================================================================= US AIRWAYS BANKRUPTCY NEWS Issue Number 8 ----------------------------------------------------------------- Copyright 2002 (ISSN XXXX-XXXX) September 20, 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 ------------- [00108] DEBTORS' MOTION FOR INVESTMENT PROPOSALS & PLAN SPONSOR [00109] RSA'S MOTION FOR STALKING HORSE BIDDER STATUS [00110] DEBTORS' MOTION TO PAY PREPETITION EMPLOYEE OBLIGATIONS [00111] DEBTORS' MOTION TO REJECT 10 MORE AIRCRAFT LEASES [00112] DEBTORS' MOTION TO ASSUME AGREEMENT WITH DINERS' CLUB [00113] DEBTORS' EMERGENCY MOTION TO CONTINUE SURETY BONDS [00114] DEBTORS' MOTION TO RESTRICT CLAIM TRADING & PRESERVE NOLs [00115] USAIR MACHINISTS RATIFY RESTRUCTURING PROPOSAL [00116] CWA MEMBERS RATIFY USAIR RESTRUCTURING AGREEMENT [00117] USAIR INTRODUCES NEW FALL & WINTER FARE SALE [00118] ATA LENDS SUPPORT FOR USAIR'S CODE SHARE AGREEMENT KEY DATE CALENDAR ----------------- 08/11/02 Voluntary Petition Date 08/31/02 Deadline to provide Utilities with adequate assurance 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 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 ----------------------------------------------------------------- [00108] DEBTORS' MOTION FOR INVESTMENT PROPOSALS & PLAN SPONSOR ----------------------------------------------------------------- See prior entries at [00055], [00027] and related entries at [00026], [00010] (Debtors' Motion To Obtain $500,000,000 DIP Financing Pact). RSA: Bidding Procedures Unfair The Retirement Systems of Alabama, headed by David Bronner, is one of the largest creditors of US Airways and a prospective bidder. RSA is an agency of the State of Alabama, which: -- administers the State's retirement funds for public school teachers and public employees, including the Employees' Retirement System and the Teachers' Retirement System, -- offers information and services to members of those retirement systems, and -- acts as agent for its various constituent funds who hold claims against the Debtors in these cases. RSA controls retirement funds having assets over $25 billion. Lorraine S. McGowen, Esq., at Orrick, Herrington & Sutcliffe, tells Judge Mitchell that RSA, as one of USAir's aircraft lenders, holds notes and certificates that total $340,000,000 issued in connection with the financing of at least 28 Boeing and Fokker-100 airplanes and related equipment. RSA is in the process of negotiating these claims with the Debtors. Ms. McGowen asserts that the Debtors' proposal seems innocuous at first glance. It appears to be simply a set of interrelated motions seeking approval of DIP Financing and Bidding Procedures. But upon closer examination, Ms. McGowen observes that the Debtors have dictated the structure and terms of the Debtors' de facto plan of reorganization, and selected TPG as the new money investor. By virtue of the Court's approval of the agreement with TPG, the DIP Financing, the Bidding Procedures and the assumption of the TPG Agreements, the Debtors have guaranteed that Texas Pacific Group Partners III, LP will ultimately be the winning "plan sponsor" for the reorganized Debtors. Ms. McGowen notes that it would appear that the safe choice would be to ratify the Debtors' prepetition selection of TPG as a source of financing and approve the proposed Bidding Procedures. However, TPG has not committed itself to the proposed transaction. In contrast, Ms. McGowen says, modifying the bidding procedures to ensure fairness and to maximize return and authorizing the Debtors to enter into the same agreements with RSA offering more money at zero fees poses much less risk to the Debtors, creditors and other parties-in-interest. RSA is offering a $240,000,000 investment for a 37.5% stake in USAir with a zero transaction fee while TPG offers a $200,000,000 investment for the same stake with a $10,000,000 transaction fee. At a bare minimum, Ms. McGowen contends that the estates should not be bound to firm commitments and penalties to TPG without reciprocal binding commitments and penalties from TPG. RSA objects to that portion of the Bidding Procedures that are designed to chill, rather than enhance, the opportunities for other prospective new money investors to submit and obtain approval of a competitive investment proposal. Among other things: * Competing bidders are required to match the structure of a deal which is not yet finalized; * The Bidding Procedures do not create a level playing field for all; instead TPG has unnecessary and unfair advantages, including an opportunity to "match" the last bid of a competing bidder; * Competing bidders could be compelled to refinance advances made by Lenders other than TPG under the DIP Financing; * The Debtors should not be the sole arbiter of all key discussions; and * TPG's Fees are unreasonable and burdensome. Furthermore, Ms. McGowen outlines the aspects of the Bidding Procedures that RSA asserts are unfair: * The competing bidder must agree to provide a cash amount of no less than $200 million, notwithstanding that the amount of the actual cash investment to be made by TPG is unclear; * The competing bidder must disclose the identity of all participants providing funding for the proposal or authorizing participating in the transaction; TPG on the other hand, has made no such disclosure; * The competing bidder must make a cash deposit equal to $20 million or 10% of the total proposed investment or provide an irrevocable letter of credit, even though TPG has not made any deposit; * The competing bidder must demonstrate, to the Debtors' sole