NewsClippingsonBankruptcyCosts

NewsClippingsonBankruptcyCosts - Posted on Sat May 24 2003...

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Unformatted text preview: Posted on Sat, May. 24, 2003 61hr fiilabdphia jlmuim' Allegheny fees eat big part of payoff Lawyers are among those who seek $5.9 million more. That means less for other creditors. Associated Press PITTSBURGH - Lawyers and other professionals in the Allegheny Health, education and Research Foundation‘s bankruptcy case have collected fees of $42.7 million, or 256 percent more than planned - and now they want $5.9 million more, court records show. Last year's court-approved settlement allowed $12 million for legal, auditing, accounting and consulting services out of a total of $93.7 million for creditors of the defunct nonprofit hospital chain. ‘ru— U.S. Bankruptcy Judge M. Bruce McCullough of Pittsburgh will consider the fee requests at a hearing Tuesday. If they are approved, the lawyers and other professionals will have consumed more than half the pot. .___——————_ M Allegheny's Chapter 11 bankruptcy filing in 1998 represented the largest collapse of a nonprofit organization in U.S. history. At the time, its 14 hospitals, mostly in the Philadelphia and Pittsburgh areas, made it the largest health-care chain in the state. Its nine Philadelphia—area hospitals included Hahnemann and St. Christopher's Hospital for Children. Most now are owned by Tenet Healthcare Corp. Bankruptcy trustee William Scharffenberger of New York said the professional fees meant that other Allegheny creditors, who already were likely to recoup just pennies on the dollar, would get even less. So far, a Cleveland law firm representing unsecured creditors has gotten the most in legal fees. The firm, Jones Day Reavis & Pogue, has received $11.7 million - about what was set aside for all lawyers in the case, court records show. The hospital system failed because mismanagement resulted in the $1.4 billion debt that sent it into a tailspin. Allegheny's former chief executive officer, Sherif Abdelhak, pleaded guilty to misusing $30 million in the foundation's charitable endowments to paper over Allegheny's debts. He once made $2 million a year, but is now serving an 11 1/2-to—23—month term in alternative housing in Beaver County. Under the February 2002 settlement, about $56 million was to be placed into an estate for creditors, $22 million was to be returned to charitable endowments, and a group of doctors was to get about $4 million. The rest was to be used for legal and other fees. The money for the settlements came mostly from Allegheny's insurers, who paid $56.45 million. Mellon Bank, Allegheny‘s assets, and Allegheny General Hospital contributed the rest. The only Allegheny lawsuit still pending is one filed by unsecured creditors against the accounting firm PricewaterhouseCoopers L.L.P. The creditors contend that the accountants didn't properly disclose Allegheny's executive misconduct before the bankruptcy was filed. The worst of times; Economistcom 1 Global Agenda. London: Seg 17 2004-. That US Airways filed for chapter 11 bankruptcy at the weekend is hardly a surprise. America's seventh-largest airline had given warning since the spring that it could be forced to seek court protection from its creditors if it failed to gain labour-union approval for a strategic overhaul that would turn it into a discount airline. That approval failed to come after feuding factions in the pilots' union - which had conceded deep pay cuts after the company's first spell in chapter 11 two years ago - blocked a vote on the issue. The pilots may have shot themselves in the foot: company managers may now ask the court to let them simply impose the disputed conditions on the pilots. And, unlike last time, liquidation is more likely than not. US Airways has virtually no free assets that could act as collateral for any new loan. (Copyright 2004 The Economist Newspaper Ltd. All rights reserved.) US Airways has sought bankruptcy protection for the second time in two years, after failing to persuade its unions to sign up to $800m-worth of pay cuts. Other big airlines, such as Delta, may follow suit. The industry has never been in a worse state THAT US Airways filed for chapter 11 bankruptcy at the weekend is hardly a surprise. America's seventh-largest airline had given warning since the spring that it could be forced to seek court protection from its creditors if it failed to gain labour-union approval for a strategic overhaul that would turn it into a discount airline. That approval failed to come after feuding factions in the pilots' union--which had conceded deep pay cuts after the company's first spell in chapter 11 two years ago--blocked a vote on the issue. The pilots may have shot themselves in the foot: company managers may now ask the court to let them simply impose the disputed conditions on the pilots. And, unlike last time, liquidation is more likely than not. US Airways has virtually no free assets that could act as collateral for any new loan. <block class=”relateditems This summer has been a dreadful one for America's airlines. Cut-throat competition from discount carriers--including newcomers like JetBlue as well as the established Southwest--has combined with high fuel prices to generate whopping losses: more than $23 billion since 2001. As a result, US Airways is only