's participation as a Signatory Airline accounts for 6.5% of sales paid for with credit cards. Travel agents are responsible for 80% of UATP charges. The other 20% are created through the Debtors or other airline in-house sales. Therefore, the UATP Agreement is a significant source of passengers and revenue. ----------------------------------------------------------------- [00065] DEBTORS' MOTION TO REJECT 10 MORE AIRCRAFT LEASES ----------------------------------------------------------------- By this motion, US Airways Group seeks the Court's authority to reject or abandon another 10 airplanes. The Debtors want to reject the leases and abandon the Aircrafts and Engines at the earlier of: 1) the date the aircraft are surrendered to the relevant lessors and mortgages; and 2) September 15, 2002. The Debtors will relinquish all records and documents to the Lessors or Owners before September 29, 2002. Note: RR=Rolls Royce; and GE=General Electric Lessor Airframe Engine ------ -------- ------- BofA Leasing Boeing 737-301 GE CFM56-3B1 Bank One Capital Boeing 737-401 GE CFM56-3B2 Key Eqpmnt. Finance Boeing 737-401 GE CFM56-3B2 PNC Boeing 737-3B7 GE CFM56-3B2 Verizon Capital Boeing 737-3B7 GE CFM56-3B2 Verizon Capital Boeing 737-3B7 GE CFM56-3B2 Bank One Capital Boeing 737-401 GE CFM56-3B2 Key Eqpmnt. Finance Boeing 737-401 GE CFM56-3B2 Wilmington Trust Co. Boeing 757-2B7 RR RB211-535EU Wilmington Trust Co. Boeing 757-2B7 RR RB211-535EU According to John Wm. Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, the Leased Aircraft and Engines no longer fit into the Debtors' business plan and are no longer utilized. In the case of each Leased Aircraft and Engines, Mr. Butler notes, the leases do not have any marketable value that would benefit the Debtors' estates, making the Leases burdensome. Thus, Mr. Butler asserts, rejection of the Leases is in the best interests of the Debtors' estates and creditors and an exercise of the Debtors' sound business judgment. Furthermore, Mr. Butler relates, the liens against the Owned Aircraft and Engines possessed by the mortgagees exceed their value, leaving no equity for the estates. Consequently, the Owned Aircraft and Engines are burdensome and should be abandoned. The abandonment is "as is, where is" and the Debtors make neither representation nor warranties regarding the abandoned Owned Aircraft and Engines. ----------------------------------------------------------------- [00066] DEBTORS' MOTION TO EMPLOY ORDINARY COURSE PROFESSIONALS ----------------------------------------------------------------- John Wm. Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, relates that US Airways Group customarily retains the services of attorneys, accountants, and other professionals in the ordinary course of business. During the course of these bankruptcy cases, additional Ordinary Course Professionals have been and may be retained. Thus, the Debtors seek the Court's authority to employ the Ordinary Course Professionals pursuant to Sections 105(a) and 327 of the Bankruptcy Code, and compensate them for services rendered, without additional Court approval. Mr. Butler informs the Court that prior to the Petition Date, the Debtors employed Ordinary Course Professionals for services on tax preparation and other tax advice, employee relations and compensation, corporate legal advice, legal representation on issues like personal injury and commercial matters, real estate consulting, and other matters requiring the expertise and assistance of professionals. Mr. Butler explains that it is too costly and inefficient for the Debtors to submit individual application and proposed retention orders of the numerous Ordinary Course Professionals. In addition, Mr. Butler speculates that many Ordinary Course Professionals might be unwilling to render services if they may be paid only through a formal application process. If the expertise and background knowledge of these Ordinary Course Professionals are lost, Mr. Butler says, the Debtors' estates will undoubtedly incur additional and unnecessary expenses because the Debtors will be forced to retain other professionals that are not so familiar with their business and operations. It would take additional time and effort to properly orient other professionals. The Debtors propose to pay, without formal application to the Court, 100% of the postpetition interim fees and disbursements to each Ordinary Course Professional when an invoice is submitted providing reasonable detail of the services rendered. The interim fees and disbursements should not exceed $40,000 per month per Ordinary Course Professional. All payments to Ordinary Course Professionals will become subject to approval upon application to the Court for allowance of compensation and reimbursement of expenses pursuant to Sections 330 and 331 of the Bankruptcy Code if the payments exceed $40,000 per month. Excluding Key Ordinary Course Professionals, the Debtors anticipate that the total fees paid to Ordinary Course Professionals will be between $450,000 and $550,000 per month. At the present time, the Debtors employ two Key Ordinary Course Professionals that may receive over $40,000 per month: (a) Fried, Frank, Harris, Shriver & Jacobson, and (b) Groom Law Group. When the fees payable to a Key Ordinary Course Professional exceed the $40,000 monthly limit, on the month following the invoice, the firm will submit a monthly statement for additional compensation to: * US Airways Group, Inc. 2345 Crystal Drive Arlington, VA 22227 Attn: Michelle V. Bryan * Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive, Suite 2100 Chicago, Illinois 60606 Attn: John Wm. Butler, Jr. * McGuireWoods LLP 1750 Tysons Boulevard, Suite 1800 McLean, Virginia 22102-4215 