satisfaction, an ability to close the transaction; * The competing bidder must provide for a refinancing of the DIP Financing provided by TPG within 3 business days of selection as the winning plan sponsor and for any financing provided by other DIP lenders who request repayment; * The competing bidder must provide for funding and a mechanism that will facilitate confirmation and consummation of a Chapter 11 plan in the timeframe proposed by the Debtors; and * The competing bidder may not provide for allowance of a break-up fee or termination fee or similar fee. "If the Debtors are truly interested in maximizing the returns to creditors, they will want to start the auction with the stalking horse bidder that provides the most money at the cheapest costs to the estate," Ms. McGowen asserts. The more the Debtors resist recognizing RSA as the stalking horse, the more one has to question whether the auction process is illusory. In addition, during these critical weeks, only TPG has been able to conduct due diligence and to participate in, if not direct, negotiations with labor, aircraft lenders and other parties. As a consequence, Ms. McGowen says, TPG will be the only bidder "in the know". Moreover, Ms. McGowen points out that David Bonderman, the President of TPG, Advisors III, Inc., an affiliate of TPG, is a long-standing friend of officers of, and financial advisor to, the Debtors and was described by the New York Times as the "vulture king". While the relationship between Mr. Bonderman and current management might not constitute a conflict of interest per se, Ms. McGowen asserts, it underscores the need to scrutinize carefully the transactions to ensure that the financing and bidding package being offered to the Debtors is in the best interest of the estates and all parties-in-interest. ----------------------------------------------------------------- [00109] RSA'S MOTION FOR STALKING HORSE BIDDER STATUS ----------------------------------------------------------------- See prior related entries at [00108], [00055], [00027] (Debtors' Motion For Investment Proposals & Plan Sponsor) and [00026], [00010] (Debtors' Motion To Obtain $500,000,000 DIP Financing Pact). By this motion, the Retirement System of Alabama asks the Court to authorize US Airways Group to select RSA as the alternative "stalking horse" bidder so that the Debtors may enter into an alternative memorandum of understanding and investment agreement with RSA. Lorraine S. McGowen, Esq., at Orrick, Herrington & Sutcliffe, informs the Court RSA is prepared to make a 20% higher investment in the Debtors for zero fees yielding approximately $50,000,000 more for the Debtors' estates and their creditors. Clearly, RSA's offer is more favorable to the Debtors and other parties- in-interest than the terms contained in the Bidding Procedures Motion. Ms. McGowen illustrates the difference between RSA and TPG's offers: Investor Fees Proposed Investment Stake -------- ---- ------------------- ----- TPG $10,000,000 $200,000,000 37.5% RSA $0 $240,000,000 37.5% Ms. McGowen admits that RSA's motion was not filed in time to allow the normal 15 days notice prior to the September 26th hearing. Ms. McGowen explains that it was impossible, despite diligent efforts, for RSA to file its Motion prior to September 19th. The reason: RSA didn't get the information it needed from USAir to make its offer. According to the RSA, it would be in the interest of the Debtors and all parties-in-interest and of judicial economy to expedited the hearing on this motion so that its request will be considered at the September 26th hearing -- when parties from all over the country will be assembled on this date to consider the approval of TPG as investor and plan sponsor. "There would be a substantial savings in legal fees and travel expenses if RSA's Motion were considered at this regularly scheduled omnibus hearing," Ms. McGowen says. Moreover, there will be a fuller and fairer hearing on the issues raised, if they are considered simultaneously rather than piecemeal. Ms. McGowen assures Judge Mitchell that no party-in-interest will be prejudiced by allowing the RSA Motion to be heard on September 26th. Creditors can only benefit to the extent that RSA has proposed terms that are more favorable than the terms proposed by TPG. In short, there is no "downside" for creditors. Conversely, RSA and other creditors will be prejudiced if the RSA Motion were denied consideration until after September 26th. In addition to the added cost of and delay inherent in requiring a separate hearing, consideration of the TPG Motions separately would give TPG an unfair advantage, because there may be a tendency to favor approval of TPG as the stalking horse bidder simply because there is no present alternative at the September 26th hearing. ----------------------------------------------------------------- [00110] DEBTORS' MOTION TO PAY PREPETITION EMPLOYEE OBLIGATIONS ----------------------------------------------------------------- See prior entries at [00104], [00083], [00040] and [00020]. Flight Attendants & Pilots Back IAM In separate memoranda, the Association of Flight Attendants, AFL- CIO, and the Airline Pilots Association International join the International Association of Machinists and Aerospace Workers, AFL-CIO, in asking the Court to vacate the Order permitting US Airways Group to pay $6,000,000 in management bonuses. On behalf of AFA, Robert S. Clayman, Esq., at Guerrieri, Edmond & Clayman, questions whether the employees to receive the bonus can be considered "key". On behalf of ALPA, Richard M. Seltzer, Esq., at