one of several large airlines facing oblivion. It may soon be joined in bankruptcy by Delta Air Lines, America's third-largest carrier. US Airways had been the first big airline to seek chapter 11 protection after the September 11th 2001 hijackings that clobbered the industry. It used its court protection to slash its debt and leasing costs and to cut overall annual costs by $1.9 billion. However, the savings have not been enough, and the airline said earlier this year that it would turn itself into a low-cost, no-frills outfit in a bid to keep flying. It would seek $1.5 billion in total cost savings from the transformation, with $800m coming out of wage costs. But the unions, exhausted and disillusioned that the previous concessions they had offered were not enough, refused. The very fact that US Airways is known to have little chance of coming out of bankruptcy this time will make some customers slow to book flights. And the airline will be unable to continue to lease several small jets that were, thanks to lower running costs and lower pilot pay, a key part of its new low-cost strategy. The airline has been left with virtually no borrowing capacity: it owes $718m to the Air Transportation Stabilisation Board, a federal agency that was set up after the September 11th attacks to support struggling airlines; and General Electric's aircraft-leasing arm is exposed to the tune of some $3 billion. US Airways has said it will stop making payments to its pension fund. United Airlines, which is also in chapter 11, has already--controversially--suspended its pension payments. The airlines have little incentive to continue contributing to the funds as their liabilities would, in extremis, be picked up by the federal pensions agency. This is proving problematic for policymakers. Some in Congress think that a shake-up of the industry, including the closure of less viable airlines, is long overdue. But they worry about the billions of dollars in liability that this would dump on the pensions agency, harming healthier members of the scheme. A report by the Centre on Federal Financial Institutions, published on Monday, gave warning that the pensions agency would run out of money by 2020 if current trends persist. The agency said in June that the airline and steel industries had accounted for more than 70% of claims since it started offering insurance in 1974. Delta has already complained about the difficulties of competing with a company that does not make pension contributions. It is worried that some of its 2,000 pilots aged over 50 might seek early retirement sooner rather than later, in order to secure a lump-sum payment that some perceive to be under threat. Early retirements have been running ahead of average at Delta this year, and the airline is worried that if they rise too high, it may have to leave some jets that fly profitable routes on the tarmac. Delta has its own radical plans to stay airborne. While it proposes, like US Airways, to cut costs--by an annual $5 billion, with 7,000 jobs going--it wants to increase its long-haul and international flights and is upgrading airline cabins to include leather seats and fancy lights. But Gerald Grinstein, Delta's 72-year-old boss, will have his work cut out to sell the package to his staff, especially since it includes sizeable pay and health-care cuts. Delta's situation is so dire that Deloitte 8: Touche, its auditors, have written to the airline warning that they may not be able to certify it as a "going concern". While US Airways and Delta are the most vulnerable of America's airlines, all of the old-style, full-service carriers are under pressure. American Airlines, Continental and United (as well as US Airways) have all followed Northwest's lead in charging an "administration fee" of $5 to buy tickets by phone and $10 to buy at the airport (compared to nothing for web-based sales) in an effort to stem their losses. In Europe too, many of the traditional airlines are struggling with deflated revenues and inflated costs. This week, Alitalia, Itay's deeply troubled flag- carrier, finally persuaded its pilot and ground-crew unions to sign up to salary cuts and job losses. However, its fate still rests on negotiations about similar cuts with cabin-crew representatives, which were expected to drag on into the weekend. On both sides of the Atlantic, the industry's old guard are finding that without such savings they will fall to ground. THE WALL- STEEET JGUEEAL. US Airways, GE Reach Accord On Airplane Leasing, Financing Margy. WW. (Eastern edition). New York, N.Y.: M2914. pg. A3 Abstract (Document Summary) The agreement would free up $140 million in cash for US Airways while it remains under bankruptcy-court protection and in the future would save the carrier more than $80 million a year in cash, aircraft ownership and engine-maintenance expenses. It would also allow US Airways to lease up to 31 new 70-and 90-seat regional jets from GE over the next three years, jump-starting the carrier’s stalled strategy to expand flights to smaller markets. But it reqUIres US Airways to further reduce its costs, putting more pressure on US Airways to wring concessions from its employees. In return, GE Capital Aviation Services would take back 25 jetliners in US Airways’ fleet of 281 larger aircraft over the next three years, somewhat reducing GE’s overall $2.8 billion exposure