Attn: Lawrence E. Rifken * The United States Trustee 115 South Union Street, Plaza Level, Suite 210 Alexandria, Virginia 22314 * Counsel to the Debtors' postpetition lenders * Counsel to any official committee formed in these cases These parties will have 20 days to review the Monthly Statement and object to the fees requested by the Key Ordinary Course Professionals. If any of the Parties object, then the Key Ordinary Course Professionals will be required to submit a formal application to the Court. Furthermore, the Debtors ask the Court to exempt Ordinary Course Professionals from submitting separate applications for proposed retention. Instead, the Debtors propose that each attorney Ordinary Course Professional will file with the Court and serve upon the Parties an Affidavit. The United States Trustee, any creditors' committee, and the postpetition lenders will have 20 days after the receipt of each Ordinary Course Professional's Affidavit to object to the retention. The objecting party will serve objections upon the Parties and the Ordinary Course Professional on or before the Objection Deadline. If an objection cannot be resolved within 20 days, the matter will be scheduled for hearing before the Court at the next regularly scheduled omnibus hearing date. If no objection is received within 20 days after the filing of an Affidavit, the Debtors will be deemed authorized to retain Professional. The Debtors promise to file a statement with the Court every 120 days and serve the statement on the United States Trustee, counsel for their postpetition lenders, and counsel for any official committees, containing: (a) the name of such Ordinary Course Professional; (b) the aggregate amounts paid as compensation and reimbursement of expenses incurred during the 120 days; and (c) a general description of the services rendered by each Ordinary Course Professional. ----------------------------------------------------------------- [00067] DEBTORS' MOTION TO FIX NOVEMBER 4, 2002 CLAIMS BAR DATE ----------------------------------------------------------------- US Airways Group asks Judge Mitchell to establish: (a) November 4, 2002 as the deadline, or General Bar Date, for all entities holding or wishing to assert a claim against the Debtors to file a Proof of Claim; (b) an Amended Bar Date -- the later of the General Bar Date or 30 days after a claimant is served with notice that the Debtors have amended their schedules of assets and liabilities reducing, deleting, or changing the status of a scheduled claim -- as the deadline for filing a proof of claim necessitated by the Debtors amending their Schedules; (c) except as set forth in an order authorizing rejection of an executory contract or unexpired lease, the later of the General Bar Date or 30 days after the effective date of any order authorizing the rejection of an executory contract or unexpired lease, or the Rejection Bar Date, as the bar date by which a proof of claim regarding Debtors' rejection of the contract or lease must be filed; and (d) February 7, 2003 as the deadline for all governmental units, as defined in section 101(27) of the Bankruptcy Code, to file a proof of claim in these cases. John Wm. Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, asserts that the facts justify setting the Bar Dates at this time. The Debtors will file their Schedules of Assets and Liabilities and Statements of Financial Affairs by September 25, 2002. The Debtors have made significant progress in their evaluation of various strategic alternatives. To develop a comprehensive, viable plan of reorganization, the Debtors will require complete and accurate information about the nature, amount and status of all Claims that will be asserted. As the Debtors have stated publicly to all parties-in-interest, their goal is to emerge from bankruptcy by December 31, 2002, or earlier. Establishment of Bar Dates at this time will advance the process. The Debtors intend to file a plan of reorganization and disclosure statement before termination of exclusivity. The requested General Bar Date should allow the Debtors to ascertain the number and amount of claims in various classes and finalize the terms of a plan of reorganization and disclosure statement prior to solicitation of votes. The Bar Dates would apply to all entities holding Claims against the Debtors -- whether secured, priority or unsecured -- that arose prior to the Petition Date, including: a. Any Person or Entity whose Claim is listed as "disputed," "contingent," or "unliquidated" and that desires to participate in any of these Chapter 11 cases or share in any distribution in these Chapter 11 cases; b. Any Person or Entity whose Claim is improperly classified in the Schedules or is listed in an incorrect amount and that desires to have its Claim allowed in a classification or amount other than set forth in the Schedules; and c. Any Person or Entity whose Claim against a Debtor is not listed in the applicable Debtors' Schedules. Parties that need not file proofs of claim are: 1. Any Person or Entity that agrees with the nature, classification, and amount of the Claim set forth in the Schedules and whose Claim against a Debtor is not listed as "disputed," "contingent," or "unliquidated" in the Schedules; 2. Any Person or Entity that has already properly filed a proof of claim against the correct Debtor; 3. Any Person or Entity asserting a Claim allowable under Sections 503(b) and 507(a)(1) of the Bankruptcy Code as an administrative expense of the Debtors' Chapter 11 cases; 4. Any of the Debtors or any direct or indirect subsidiary of any of the Debtors that hold Claims against one or more of the other Debtors; 5. Any Person or Entity whose Claim against a Debtor