Cohen, Weiss & Simon, points out that the Pilots have already agreed to huge wage benefit concessions that will save USAir several billion dollars. "USAir executives should not receive millions of dollars in bonuses for prepetition services while bargaining unit employees face substantially reduced compensation or lay-offs. This is not equitable and can only undermine overall employee morale necessary for reorganization," Mr. Seltzer argues. The Pilots do not believe these payments are necessary for the Debtors to reorganize. Furthermore, Mr. Seltzer continues, the ALPA is disgruntled by the insufficient information provided in the Motion to describe these payments. Mr. Seltzer notes that the Motion did not identify the employees involved, the compensation proposed, or the performance standards to be met. Committee Supports Debtors On the other hand, the Official Committee of Unsecured Creditors of US Airways Group believes that the order authorizing the Debtors to pay the prepetition employee obligations should remain in full force and effect. Scott Hazan, Esq., at Otterbourg, Steindler, Houston & Rosen, relates that the Committee, together with its counsels and financial advisors, has reviewed the Motion and has conducted due diligence on the revised incentive compensation plan. The Committee has concluded that the proposed payments are within the reasonable exercise of the Debtors' business judgment. Although the Committee supports the existing Order, Mr. Hazan explains that the Committee would welcome a consensual resolution of the concerns raised by the International Association of Machinists and Aerospace Workers, AFL-CIO and the Association of Flight Attendants, AFL-CIO. ----------------------------------------------------------------- [00111] DEBTORS' MOTION TO REJECT 10 MORE AIRCRAFT LEASES ----------------------------------------------------------------- See prior entry at [00065]. Objections (1) Key Equipment Finance, et al Jon Yard Arnason, Esq., at Vedder, Price, Kaufman & Kammholz, represents these objecting parties: -- Key Equipment Finance, -- Banc One Leasing Corporation, -- GMAC Commercial Credit, -- Hare & Co., -- Sun Life Assurance Company of Canada, -- National Liberty Corp., -- Principal Mutual Life Insurance, -- Black Diamond, -- MW Post Advisory Group, -- Bear Stearns, -- Pan-American Life Insurance Co., -- State Mutual Insurance, Var & Company, and -- Gerlach & Co. Mr. Arnason tells Judge Mitchell that the Debtors have offered no justification for the rejection of the leases. The Debtors are required to demonstrate that the rejection is for the purposes authorized by the Bankruptcy Code, not to impermissibly favor one creditor over another. Because many of these aircrafts are subject to leveraged leases, Mr. Arnason says, the unsecured claim created by rejection may vary greatly from one transaction to another, depending on, inter alia, the claims arising under the tax indemnity provision of each participation agreement. The Debtors have offered 5-year operating leases at greatly reduced rentals to many of the aircraft lessors. Therefore, Mr. Arnason suspects that this Rejection Motion may only be a tactical maneuver to force renegotiation of the leases, which can only be determined by discovery. Otherwise, this lease rejection to force renegotiation is an improper use of Section 365 of the Bankruptcy Code. Furthermore, Mr. Arnason notes that the Debtors have made no commitment to return the Aircraft with the correct engines or with the necessary documents. Applying, by analogy, Section 1110 of the Bankruptcy Code, Congress has clearly stated that the special nature of aircraft mandates return in strict compliance with the terms of each lease. As required by the lease, the Debtors should be directed to fly the Aircraft to a location selected by the lessor. The cost to the Debtors is significantly less than if the lessor or mortgagee has to arrange for a ferry flight. The Debtors should also be required to pay rent until they are able to return the Aircraft with the proper engines and records. The Lessors are entitled to discovery and, Mr. Arnason asserts, the Motion cannot be granted until after discovery and an evidentiary hearing. (2) Wachovia Bank Peter A. Ivanick, Esq., of LeBoeuf, Lamb, Greene & MacRae, tells the Court that Wachovia is an indenture trustee to five of the eight Leased Aircraft and Engines to be rejected. Wachovia also is an indenture trustee for 37 other leased aircraft and engines and owner trustee of 29 other leased aircraft and engines. Mr. Ivanick clarifies that Wachovia does not object, per se, to the Debtors' proposed return of the Wachovia Aircraft and Engines, but rather to its terms and conditions. Mr. Ivanick observes that the Debtors' motion does not offer any explanation how "possession of the Leased Aircraft and Engines" will be "relinquished" or how the Wachovia Aircraft and Engines will be made "available". Indeed, it appears that the Debtors could simply send a letter to Wachovia advising that the Debtors have relinquished "possession." The Debtors do not propose to relinquish the Aircraft at any particular location. The Debtors do not provide assurance that the Engines are even installed on the Leased Aircraft. In addition, Mr. Ivanick continues, no information is given on the arrangements made by the Debtors for using the Aircraft and Engines pending relinquishment. According to Mr. Ivanick, Wachovia does not know the current condition of the Leased Aircraft and Engines. Although the Debtors propose to relinquish "possession" of the Leased Aircraft and Engines no later