to the airline. US Airways agreed to return 10 Airbus A3193 next year and 15 older Boeing 737s will 0 back to GE in 2006 and 2007, to be leased elsewhere. The orderly return of the 25 jets shouldn’t have much impact on U Airways’ service, however. As part of its turnaround plan, the company’s schedule beginning in February will wring more flight hours from its aircraft, providing capacity equivalent to 27 additional planes, not including the new regional jets. Full Text (771 words) Copyright (c) 2004, Dow Jones & Company Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission. US Airways Group Inc., and General Electric Co., the airline’s largest creditor, have reached agreement on a complex ' ' aircraft leasing and financing deal that would give the cash-strapped carrier a financial lifeline, according to people familiar with the matter. The agreement would free up $140 million in cash for US Airways while it remains under bankruptcy-court protection and in the future would save the carrier more than $80 million a year in cash, aircraft ownership and engine-maintenance expenses. It would also allow US Airways to lease up to 31 new 70-and 90-seat regional jets from GE over the next three years, jump-starting the carrier's stalled strategy to expand flights to smaller markets. But it reqwres US Airways to further reduce its costs, putting more pressure on US Airways to wring concessions from its employees. _ In recent filings, US Airways said it expects to lose more than $700 million this year. The $140 million includes an interim financing agreement and the deferral of aircraft debt and lease payments coming due in the next six months, the people familiar with the matter said. GE’s GE Engine Services also agreed to new terms on the engine maintenance it provides to the Arlington, Va., airline, these people said. US Airways closed its engine shops in its prior bankruptcy reorganization and now GE handles much of the work on the carrier’s aircraft engines. Two other engine suppliers do the rest. In return, GE Capital Aviation Services would take back 25 jetliners in US Airways’ fleet of 281 larger aircraft over the next three years, somewhat reducing GE's overall $2.8 billion exposure to the airline. US AinNays agreed to return 10 Airbus A3195 next year and 15 older Boeing 737s will go back to GE in 2006 and 2007, to be leased elsewhere. The orderly return of the 25 jets shouldn’t have much impact on U Airways‘ service, however. As part of its turnaround plan, the company's schedule beginning in February will wring more flight hours from its aircraft, providing capacity equivalent to 27 additional planes, not including the new regional jets. US Aiiways also would issue to GE Capital Aviation Services a 15- year convertible note when the airline emerges from bankruptcy-court protection. The unsecured note will be for between $125 million and $216 million, depending on future lease options hammered out between the carrier and GE’s aircraft-leasing unit. GE, which leases airplanes, manufactures aircraft engines and provides commercial financing, is a major creditor to many large airlines in trouble and has been extending them aid. Earlier this month, Delta Air Lines, which thus far has avoided its own trip to bankruptcy, received a commitment for $500 million in financing from GE. The GE-US Airways agreement, expected to be filed today with the US. Bankruptcy Court in Alexandria, Va., requires court approval by Dec. 17. It stipulates that US Airways achieve cost-cutting requirements by mid-January and step out of court protection by June 30. US Airways, the nation’s seventh-largest airline by traffic, filed for Chapter 11 in September for the second time in as many years. That act put it into default with regional-jet financing pacts with GE and two plane builders, and deliveries of additional small jets viewed as critical to its operations were halted. This deal would restart deliveries. US Airways currently has 169 regional jets at its disposal, flown by five different operators under the US Airways Express banner. It isn’t known where the 31 new small jets will be deployed. To fund its operations in court protection, US Ainivays has been using cash from a government-backed loan it obtained last year that enabled it to exit from Chapter 11. That interim financing is set to end in mid-January unless extended, and US Airways noted in a recent court document that it has come “uncomfortably close“ to breaching the covenant of that arrangement that requires it to keep a specified minimum cash balance. To shore up its liquidity, the company said in the court filing that it unwound its fuel-hedging position for $46 million and deferred $50 million of aircraft-financing obligations inalozvebmber. And workers in three unions are operating under court- ordered emergency 21% pay cuts through mi - e ruary. The GE agreement, which would free up additional cash and improve US AinNays’ chances of avoiding a liquidation early next year, assumes the airline will win additional concessions from those three unions and proceed with plans to terminate three pension plans by mid- January. The carrier is continuing to negotiate with those unions, but also asked Judge Stephen Mitchell to void their labor contracts if they don’t agree to new contract terms by January. ...
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