previously has been allowed by, or paid pursuant to, an order of the Bankruptcy Court; and 6. Any holder of equity securities of the Debtors with respect to the holder's ownership interest in or possession of equity securities, provided, that any holders who wish to assert a Claim against any of the Debtors based on transactions in the Debtors' securities, including, but not limited to, Claims for damages based on the purchase or sale of such securities, must file a proof of claim on or prior to the General Bar Date. Mr. Butler emphasizes that the Debtors intend to retain the right to dispute, or assert offsets or defenses against any filed Claim or any Claim listed or reflected in the Schedules as to nature, amount, liability, classification, or otherwise. The Debtors also retain the right to designate any Claim as disputed, contingent, or unliquidated. However, if the Debtors amend the Schedules to reduce the undisputed, non-contingent, and liquidated amounts or to change the nature or classification of a Claim, then the affected claimant will have until the Amended Bar Date to file a proof of claim or to amend a previously filed proof of claim regarding the amended scheduled Claim. Creditors may assert Claims in connection with a Debtor's rejection of executory contracts and unexpired leases. The Debtors propose that, for any Claim relating to a Debtor's rejection of an executory contract or unexpired lease that is approved by the Court, the bar date for filing any such Claim will be the Rejection Bar Date. Any person that fails to timely file a proof of claim will be forever barred, estopped, and enjoined from: (a) asserting any Claim against the Debtors, and (b) voting upon, or receiving distributions under, any plan or plans of reorganization in respect of an Unscheduled Claim. The Debtors will serve the initial notices of the Bar Date on or before October 5, 2002. Potential claimants will have 30 days to file their Claims after receiving the Bar Date Notice and Proof of Claim Form. For any Proof of Claim Form to be validly and properly filed, a signed original of the completed Proof of Claim Form, together with accompanying documentation, must be delivered to the Claims and Noticing Agent at the address set forth on the Bar Date Notice and received no later than 4:00 p.m., EST, on the respective Bar Date. Creditors will be permitted to submit proofs of claim in person or by courier service, hand delivery or mail. Facsimile submissions will not be accepted. Proofs of claim will be deemed filed when received by the Claims and Noticing Agent. All Persons and Entities asserting Claims against more than one Debtor are required to file a separate proof of claim form for each Debtor. If Persons and Entities are permitted to assert Claims against more than one Debtor in a single proof of claim form, the Claims and Noticing Agent may have difficulty maintaining separate Claim registers for each Debtor, and all Debtors will be required to object to a proof of claim that may be applicable to only one. Likewise, Persons and Entities should be required to identify the particular Debtor against which their Claim is asserted on each proof of claim form. Mr. Butler explains that this will expedite the Debtors' review of proofs of claim and will not be unduly burdensome on claimants since the Persons and Entities will know or should know the identity of the Debtor against which they are asserting a Claim. The Debtors also intend to give notice of the Bar Date Notice by publication in: -- The New York Times (national edition), -- The Wall Street Journal (national & European editions), and -- USA Today (worldwide). The notices will be published on October 5, 2002. Given this time frame and the proposed Bar Dates, Mr. Butler asserts, creditors will have sufficient notice, time and opportunity to file their Claims. ----------------------------------------------------------------- [00068] DEBTORS' MOTION TO ASSUME 4 SPECIAL TRUST FUND AGREEMENTS ----------------------------------------------------------------- Prior to the Petition Date, US Airways Group established four Special Purpose Trust Funds to provide additional mechanisms for third-party beneficiaries to make contributions. Since the assets of the Funds are not the property of the estates, the Debtors will be required to make them available to the ultimate beneficiary, regardless of the outcome of the Chapter 11 cases. By this motion, the Debtors seek the Court's authority to assume these Special Purpose Trust Fund Agreements. 1. Trust #1 Pursuant to the Special Purpose Trust 1 Agreement dated May 15, 2002, between US Airways, Inc., as grantor, and Merrill Lynch Trust Company, a federally chartered savings bank, as trustee, a trust was established to manage the funds collection and payment to the federal government for federal income tax withholding, employment taxes, transportation excise taxes and security related charges. The Debtors transfer sufficient funds to the Special Purpose Trust 1 to cover the estimated accruals for all federal taxes and charges. The Trust subsequently pays relevant authorities when the funds are due. The Debtors do not retain any right, title or interest in any property it transfers to the Special Purpose Trust 1. 2. Trust #2 Pursuant to Special Purpose Trust 2 Agreement dated of May 28, 2002, between USAI and MLTC, a trust was established to manage the funds collection and payment to state and local authorities, agencies and entities for any and all state and local income tax withholding, employment taxes and related charges and fees including, state and local payroll withholding taxes, unemployment and supplemental unemployment taxes, disability taxes, workman's or workers' compensation charges and related charges and fees. The Debtors periodically transfer 115% of the accruals of the State and Local Employment-Related Trust Fund Taxes and Charges to Trust 2. The amounts accrued in the Special Purpose Trust 2 are paid to the state and local authorities, agencies and entities responsible for the collection of the respective Taxes and Charges. The Debtors do not retain any right, title or interest in or to any property it transfers to the Special Purpose Trust 2. 