than September 15, 2002, the Debtors propose to relinquish "possession" of the related books and records related to the Leased Aircraft and Engines as late as September 29, 2002. Wachovia could be in "possession" of the Aircraft and Engines two or more weeks before the Debtors relinquish "possession" of the related books and records that would conceivably allow Wachovia to assess the condition of the Aircraft and Engines. The Debtors propose no mechanism for Wachovia to obtain any documentation, which may be incomplete, Mr. Ivanick adds. In addition, Mr. Ivanick notes, the Debtors do not address how much they will pay Wachovia for postpetition use of the Aircraft and Engines. The Debtors have been using the Aircraft and Engines for over a month since the date of the Debtors' bankruptcy petition. No payments have been made to Wachovia for this usage nor have any discussions occurred about payment for this usage. The Debtors should be required to: (a) identify the proposed location(s) of the Wachovia Aircraft and Engines, (b) reinstall, at the Debtors' own expense, any Engines that have been removed so that the Wachovia Engines are returned to the Wachovia Aircraft in which they were originally installed, (c) make the books and records related to the Wachovia Aircraft and Engines available to Wachovia within 24 hours after the entry of an order authorizing rejection of the Leases, and (d) provide Wachovia a period of not less than eight weeks after the entry of an order authorizing rejection of the Leases to inspect the Wachovia Aircraft and Engines and report to Debtors any defects or deficiencies on the Aircraft and Engines. Debtors Respond John Wm. Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, contends that the Debtors are not required to go into great detail regarding the process by which they selected the Rejected Aircraft and Engines. "The Debtors already have explained that the Rejected Aircraft and Engines no longer fit into their business plan and, are being taken out of service," Mr. Butler says. To the extent that the Debtors' ability to reject leases facilitates negotiations of a better cost-structure, Mr. Butler asserts that this is clearly a proper use of Section 365 of the Bankruptcy Code and consistent with the Debtors' fiduciary duty to maximize the value of their estates for the benefit of all creditors and other parties-in-interest. "If a lessor does not want to negotiate with the Debtors, that is its choice," Mr. Butler says. Mr. Butler explains the Leases associated with Key Equipment Financing, et al, are being rejected because they are among the most expensive when studied in the context of ownership costs and near-term maintenance. "The Rejected Aircraft and Engines are highly burdensome to the Debtors, thus the failure to reject the affiliated Leases would constitute bad business judgment," Mr. Butler points out. Mr. Butler also argues that Key Equipment et al's argument and Wachovia's request that the Debtors should reinstall the Rejected Engines on the original Aircraft, at their own expense, are incorrect. "Once a lease is rejected, the bankrupt estate is no longer bound by its terms," Mr. Butler contends. The Debtors agree with Wachovia that, prior to the return of the Rejected Aircraft and effectiveness of rejection, the Debtors will send to the financiers a rejection notice that will include the location of the Rejected Aircraft and/or Engines. The Debtors promise to make the records and documents related to the Rejected Aircraft and Engines available to Wachovia and, no later than September 29, 2002, relinquish possession of the records and documents. * * * After due deliberation, Judge Mitchell allows USAir to reject the leases. ----------------------------------------------------------------- [00112] DEBTORS' MOTION TO ASSUME AGREEMENT WITH DINERS' CLUB ----------------------------------------------------------------- By this motion, the Debtors seek the Court's authority to assume and ratify an agreement dated January 16, 1992, between US Airways Group and Diners Club. John Wm. Butler, Jr., Esq., tells the Court that assumption of this Agreement will enhance the Debtors' liquidity position and avoid disruption to a significant tender payment choice for US Airways' customers. According to Mr. Butler, credit card sales represent a substantial source of the Debtors' revenues. For example, during 2001, the Debtors generated $8,700,000,000 in gross receipts for purchases made by credit card; this is 68% of the total gross receipts generated by the Debtors. In the first quarter this year, gross receipts based on credit card purchases reach $2,000,000,000, or 77% of total gross receipts. Approximately 81% of credit card charges are originated at travel agencies, including those operated through Diners Club. The other 19% are initiated at the Debtors' sales outlets at airports and city ticket counters, by mail and telephone, and through the Internet. Mr. Butler assures Judge Mitchell that other than the continuation of ordinary course payments, there are no immediate costs associated with the assumption and ratification of the Diners Club Agreement. Moreover, in connection with the proposed assumption and ratification of the Agreement, Diners Club has agreed to maintain its ordinary course relationship with the Debtors, notwithstanding the commencement of the Debtors' chapter 11 cases. The Agreement specifies a discount rate that reduces the amount of credit card receivables that are paid by Diners Club to the Debtors. These discount rates, as well as the other terms of the Agreement, are highly