Bankrupt US Airways Group won access to an initial $75 million in emergency funding to operate through September and restructure its finances while protected from creditors.
The number six US airline hopes to emerge from bankruptcy protection in the first quarter of next year. The emergency funds are part of a $500 million financing package cobbled together by a group led by Credit Suisse First Boston and Bank of America Corp.
Judge Robert Mayer issued an interim order freeing up the initial funds now, with the remaining money to be considered at a September 26 follow-up hearing before the US Bankruptcy Court for the Eastern District of Virginia.
Approval of the financing package "should put to rest once and for all any questions about the financial viability of this airline," US Airways lawyer John Butler told the packed courtroom. "This should be transparent to our customers."
US Airways on Sunday became the first major US airline to seek protection from its creditors since air travel plummeted after the September 11 attacks, which added to the already huge losses in the industry that had piled up during the recession.
The Arlington, Virginia-based carrier on Sunday sought protection under Chapter 11 of the US Bankruptcy Code after a three-hour board meeting on Saturday. It reported $7.8 billion in assets and $10.7 billion in liabilities.
The bankruptcy filing was widely expected but rattled an industry still staggering because of business and leisure travel cutbacks linked to US economic woes and the aftermath of the September 11 attacks.
Butler told the court that the airline would attempt to emerge from bankruptcy protection within six to eight months and that it expected no service disruptions to the more than 200 cities served.
He said the $500 million in financing while in bankruptcy protection and another $200 million commitment after reorganising were "unprecedented commitments" that served as a strong message of confidence in the airline.
US Airways plans to ask at the September hearing for final approval of the entire $500 million debtor-in-possession financing package and would seek access to $175 million at that time, Butler said.
Access to the funds is tied to the airline's success in winning cost savings and other concessions from employees and gaining final approval of a $900 million federal loan guarantee.
US Airways plans to emerge from bankruptcy protection with the help of $200 million in financing pledged by Texas Pacific Group in return for a 38 per cent equity stake in the company.
The bankruptcy judge also approved two other motions, one that will allow US Airways to keep paying salaries and benefits. A second motion was approved to allow the airline to continue its frequent flier and other customer perk programmes.
"We believe that clearly that much of the relief being sought today is appropriate," Dennis Early, an attorney in the US Trustees office which oversees bankruptcies for the government, told the court.
Operations at one of US Airways' hubs, Ronald Reagan Washington National Airport, just a short distance from the bankruptcy court, were reported to be going smoothly, with few delays and no apparent cancellations.
"We don't notice any difference," said one mechanic, who declined to be identified. Trading in US Airways shares was delayed on the New York Stock Exchange. Shares closed at $2.45 on Friday.
US Airways is not the only airline in trouble. Three smaller carriers filed for bankruptcy earlier this year and UAL Corp.'s United Airlines is in serious financial trouble and is seeking $1.8 billion in government loan guarantees.
US Airways was the hardest hit of US airlines by September 11. The prolonged closure of Washington's Reagan National Airport after the attacks, higher security costs, recession and the reduction in travel at its eastern hubs all contributed significantly to US Airways' financial losses.
The airline slashed flights by 20 per cent after September 11 and cut 11,000 jobs. US Airways has the highest cost structure of any domestic airline, losing more than $500 million so far this year after nearly $2 billion in 2001.
It has deferred some debt payments and, in an effort to qualify for a federal loan guarantee, the company has sought more than $1 billion in annual cost savings by seeking concessions from employees, vendors and other creditors.
The airline has struck deals with its pilots and flight attendants, but negotiations continue with mechanics and gate workers.
The company set a Friday deadline for modifying its agreements with at least two unions otherwise it would seek court approval to reject the collective bargaining agreements.