3. Trust #3 Pursuant to Special Purpose Trust 3 Agreement dated of May 28, 2002, between USAI and MLTC, a trust was established to manage the funds collection and payment to various administrators, institutions, authorities, agencies and entities in connection with Passenger Facility Fees and Charges. The Debtors transfer 172% of one months' average PFC liability to the Special Purpose Trust 3. The amounts accrued in the Special Purpose Trust 3 are paid to the relevant administrators, institutions, authorities, agencies and entities responsible for the PFCs. The Debtors do not retain any right, title or interest to any property it transfers to the Special Purpose Trust 3. 4. Trust #4 Pursuant to Special Purpose Trust 4 Agreement, and together with the Special Purpose Trust 1 Agreement, the Special Purpose Trust 2 Agreement and the Special Purpose Trust 3 Agreement, dated June 21, 2002, between USAI and MLTC, Special Purpose Trust 4 was established to manage the funds collection and payment to federal government or other non-federal government administrators, institutions, authorities, agencies, entities and other third parties in connection with: (i) Non-Statutory Payroll Deductions, whether authorized by the employee, imposed by court order, agreed to pursuant to collective bargaining arrangement or otherwise; and/or (ii) the Federal-Related and Federal Security Tax-Instituted Trust Fund Taxes and Charges. The Debtors transfer to the Special Purpose Trust 4 estimated amounts that are due for the Non-Statutory Payroll Deductions and/or the Federal-Related and Federal Security Tax-Instituted Trust Fund Taxes and Charges. The amounts accrued in Special Purpose Trust 4 are paid to the plan administrators, institutions, entities, authorities or agencies, responsible for the collection and/or intended as recipients of the respective Payroll Deductions or Trust Fund Taxes and Charges. The Debtors do not retain any right, title or interest to any property it transfers to the Special Purpose Trust 4. Trust Agreements Must Be Assumed John Wm. Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, tells the Court that there are unperformed continuing obligations for both the Debtors and MLTC under the Special Purpose Trust Agreements. The Debtors have a continuing obligation to instruct MLTC to make payments to the respective third parties, and MLTC have a continuing obligation to manage and administer the Special Purpose Trust Funds in accordance with their Terms. Mr. Butler explains that it is in the Debtors' best interest to assume the Special Purpose Trust Agreements since the Debtors intend to continue to operate their businesses and will be required to collect taxes and other amounts to be held in trust for the benefit of third parties. "If the relevant third parties do not receive the payments, the Debtors and their directors and officers could be subject to fines, penalties and personal liability," Mr. Butler warns. ----------------------------------------------------------------- [00069] DEBTORS' MOTION TO GIVE PRIORITY TO RECLAMATION CLAIMS ----------------------------------------------------------------- US Airways Group asks the Court to grant administrative treatment to any valid claim of any Seller: * who timely demands, in writing, reclamation of goods pursuant to Section 546(c)(1) of the Bankruptcy Code and Section 2-702 of the Uniform Commercial Code, * whose Goods the Debtors have accepted for delivery, * who properly identifies the Goods to be reclaimed and proves the validity and amount of its reclamation claim, and * whose Goods the Debtors do not agree to make available for pick-up by the Seller. The Debtors also seek the Court's authority to make the Goods available Goods for pick-up by any reclaiming seller: * who timely demands reclamation, in writing, pursuant to Section 546(c)(i) of the Bankruptcy Code and Section 2-702 of the UCC, * whose Goods have been accepted for delivery, and * who properly identifies the Goods to be reclaimed, provided that the Debtors agree to return the Goods as opposed to granting to the Seller an administrative claim or other consideration. The Debtors expect to receive numerous reclamation claims pursuant to Section 546(c) of the Bankruptcy Code. John Wm. Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, asserts that it is of paramount importance for the Debtors to maintain normal business operations and avoid costly and distracting Reclamation Claims litigation. If the Debtors are unable to establish a global set of reclamation procedures, they will be faced with the prospect of simultaneously defending multiple reclamation adversary proceedings at a time when they need to focus on the reorganization process. Mr. Butler believes that many of the Reclamation Claims may be valid. While no party concedes that any of the elements necessary to prove a right of reclamation will be shown by any of the vendors, the Debtors seek to adopt a uniform procedure for determining and settling all valid Reclamation Claims so that related litigation does not interfere with reorganization efforts. Proposed Reclamation Procedures All Sellers seeking to reclaim Goods from the Debtors will be required to submit a Reclamation Demand. The Reclamation Demand