confidential but fall within the range of customary industry discount rates. These discount rates are subject to additional adjustments as specified in the Agreement. The Diners Club Agreement has an initial term of three years, subject to renewal for successive one-year terms, unless cancelled. Approximately 5% of the Debtors' credit card sales are paid for with Diners Club cards. The Debtors will permit Diners Club cardmembers to use their Diners Club cards to purchase airline tickets and/or other travel-related services on a current or extended payment basis. The Debtors also accept Diners Club cards in payment for tickets for travel on other airlines purchased in conjunction with tickets issued by the Debtors. This is consistent with airline industry interlining standards. The Debtors then submit all charges to Diners Club. Diners Club pays the Debtors for all charges prepared and submitted in accordance with the Charge Agreement, less the discount rate. Diners Club then bills its cardmembers for their respective purchases. Diners Club makes its payments to the Debtors regardless of whether the Diners Club cardholders have paid for their purchases. Tickets issued in connection with sales to Diners Club cardmembers are not refundable in cash, except as may be required by law, but instead are treated as a credit to those cardmembers' accounts pursuant to the terms of the Agreement. For 2001 and the first quarter of 2002, Diners Club refunds averaged 16% of gross outstanding sales. Mr. Butler tells the Court that there are unperformed continuing obligations for the Debtors and Diners Club. For example, the Debtors are under a continuing obligation to honor ticket purchases made by credit card holders. Diners Club, on the other hand, must pay the Debtors for all credit card charges submitted by the Debtors. As such, the Assumed Agreement constitutes an executory contract assumable under Section 365 of the Bankruptcy Code. The Debtors intend to continue flights and transportation service in the ordinary course of business during these Chapter 11 cases in order to preserve consumer confidence. To do so, assumption of the Diners Club Agreement is vital. As the largest source of the Debtors' revenues, credit card sales are an absolutely essential component of the Debtors' business. After the assumption of the Diners Club Agreement, revenues for tickets paid for by Diners Club should remain at or above prepetition levels and ticket returns (in the wake of the Debtors' Chapter 11 filing) should be kept to a minimum. "It will be impossible for the Debtors to reorganize if the revenues that it regularly receives from Diners Club are not available and could be very detrimental to the Debtors' operational and reorganization efforts," Mr. Butler says. ----------------------------------------------------------------- [00113] DEBTORS' EMERGENCY MOTION TO CONTINUE SURETY BONDS ----------------------------------------------------------------- John Wm. Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, informs Judge Mitchell that USAir, in the ordinary course of business, is required to provide surety bonds to secure the payment or performance of various obligations, including: landing fees, real estate lease obligations, workers' compensation obligations, and fuel expenses. One of these bonds, issued to the U.S. Customs Service, is set to expire on September 28, 2002. The failure to replace these bonds would jeopardize the Debtors' ability to conduct their international operations. Accordingly, the Debtors want to ensure that this bond can be replaced. In an emergency motion, the Debtors seek the Court's authority to obtain surety bonds secured by cash collateral or other collateral consisting of cash equivalents, and/or backed by letters of credit, for a maximum of $16,000,000. Prior to the Petition Date, the Debtors obtained surety bonds from Travelers Casualty and Surety Company of America under three related agreements: (1) General Contract of Indemnity dated August 31, 2001, (2) Collateralized Bond Surety Program Registered Pledge And Master Security Agreement dated September 4, 2001, and (3) Pledged Collateral Account Agreement dated August 30, 2001. As of the Petition Date, $12,000,000 in surety bonds were issued and outstanding. The surety bonds were fully collateralized by $9,100,000 of cash collateral, which includes cash equivalents, and $3,300,000 of letters of credit issued to Travelers. The Debtors have been unable to obtain surety bonds on an unsecured basis. After reviewing their options, the Debtors determined that ratification and continuation of the current surety bond program with Travelers is their best option at present. As part of the consideration to Travelers to continue to issue surety bonds to USAir, the Debtors agreed that the automatic stay of Section 362 of the Bankruptcy Code should be lifted to allow Travelers to liquidate the cash collateral, including cash equivalents and letters of credit, to repay any obligations under the Surety Documents. By providing this relief in advance of any surety bond being drawn upon, the obligations to Travelers, including accrued interest and attorneys' fees and costs incurred in filing a motion for relief from stay, will be minimized. * * * Accordingly, Judge Mitchell grants the Debtors' request. ----------------------------------------------------------------- [00114] DEBTORS' MOTION TO RESTRICT CLAIM TRADING & PRESERVE NOLs ----------------------------------------------------------------- See prior entries at [00056], [00028]. John Hancock Doesn't Like It John Hancock