A federal judge ruled Friday that US Airways can emerge from its second bankruptcy in three years, a decision that will allow the Arlington, Va.-based carrier to merge with America West Airlines to create the nation’s sixth largest airline.
If all goes as planned, the new US Airways will be born Sept. 27 in downtown Tempe.
The court ruling was the last hurdle for a deal that was announced in May. The two airlines say America West’s mostly western United States routes will combine nicely with US Airways routes in the East. The two will offer what they say will be low fares and a network to more than 200 cities across the United States, Canada, Mexico, Latin America, the Caribbean and Europe.
"It’s very significant, however it’s something we obviously anticipated," said Phil Gee, America West spokesman, of US Airways emergence from Chapter 11.
Gee said operations at Phoenix Sky Harbor International Airport will be combined Oct. 4 when US Airways will move from Terminal 2 to Terminal 4 where America West’s gates are. Temporary signs with both logos will go up next week to direct customers.
"There will still a lot America West tickets, so we’re telling customers ‘Look at your ticket. If your ticket says America West, go to the America West logo, if it says US Airways, go to the US Airways logo.’ That will help for checking in online and checking in on kiosks."
America West plans a farewell party on Tuesday at its Rio Salado Parkway headquarters.
After Friday’s hearing, Bruce Lakefield, chief executive of US Airways, said he is confident that the merger will succeed despite record fuel prices and tough competition in the industry.
"Ticket prices are going up,’’ he said. ‘‘You’ve got to face the fact that customers will have to pay for the product."
U.S. Bankruptcy Judge Stephen Mitchell’s ruling came just two days after Delta Air Lines Inc. and Northwest Airlines Corp. filed for bankruptcy protection.
"I have every hope and confidence that the airline will prosper in the future," Mitchell said.
Airline analyst Mike Boyd said the combined airline has its share of challenges, including integrating its two route systems.
"US Air has still got some severe revenue problems," said Boyd, of the Coloradobased Boyd Group. "Unlike say Northwest, who only had one or two areas of cost problems . . . US Air has a lot of them."
Combining the routes will take time, and US Airways may continue to bleed money, Boyd said.
While executives work on making the carrier the right size, the new US Airways may be vulnerable to competition from Southwest Airlines at US Airway’s hub in Charlotte, N.C.
"The linchpin in the value of what was US Airways is Charlotte," Boyd said, adding Southwest has about 16 more airplanes than it needs now thanks to a reduced schedule in hurricane-ravaged New Orleans. As a result, Southwest could schedule 20 flights a day into Charlotte, where US Airways has little competition allowing higher fares, he said.
"If Southwest decides to put a moderate operation into and out of Charlotte, that’s going to be a real fight for this entity going forward," Boyd said, adding the company could decide to fly from Charlotte to destinations like the Valley, Los Vegas, Los Angeles, Orlando, Fla., Nashville, Tenn. and Philadelphia.
Through restructuring in bankruptcy, US Airways reduced its debt, improved liquidity and strengthened it’s balance sheet, Lakefield said.
US Airways said equity and liquidity agreements reached in bankruptcy will provide merged airline with $2.5 billion in cash.
Investors have given $565 million in new money to the merger and a public stock offering is expected to raise another $150 million.
Business partners and suppliers will provide more than $700 million in cash, and asset sales and sale -leaseback agreements are expected to gross $300 million.
The merger is expected to create a airline with more than $10 billion in annual revenue and savings of more $600 million annually through cost reductions.
The judge approved the release of US Airways after he ruled on some last objections, including a plea from employee unions opposed to an executive severance package that will provide $12 million in pay to 11 top executives who will not be given jobs with the merged airline.
Mitchell approved the severance package, saying it was in line with executive contracts in the airline industry.
It was US Airways’ second Chapter 11 filing since August 2002.
The first filing came after federal regulators rejected a proposed merger with UAL Corp.’s United Airlines, followed by the industrywide collapse caused by the Sept. 11 attacks.
US Airways thought it had corrected its problems in the first bankruptcy, but it failed to anticipate rising fuel costs and rapidly increasing competition from low-cost carriers like Southwest Airlines, which began flying out of US Airways’ hub in Philadelphia.
US Airways is one of four major U.S. carriers in bankruptcy protection, along with United Airlines, Delta and Northwest.
Shareholders of America West will own about 37 percent of the new company. Outside investors, who supply $565 million in financing, will get an estimated 52 percent, and unsecured creditors of US Airways will receive about 12 percent stake.
MERGER QUESTIONS, ANSWERS
Q: Where and how do I book my reservations after the merger?
A: Continue to book with the airline you typically dealt with before the merger. The Web sites www.americawest.com and www.usairways.com will operate separately in the short term, as will the two airline’s reservations systems.
Q: Where do I check in after the merger?
A: Your ticket will indicate which airline operates your flight — check in with that airline if you are flying from an airport served by both America West and US Airways. Airport signs will be in place to direct you as well.
Q: How do I change existing reservations?
A: For e-tickets, you can make changes online at the airline from which you bought the tickets. Or, call reservations at the airline listed as the operating carrier on your ticket.
Q: What will happen to my frequent flyer miles?
A: Miles from both programs earned both before and after the merger will be honored. Customers with a membership in both programs will have unused miles automatically combined next year under the new Dividend Miles program.
Q: Where can I earn and burn miles?
A: Members will be able to accrue miles under either program. To redeem miles, Dividend Miles members must do so through US Airways, FlightFund members through America West.
Q: Will destinations on America West be available for Dividend Miles awards and vice-versa?
A: Yes, as markets become available through code-share arrangements between the two airlines. All frequent flyer features will be consolidated under one program early next year.
Q: Can I still check in online?
A: In the short term, check in online with the same airline from which you purchased your ticket. When codesharing begins between the two airlines, you may be redirected. Since you may check in online up to 24 hours in advance of your flight, allow some extra time in case you are redirected.
Q: Can I still check in with selfserve kiosks?
A: Yes, using kiosks matching the airline from which you purchased your tickets.