must specify the goods that reclamation is sought and the basis for the Reclamation Claim. Any Seller who fails to timely submit a Reclamation Demand pursuant to Section 546 of the Bankruptcy Code will have waived its right to payment on a purported Reclamation Claim. Within 45 days after the Petition Date or receipt of a timely Reclamation Demand, the Debtors will provide the Seller with a copy of the Reclamation Order and a Statement of Reclamation. The Statement of Reclamation will detail the extent and basis, if any, upon which the Debtors believe the underlying Reclamation Claim is not legally valid. The Statement will identify any defenses that the Debtors choose to reserve, not withstanding any payment of the Reconciled Reclamation Claim. Sellers who are in agreement with the Reconciled Reclamation Claim may indicate their assent on the Statement and return it to the Debtors' representative with copies to: Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive, Suite 2100 Chicago, Illinois 60606 Attn: John Wm. Butler, Jr., Esq. and John K. Lyons, Esq. - and - McGuireWoods LLP 1750 Tysons Boulevard, Suite 1800 McLean, Virginia 22102-4215 Attn: Lawrence E. Rifken Sellers who disagree with the Reconciled Reclamation Claim must indicate their dissent on the Statement and return it to the Debtors and related parties. A dissenting Statement of Reclamation must be accompanied by: (1) a copy of the Reclamation Demand with evidence of the date the Reclamation Demand was sent and received; (2) the identity of the Debtor that ordered the products and the identity of the Seller; (3) evidence demonstrating when the Goods were shipped and received; (4) copies of the respective Debtor's and Seller's purchase orders and invoices with a description of the Goods shipped; and (5) a statement identifying the information on the Statement that is incorrect, specifying the correct information and stating any legal basis for the objection. The failure of a Dissenting Seller to materially comply with these procedures will constitute a waiver of the right to object to the proposed treatment and allowed amount of the Reclamation Claim unless the Court orders otherwise. Any Seller who fails to return the Statement of Reclamation by the 60-day deadline or who returns the Statement of Reclamation by the deadline but fails to indicate assent or dissent will be deemed to have agreed to the Reconciled Reclamation Claim. The Debtors will negotiate with all Dissenting Sellers to adjust the Reconciled Reclamation Claim to reach an agreement. The Debtors also will include any Reserved Defenses as part of any agreement. In the event the Debtors and a Dissenting Seller are able to settle on the amount and/or treatment of the Claim, the Reclamation Claim will be deemed an Allowed Reclamation Claim in the settled amount. In the event that no consensual resolution of the Dissenting Seller's Reclamation Demand is reached within the 60-day deadline, the Debtors will file a motion for determination of the Dissenting Seller's Reclamation Claim and set a hearing at the next regularly scheduled omnibus hearing. The Debtors may satisfy a Reclamation Claim or Allowed Reclamation Claim by making the Goods at issue available for pick-up by the Seller. All Allowed Reclamation Claims for which the Debtors choose not to make the Goods available for pick-up will be paid in 25% increments over four consecutive fiscal quarters. If a plan of reorganization is confirmed prior to the completion of payments, the balance still owed will be paid as an administrative expense. The Debtors seek the Court's authority to reconcile and pay Allowed Reclamation Claims pursuant to the Reclamation Procedures without need for further Court order. In the event that an Allowed Reclamation claim is paid earlier than the effective date of a confirmed plan of reorganization, the payments will be subject to reserved defenses. The Debtors expressly reserve their rights to object on any grounds to any claim filed by the Sellers. ----------------------------------------------------------------- [00070] RICHARD SWEET ET AL'S MOTION FOR RESTRAINING ORDER ----------------------------------------------------------------- In a handwritten letter to the Court, US Airways Employees -- Richard L. Sweet, William C. Hayes, Fredrick Ripper, Adam Christopher, Kevin L. Owens, Keith A. Owens, Nina Rucker, and Tom Tucker -- allege that they and their families have received death threats from members of the International Association of Machinists and US Airways Group's management. The Employees relate that they began receiving the threats after they filed requests for investigation of the fraudulent actions allegedly committed by certain members of US Airways' middle and top management. Thus, the Employees ask the Court to: -- hold all their personal information, including addresses and phone numbers as confidential; -- enjoin the Debtors' employees and IAM members, who issued the threats, from coming within 100 feet of them; -- authorize the Debtors to grant them a paid leave of absence, until this matter is resolved; -- order the Debtors and the IAM member to refrain from causing them physical or emotional harm; and -- enjoin the Debtors from terminating individuals that sign any of the pleadings entered in relation to the investigation. ----------------------------------------------------------------- [00071] DEBTORS' APPLICATION TO EMPLOY O'MELVENY AS LABOR COUNSEL ----------------------------------------------------------------- See prior entry at [00048]. Motion granted. ----------------------------------------------------------------- [00072] DEBTORS' MOTION FOR ORDER TO MAINTAIN CONFIDENTIALITY ----------------------------------------------------------------- See