Life Insurance Company objects to the Order Establishing Notification and Hearing Procedures for Trading in Claims and Equity Securities. Peter L. Borowitz, Esq., at Debevoise & Plimpton, explains that the Claims Trading Procedures are too broad and unduly impinge on the rights of creditors. Hancock would not object to an order establishing claims trading procedures that were more properly narrowed. To determine whether to grant relief from the automatic stay to permit a creditor to make a transfer that may affect a potential NOL of the estate, courts must balance the interests "of all creditors and equity security holders in preserving the NOL against the interest of the individual applicant in realizing a significant benefit from the sale or transfer." In re Phar-Mor, Inc., 152 B.R. 924, 927 (Bankr. N.D. Ohio 1993) (relied on by Debtors). In cases like In re Prudential Lines, Inc., 928 F.2d 565 (2d Cir. 1991), where a corporate parent, the quintessential insider, sought to deprive the estate of the NOL by claiming for itself a "worthless stock deduction," the equities clearly favor protecting the NOL. Here, Mr. Borowitz says, the Debtors are not asking the Court to protect potential NOLs from an asset grab by an insider, but to establish procedures that restrict the fundamental right of non- insider creditors, and potentially deprive them of the significant benefit from a sale or transfer of their claims. "If the Court is to establish claims trading procedures, the procedures should be crafted in a way that equitably balances the protection of the NOL and creditors' right to transfer their claims," Mr. Borowitz asserts. Mr. Borowitz points out that the $50,000,000 threshold applies to aggregate claims regardless of what portion is secured or undersecured. The Debtors' Voluntary Petition lists debts in excess of $7,800,000,000, not including the Debtors' significant lease rental obligations. If the Debtors are not distinguishing between secured and unsecured claims, then 5% percent of the Debtors' scheduled debt is $390,000,000, not $50,000,000; and 5% of the total scheduled debt and lease rentals is closer to $500,000,000. In addition, Mr. Borowitz notes, the Claims Trading Procedures would require a creditor to give USAir 30 days' notice of a Proposed Transfer, before the creditor could move the court for relief from the automatic stay if the Debtors object to the Proposed Transfer. In conjunction with the Case Management and Administrative Procedures Order, the Claims Trading Procedures, for example, could require a creditor to wait over 60 days for a hearing for relief from the stay. "This is unwarranted, particularly where the existing procedures pursuant to the Bankruptcy Rules only require 15 days' notice of a motion for relief from the automatic stay," Mr. Borowitz complains. Moreover, Mr. Borowitz observes, the Debtors have set forth no justification for restricting the rights of creditors to transfer their claims in excess of that provided for under the Bankruptcy Rules. The Claims Trading Procedure should be modified to require only 10 days notice, Mr. Borowitz asserts. The Claims Trading Procedures should also be modified to make clear who is a "beneficial owner." For example, Mr. Borowitz illustrates, it is not clear whether "direct or indirect ownership" is intended to include or exclude loan participants in the leveraged leases of USAir's aircraft, where the lease claims are owned by an owner trustee for the benefit of the equity participants and are pledged by the owner trustee to secure the loan participants. Mr. Borowitz tells the Court that clarifying this definition now will avoid unnecessary costs to the Debtors' estates and burdens on all parties in interest trying to determine who is or is not a beneficial owner for the purposes of the Claims Trading Procedures. Louella Benson Also Objects Without giving any explanation, stockholder Louella F. Benson tells the Court that she objects to the "arrangements" and she reserve all rights. Ms. Benson owns 500 shares of USAir's common stock. ----------------------------------------------------------------- [00115] USAIR MACHINISTS RATIFY RESTRUCTURING PROPOSAL ----------------------------------------------------------------- WASHINGTON, D.C. -- September 18, 2002 -- Mechanic & Related employees at US Airways today ratified contract amendments proposed by the company as part of the bankrupt carrier's restructuring program. The vote carried by 57%, according to the International Association of Machinists and Aerospace Workers. Today's vote marks the second time US Airways' Mechanic & Related employees were polled on the company's restructuring proposal. An initial vote, held on August 28, 2002, resulted in membership rejection. A re-vote was scheduled after US Airways' CEO David Siegel acknowledged statements he made prior to the initial vote might have led to confusion over the consequences of rejection. "Bankruptcy proceedings are complex and can have serious consequences for employees," said IAM District 141-M President Scotty Ford. "The decision to hold a re-vote was made when it was clear that numerous employees received misleading information." The proposal ratified today covers US Airways' 6,800 Mechanic & Related employees represented by IAM District 141-M. The carrier's 5,400 Fleet Service Employees, represented by IAM District 141, approved a separate US Airways proposal on August 28, 2002. "Ratification of this proposal restricts US Airways from seeking further cost reductions from IAM members in bankruptcy court," said Ford. The IAM is the largest