Court throws US Airways a lifeline

The court in Virginia, which now effectively administers US Airways since its bankruptcy filing on Sunday, ruled that the firm could use $75m (£49m) in financing.

The ruling allows US Airways, the country's number-six carrier, to pay suppliers, staff and contractors, and to maintain a reasonably full service.

In turn, this raises the prospect of the firm eventually emerging from bankruptcy - a status that in the US means temporary protection from creditors, rather than the wholesale failure of a business.

Jitters over the wider impact on the US airline industry earlier saw heavy falls in the share prices of its rivals, with United Airlines' parent company down as much as 30% at one point.

More to come?

The new money is an initial instalment of a $500m debtor-in-possession financing package arranged by a group led by CSFB and Bank of America.

The remainder of the funding will be decided at a 26 September follow-up hearing before the US Bankruptcy Court for the Eastern District of Virginia.

The courts have so far smiled on US Airways, the first of the big US carriers to file for bankruptcy since 11 September.

On Sunday, a court swiftly granted the firm relief on its obligations pending Monday's hearing, and the latest result came with the minimum of deliberation.

Revival hopes

One major question mark remains over the status of US Airways' stock market listing.

The New York Stock Exchange did not allow the airline's shares to trade on Monday, and said it would need to review the firm's bankruptcy arrangements before allowing them to resume.

But the firm remains confident that it will emerge from bankruptcy next year.

In its bankruptcy filing, US Airways listed assets of $7.81bn and liabilities of $10.7bn.

It said it aimed to emerge from bankruptcy in the first quarter of 2003.

Whether it does emerge or not, creditors are seen as having a strong chance of clawing back their money, since US Airways has pledged its extensive fleet as collateral against loans.

Money worries

Over the past financial year, the airline is reported to have lost more than $2.1bn.

Last month US Airways pilots agreed to pay cuts amounting to $465m a year, in an effort to keep the company afloat.

The airline recently asked the government to back a $1bn loan.

It is also seeking to save $1.3bn in annual expenses from labour, suppliers, lenders and creditors.

Plans for emerging from bankruptcy include Texas Pacific Group investing $200m in return for a 38% stake in US Airways.

Failed merger

In 2000, US Airways was set to be taken over by UAL Corporation, owner of United Airlines.

But the deal was called off the following year because of indications regulators would block it and concerns about economic conditions.

Both airlines have since reported heavy losses.

US Airways had said a merger with United was its best chance for remaining profitable in an increasingly competitive industry.

Analysts expressed doubt whether the carrier would survive, saying its best prospects were either finding another merger deal or selling itself off in pieces.