prior entry at [00031]. Motion granted. ----------------------------------------------------------------- [00073] DEBTORS' APPLICATION TO EMPLOY LOGAN AS CLAIMS AGENT ----------------------------------------------------------------- See prior entry at [00048]. Motion granted. ----------------------------------------------------------------- [00074] DEBTORS' MOTION TO REJECT 57 AIRCRAFT LEASES ----------------------------------------------------------------- See prior entry at [00049]. Motion granted. ----------------------------------------------------------------- [00075] DEBTORS' MOTION TO REJECT 25 REAL PROPERTY LEASES ----------------------------------------------------------------- See prior entry at [00051]. Motion granted. ----------------------------------------------------------------- [00076] US AIRWAYS RENEGES ON TENTATIVE AGREEMENT WITH ALLEGHENY ----------------------------------------------------------------- WASHINGTON, D.C. -- August 27, 2002 -- In a strange turn of events, the US Airways Group, Inc. has forced Allegheny Airlines and its pilots, as represented by the Air Line Pilots Association, International, out of a Tentative Agreement, based on an issue related to successorship. The Tentative Agreement was reached on August 11, 2002, to address the US Airways Group's restructuring plan. While the US Airways Group has made no specific indication that it plans to sell Allegheny, a wholly owned subsidiary, the Group says it will withdraw the tentative agreement unless the successorship clause can be amended. As agreed to, the clause states that if Allegheny is sold or if any transfer or change of control of the company is implemented, with the exception of a merger with another wholly owned subsidiary, the original terms of the Allegheny pilots' contract would be reinstated. Allegheny and its pilots have conducted contract talks since April 2002 to address the US Airways Group's weakening financial position. The Group received approval for a $900,000,000 guarantee of a conditional $1,000,000,000 Air Transportation Stabilization Board loan, subject to certain terms including concessions from its employees. On August 11, 2002, the US Airways Group filed for Chapter 11 bankruptcy. Acting Master Executive Council Chairman John Carlisle, leader of ALPA's Allegheny pilot unit, stated, "We're perplexed by this last-minute change in position. Pulling the tentative agreement from the table leads us to wonder if US Airways wanted Allegheny and its pilots to have this deal in the first place." Allegheny Airlines operates as a US Airways Express carrier and serves 38 cities in twelve states in the eastern United States with over 380 daily flights. ----------------------------------------------------------------- [00077] US AIRWAYS IMPLEMENTS PRICING CHANGES ----------------------------------------------------------------- ARLINGTON, Virginia -- August 27, 2002 -- US Airways has introduced a new set of policies designed to ensure its ability to continue to offer low fares for its most cost-conscious customers, while protecting the value of less restrictive fares for business travelers. The policies continue to reward higher paying passengers with options that reflect their willingness to pay more for their tickets in exchange for added benefits and flexibility. In addition, fees for various services are being implemented and fare rules and restrictions are being strictly enforced. "These changes are a necessary response to the rapidly- changing marketplace for air travel," said B. Ben Baldanza, senior vice president of marketing at US Airways. "Economic pressures continue to impact both air travelers and the airline industry. US Airways is seeking to retain valuable benefits for our premium travelers while trimming costs in a manner that allows us to maintain low fares for cost-conscious travelers to the hundreds of communities in our system." Effective immediately, non-refundable fares for all US Airways domestic, Caribbean, U.S. to and from Canada and U.S. to Europe destinations must be used for the specifically ticketed flight and will have no value once the flight has departed. Changes may be made to the non-refundable itineraries before scheduled departure, subject to certain restrictions and fees. Under the previous policy, the value of an unused non-refundable ticket could be credited toward the purchase of another US Airways ticket, less the applicable reissue fee, for up to one year. "This change makes purchasing airline tickets like many other products that people buy for a specific date and time such as Broadway shows and sporting events. If you miss the event, your ticket isn't good for the next day," said Baldanza. "Since most people travel as originally ticketed, most customers will not be impacted by this change. This policy does not change our commitment to provide a high level of service to all US Airways passengers." Ray Pierce, chairman of Washington D.C.