transportation union in North America representing 150,000 airline and railroad employees in the United States and Canada. ----------------------------------------------------------------- [00116] CWA MEMBERS RATIFY USAIR RESTRUCTURING AGREEMENT ----------------------------------------------------------------- WASHINGTON, D.C. -- September 18, 2002 -- US Airways passenger service agents have ratified a new contract settlement which will help the troubled airline through wage and other concessions while giving employees access to new jobs and setting up a process to strengthen retirement security. The group, including 8,000 active employees, is represented by the Communications Workers of America, and includes reservations agents, ticket counter and gate agents and employees at US Airways Club locations. The settlement was approved by 75% of those who participated in the ratification balloting, which was overseen by the American Arbitration Association. The new contract, which runs through Jan. 1, 2009, sets a top salary rate of $20.05 per hour (an 8% cut) along with a 25- cent per hour customer contact premium. There are no salary reductions for those earning less than $30,000 a year. Salaries will begin increasing on Jan. 1, 2005, rising in increments by 8.75% over the next four years. The employees agreed to other concessions -- most of them temporary -- in the areas of health care, overtime pay, vacation pay and holidays -- but were also able to make gains in other areas. These include improvements in the 401(k) savings plan, a 2% distribution of post-bankruptcy stock, new jobs at US Airways Express and Internet services, and union recognition at Mid Atlantic Airways, a new airline created by US Airways. The settlement also calls for a joint task force to explore development of a defined benefit pension plan as close to Jan. 1, 2003 as possible. The agents lost their previous pension plan 12 years ago before they had union representation. More details on the settlement can be found at: http://www.cwa.net/ CWA represents a total of 700,000 workers overall in telecommunications, journalism, broadcast and cable TV, electronics manufacturing, and the public sector, as well as the airline industry. USAir Reacts "We are extremely pleased with the decision of our employees to willingly support the Company's restructuring plan and we applaud them for sharing in the sacrifices necessary to restore our Company to financial health," said Jerry A. Glass, US Airways senior vice president of employee relations. "We also appreciate the efforts of the CWA leadership during this difficult period." ----------------------------------------------------------------- [00117] USAIR INTRODUCES NEW FALL & WINTER FARE SALE ----------------------------------------------------------------- ARLINGTON, Virginia -- September 18, 2002 -- US Airways has introduced new Fall/Winter season sale fares designed to jump- start travel demand as it heads into the typically slow Winter travel season. The sale, which is valid for travel across the US Airways system, offers customers ticket prices as low as $78 roundtrip in some markets. Customers booking online through usairways.com can take an additional 5% off of the sale price in select markets. "We have announced a Fall schedule that preserves service to our entire network of 203 cities. We want to give our passengers more reasons to choose us this Fall and Winter by introducing some great travel bargains," said B. Ben Baldanza, US Airways senior vice president of marketing and planning. For flights in the U.S., these sale fares are available when completing travel by Dec. 11, 2002, in most markets (in select markets by Jan. 23, 2003). Tickets must be purchased at least seven days before departure (14 days in select markets), and no later than Sept. 20, 2002. One Saturday-night stay is required in most markets (a three-night minimum stay requirement in some markets). The lowest fares generally are available when traveling midweek. Customers visiting Europe as part of this seasonal sale must travel Oct. 1, 2002, through Dec. 12, 2002, or Dec. 25, 2002, through March 31, 2003 (for London and Manchester, England, Oct. 1 through Dec. 17, 2002, and Dec. 24, 2002, through March 31, 2003). Tickets must be purchased at least seven days before departure and no later than Sept. 19, 2002. One Saturday-night stay is required. The lowest fares are available when traveling Monday through Thursday, except for the United Kingdom, which is Monday through Wednesday. Tickets for travel to and from the Caribbean must be purchased at least seven days before departure and no later than Sept. 20, 2002, with all travel completed by Dec. 12, 2002. US Airways serves Antigua only on Saturdays and St. Lucia on Saturdays and Sundays. The lowest fares are available when traveling Monday through Thursday. All fares under this sale are nonrefundable. These nonrefundable tickets will have no customer value if not used as ticketed or changed before departure of each segment. EXAMPLES OF US AIRWAYS' LOW ROUNDTRIP SALE FARES City-City Roundtrip Price --------- --------------- Albany, N.Y. - Baltimore (BWI) $78 Rochester, N.Y. - Tampa, Fla. $168 Chicago (O'Hare) - Philadelphia $178 Providence, R.I. - Fort Lauderdale $178 Indianapolis - Washington (Reagan Nt'l/Dulles) $182 Dallas/Fort Worth - Pittsburgh $198 Orlando, Fla. - Seattle $198 Albany, N.Y. - Phoenix $218 Buffalo, N.Y. - Los Angeles $218 Manchester, N.H. - Los Angeles $218 Boston - Denver $258 Charlotte, N.C. - San Francisco $258 International Routing Fare Sale ------------------------------- New