The airline industry's financial crisis deepened Sunday as cash-strapped US Airways Group Inc., the nation's seventh-largest carrier, filed for bankruptcy protection for the second time in two years.
The Arlington, Va.-based airline mainly serves the Eastern half of the country, but its service includes 27 daily departures from California, including 11 from Los Angeles and five from San Diego.
Sunday's filing under Chapter 11 of the U.S. Bankruptcy Code allows US Airways to continue to operate while restructuring its debt. The company said that customers "should notice no changes to flight operations or customer service" and that its frequent-flier program remained intact.
But industry analysts said that US Airways' situation was dire and that it was possible the airline's reorganization would eventually dissolve into a liquidation that would ground the carrier forever.
"I would say it's 50-50 at this point," said Ray Neidl, an analyst at Calyon Securities in New York.
If so, it would launch a long-awaited shakeout of the industry, as other big airlines slash costs to survive in today's low-fare market or exit altogether.
"This is the beginning of the big restructuring of the industry," Neidl said. "Names will disappear."
Indeed, US Airways' filing means that two of the nation's largest airlines are flying in bankruptcy -- No. 2 United Airlines has been in reorganization for 18 months. Third-ranked Delta Air Lines is dangerously close to seeking Chapter 11 bankruptcy protection as well.
All are suffering because they have labor contracts and other operating costs, along with enormous debts, that are far too high to be covered by today's declining ticket prices.
Passenger traffic is strong industrywide and planes are flying relatively full. But travelers increasingly are turning to low-cost, low-fare airlines and demanding similar prices from their larger rivals, which is driving fares down across the board.
Under Chapter 11, a company continues operating but past debts are effectively frozen. The company is protected from creditors' lawsuits for payment while it works out a restructuring plan that must be approved by both creditors and the court. Creditors often see repayment of only a few cents on the dollar.
If US Airways does liquidate, taxpayers could find themselves on the hook. When the airline emerged from its previous bankruptcy in March 2003, it obtained a $900-million loan guarantee from the federal Air Transportation Stabilization Board, which was set up after the Sept. 11 terrorist attacks to help the airlines.