-based Executive Travel Associates, a member of the Travel Management Alliance, said, "This is the most sensible thing that US Airways can do. It makes a non-refundable ticket truly nonrefundable and allows the airline to price accordingly. I applaud US Airways for taking this action. I'm glad an airline has the business sense to do this." Other Policy Changes to Non-refundable Fares * Customers ticketed on non-refundable fares will continue to earn full Dividend Miles credit. Effective for travel Jan. 1, 2003, and beyond, miles and segments earned on most non-refundable fares will not count toward Dividend Miles Chairman's Preferred, Gold Preferred and Silver Preferred status. * Corporate discount programs will no longer be applicable for certain non-refundable fare classes, generally those with advance purchase and minimum stay requirements. * Customers who have non-refundable tickets will not be allowed to stand-by for alternate flights. * Tour and consolidator tickets will become non-refundable and have no value after the ticketed travel date. "Customers have clearly shown their preference for low fares. These moves allow US Airways to offer these fares in a more economic way while maintaining the benefits extended to higher paying passengers, such as the ability to refund and exchange tickets, stand-by for other flights and earn Dividend Miles credit toward Preferred status," said Baldanza. In addition to the rule changes, US Airways, like other carriers, has implemented the following changes: * Customers ticketed on non-refundable fares will continue to earn full Dividend Miles credit. Effective for travel January 1, 2003, and beyond, miles and segments earned on most non-refundable fares will not count toward Dividend Miles Chairman's Preferred, Gold Preferred and Silver Preferred status. * Existing fare rules and restrictions, as well as policies on the collection of fees, will be strictly enforced. * Customers ticketed by US Airways that qualify for an e- ticket and request a paper ticket will be charged $25 per ticket. * On transatlantic flights, alcoholic beverages will no longer be offered for free to Economy class passengers. * US Airways also has reduced its utilization of certain distribution channels, including online sites which do not specify the airline prior to the travel purchase, and domestic consolidators. The airline will continue to focus on making its lowest fares available on its Web site and via other effective low-cost channels. "US Airways is recognizing a new competitive reality and tailoring our product accordingly," Baldanza said. "These incremental changes will be the first of many that will positively impact our bottom line. By improving US Airways' revenues and our long-term viability, we will provide customers with continued competition and choice in the marketplace." ----------------------------------------------------------------- [00078] US AIRWAYS MAKES CHANGES DUE TO DEMAND & AIRCRAFT RETURNS ----------------------------------------------------------------- ARLINGTON, Virginia -- August 30, 2002 -- US Airways has published a fall and winter schedule that provides detail for prior announcements that the airline would reduce overall capacity by 13% in response to the continued industry-wide decline in air traffic demand and previously announced plans to return 32 aircraft to leasing companies. The new schedule will be phased in, in conjunction with the return of aircraft, by Nov. 2, 2002. The schedule affirms the airline's commitment to continue flights to its 203 communities. Nearly half of those will have the same or increased service, with 71 communities unchanged and 26 communities with additional seats available in the marketplace. US Airways also is maintaining service to all of its European destinations while continuing its plans to expand the number of seats flown to the Caribbean by 25 percent and to add new service to Mexico and Central America. The November schedule includes 36 additional weekly flights from Charlotte, N.C. In addition, subject to foreign government approval, there will be new weekly flights from Philadelphia to St. Kitts and Grenada, and new daily flights from Reagan Washington National to Nassau. On Dec. 1, 2002, US Airways will also add two additional flights per week from Charlotte to Cozumel, Mexico. Subject to foreign government approval, beginning Dec. 14, 2002, US Airways plans to provide additional new year-round service and 4 flights per week from Charlotte to Punta Cana, Dominican Republic, one of the fastest growing destinations in the Caribbean. US Airways has also filed an application with the U.S. Department of Transportation to begin daily nonstop roundtrip flights between Charlotte and Costa Rica's capital, San Jose, beginning as early as February 2003. Subject to U.S. and foreign government approvals, the San Jose service will operate year round as US Airways' second destination in Central America. With the new routes, US Airways, US Airways Express and the GoCaribbean Network will serve more islands than any other carrier and offer service to more than 30 Caribbean destinations. US Airways Express is also adding new service to New York LaGuardia Airport with three new roundtrip flights daily from Roanoke and seven new roundtrips from Washington Dulles. In summary, the November schedule results in a total reduction of approximately 200 daily US Airways mainline jet departures and 100 daily regional jet and turboprop flights. "US Airways is taking the necessary steps to match air traffic demands to our fleet and network capabilities," said B. Ben Baldanza, US Airways senior vice president of marketing and planning. "In doing so, we have maintained our ability to continue serving all 203 communities while offering US Airways customers excellent customer service. Also, as a priority throughout this process, we have focused on preserving convenient access and connections to and from our international destinations." ----------------------------------------------------------------- [00079] MACHINISTS AT US AIRWAYS SPLIT ON RESTRUCTURING PROPOSALS ----------------------------------------------------------------- WASHINGTON D.C. -- August 29, 2002 -- Mechanic & Related and Fleet Service Employees at US Airways, voting separately on similar proposals, took different paths yesterday in nationwide voting on company-proposed restructuring plans. Of Mechanical & Related employees casting votes, 57% rejected the proposal. US Airways' Fleet Service