York LaGuardia - Santo Domingo $284 Baltimore (BWI) - Grand Cayman $304 Detroit - Montego Bay $306 Washington (Reagan Nt'l/Dulles) - Bermuda $334 Hartford, Conn. - Barbados $362 Philadelphia - St. Thomas $376 Boston - Grand Bahama Island/Freeport $390 Columbus, Ohio - Nassau $394 Providence, R.I. - Aruba $394 Minneapolis - San Juan $412 Pittsburgh - London (Gatwick) $426 Baltimore (BWI) - Frankfurt $436 Boston - St. Maarten $446 Washington (Reagan Nt'l/Dulles) - Rome $486 Orlando, Fla. - Amsterdam $488 Rochester, N.Y. - Antigua $498 New Orleans - Paris (Charles de Gaulle) $508 Los Angeles - Manchester $564 Raleigh/Durham, N.C. - St. Lucia $594 Pittsburgh - Cancun $618 Seattle - Madrid $628 These sale fares do not include up to $18 airport passenger facility charges where applicable, and do not include federal excise tax of $3, which will be added on each flight segment of each itinerary. A flight segment is defined as a takeoff and a landing. The fares listed also do not include the September 11 Security Fee of up to $10 per itinerary. International fares do not include government-imposed taxes/fees/surcharges of up to $95. Seats are limited and may not be available on all flights at all times. Other conditions may apply and schedules are subject to change. Lower fares may be available in some markets. Tickets become nonrefundable 24 hours after making initial reservations and under certain conditions can be changed for a minimum $100 fee ($200 for Europe). Fares listed require roundtrip travel in Coach Class. Depending on travel needs, flights may be available at the same fares with part or all of the service on regional aircraft operated by US Airways Express carriers Allegheny, Air Midwest, CCAIR, Chautauqua, Colgan Air, Mesa, Piedmont Airlines, PSA, Shuttle America or Trans States. US Airways, the US Airways Express carriers and US Airways Shuttle provide service to 203 destinations worldwide, including 38 states in the U.S., Antigua, Aruba, Barbados, Bermuda, Cancun, Cozumel, Grand Bahama Island, Grand Cayman, Montego Bay, Nassau, San Juan, Santo Domingo, St. Lucia, St. Thomas, St. Maarten, and St. Croix. US Airways Express also serves North Eleuthera, Governors Harbour, Marsh Harbour and Treasure Cay from Florida. In Canada, US Airways serves Toronto, Montreal, and Ottawa. US Airways' European destinations are Amsterdam, Frankfurt, London, Madrid, Manchester, Munich, Paris and Rome. For more information on schedules and fares, contact US Airways reservations at 1-800-428-4322 (1-800-622-1015 for Europe, Bermuda and the Caribbean) or visit US Airways online at http://www.usairways.com/ ----------------------------------------------------------------- [00118] ATA LENDS SUPPORT FOR USAIR'S CODE SHARE AGREEMENT ----------------------------------------------------------------- WASHINGTON, D.C. -- September 19, 2002 -- As the U.S. Department of Transportation once again delays its decision regarding the proposed code share agreement between United Airlines and US Airways, Air Travelers Association President David S. Stempler today stated his support for the agreement in comments he filed with the Department. According to Stempler, "We support reasonable, prudent, and pro-competitive attempts by airlines to return to profitability. The proposed code share agreement does this without raising fares, fees, or other charges." Stempler stated, "Delaying this decision further hurts the two airlines involved and the passengers that they serve. After having lost billions of dollars, it is important for the network airlines to return to profitability so that they can continue to provide the safe and efficient air transportation that their passengers have come to rely on. The code share agreement between United and US Airways is a critical ingredient in the recipe for making that vision a reality for these two carriers, without doing any harm to their passengers or the marketplace." Following are the key points made by the Air Travelers Association in its filing. 1. Airline passengers will benefit from the United/US Airways code share agreement with: more single-airline destinations for United and US Airways passengers; more benefits for members enrolled in the carriers' frequent flyer programs; and more convenient connecting service between United and US Airways flights. 2. The code share agreement will preserve competition for consumers because: the airlines are not party to a merger or cross-ownership arrangement; the airlines will continue to compete with each other and with all other U.S. carriers for passenger enplanements; and the two carriers each retain control of their own scheduling, pricing, routes, and aircraft types. All of these benefits have been realized through the previously approved domestic code share arrangement between Northwest and Continental Airlines, which has not been anti-competitive. 3. The overriding airline competition issue -- airline competition would be significantly reduced if United Airlines or US Airways fails. The Air Travelers Association is a passenger-funded organization, based in Washington, D.C., and is a representative of its airline passenger members. The Association focuses on airline passenger safety, security, savings, and service. David S. Stempler, President of the Association, is an internationally known authority on airline, passenger, and travel issues. *** End of Issue No. 8 *** ------------------------------------------------------------------------- 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 -------------------------------------------------------------------------