employees voted 62% in favor of a separate proposal. Earlier this month, US Airways presented recovery proposals to each group at the airline. The International Association of Machinists and Aerospace Workers represent both groups. District 141-M represents 6,800 Mechanical and Related employees. District 141 represents US Airways' 5,400 Fleet Service Employees. "The changes approved by the Fleet Service membership will be made to their agreement," said IAM General Vice President Robert Roach, Jr. "Our attorneys are prepared to defend our Mechanical & Related members and their contract in bankruptcy court." "The bankruptcy filing is only the first step of a long legal process, and our members can be assured we will defend their rights throughout these proceedings. We will continue to look to the membership for guidance and their decisions will be respected and defended." Details about the proposals can be found on the District 141 web site at http://www.iam141.org/ and the District 141-M web site at http://www.iam141m.org/ The approved Fleet Service restructuring proposal will take effect on September 1, 2002. The IAM is the largest transportation union in North America representing 150,000 airline and railroad employees in the United States and Canada, including 12,000 at US Airways. Please visit http://www.goiam.org/ for more information about the Machinists Union. US Airways' Reaction ARLINGTON, Virginia -- August 29, 2002 -- US Airways' fleet service workers, represented by the International Association of Machinists (IAM) District 141, yesterday ratified an agreement on the company's restructuring plan by a 62 percent margin, while the mechanics and related workers, represented by District 141-M, rejected an agreement by a 57 percent margin. "Our fleet service workers have demonstrated outstanding personal commitment and vision in accepting this agreement. We are grateful for their decision to voluntarily participate in US Airways' restructuring," said David Siegel, US Airways president and chief executive officer. "Their personal sacrifice is an enormous contribution to help set US Airways back on the path to financial health." "We are extremely disappointed by the vote of our mechanics," said Siegel. "While we continue to work hard to achieve voluntary agreements with all of our labor groups, we now regrettably must pursue changes to the mechanics' contract through the bankruptcy court if we are unable to quickly reach a new agreement." In addition to this ratification by the fleet service workers, US Airways has restructuring plan agreements in place with its pilots, represented by the Air Line Pilots Association; flight attendants, represented by the Association of Flight Attendants; simulator engineers, dispatchers, and the flight crew training instructors, each represented by the Transport Workers Union; and Maintenance Training Specialists, represented by the IAM. No agreement has yet been reached with the Communications Workers of America, representing US Airways' 7,200 reservations sales representatives and ticket counter representatives. At US Airways' request, the U.S. bankruptcy court has set a hearing date of Sept. 10, 2002, when US Airways will seek relief from existing contracts that do not include modifications as part of the restructuring plan. ----------------------------------------------------------------- [00080] MACHINISTS & US AIR DISCUSS MECHANIC'S PROPOSAL REJECTION ----------------------------------------------------------------- WASHINGTON D.C. -- August 30, 2002 -- At the request of US Airways' CEO David Siegel, IAM General Vice President Robert Roach, Jr. and Airline Coordinator Jim Varsel met briefly with Siegel and the carrier's Vice President of Labor Relations Doug McKeen yesterday at the company's headquarters in Arlington, VA. The company representatives stressed that an integral element of its restructuring plan is equal participation among all employees. Siegel claimed that it would be impossible for a successful restructuring to take place unless the Mechanic and Related and CWA represented employees participate at the same levels as other employee groups. By 57% US Airways' 6,800 Mechanic and Related employees, represented by IAM District 141-M, rejected a company proposal calling for $160,000,000 in cost reductions from the group on August 28, 2002. Voting on a separate company proposal, the carrier's 5,400 Fleet Service employees, represented by IAM District 141, ratified the company plan by a 62% margin. "We informed US Airways that the Machinists Union is well aware of our obligation to discuss these issues under Section 1113 of the U.S. Bankruptcy laws," said Roach. "However, our members have clearly spoken and our actions will be guided by their decision." A September 10, 2002 hearing is scheduled in U.S. Bankruptcy Court in Alexandria, VA to consider US Airways' application for relief from the Mechanic and Related collective bargaining agreement. "The IAM will aggressively oppose the application to abrogate and/or modify the collective bargaining agreement," said Roach. No further discussion between the Machinists Union and US Airways are currently scheduled. *** End of Issue No. 5 *** ------------------------------------------------------------------------- Peter A. Chapman peter@bankrupt.com http://bankrupt.com ------------------------------------------------------------------------- Recommended Reading: Professor Stuart Gilson's newest title, "Creating Value Through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups." List Price: $79.95 -- Discounted to $55.96 at http://amazon.com/exec/obidos/ASIN/0471405590/internetbankrupt -------------------------------------------------------------------------