Judge Delays US Airways Severance Ruling

A U.S. Bankruptcy Court judge said Wednesday he'll take up to a week to decide whether US Airways should be able to offer tens of millions in severance pay to salaried workers.


A U.S. Bankruptcy Court judge said Wednesday he'll take up to a week to decide whether US Airways should be able to offer tens of millions in severance pay to salaried workers.

The delay in the ruling is unusual for Judge Stephen Mitchell, who has previously made major decisions in the case immediately after oral arguments concluded.

The airline wants permission to promise severance to virtually the entire salaried staff if they lose their jobs after the planned merger with America West Airlines. Headquarters would shift from Arlington, Va., to suburban Phoenix and America West management will take the lead in running the new US Airways.

For most workers, the severance plan would range from three months' pay to a year's pay and bonus. Top executives could get higher payments.

The airline argues it needs the severance packages to keep a headquarters work force stitched together to guide the merger, which will likely lead to the elimination of many of those salaried jobs.

Unions and the U.S. Trustee overseeing US Airways' Chapter 11 reorganization say the payments would undercut morale among labor groups. Union workers gave up pay and benefits for the third time in two years last fall amid promises of shared sacrifice from management.

The U.S. Trustee, who acts as a watchdog in the bankruptcy process, argued that salaried workers at US Airways, in its second bankruptcy in three years, have already been through uncertain financial times. "If they were going to leave, they probably would have left already," said Dennis Early, attorney for the U.S. Trustee.

Mitchell's delay doesn't indicate the judge is leaning one way or the other, attorneys said.

Throughout the two-day hearing, US Airways pitched the proposal as the correction for a mistake it made in its 2002-03 Chapter 11 reorganization. Then, the airline canceled its severance plan for salaried employees in the event of a change of control over the company, as in a merger. Change-of-control severance packages are common for top executives in large corporations.

The airline had intended to write a new plan for change-of-control severance, but never got around to it, US Airways executives testified during the hearing.

This plan, they said, would rectify that.

The retention program has three parts: new employment contracts for the top 25 executives; a new severance plan for nearly 1,900 other salaried workers; and a discretionary fund that the company can use as an added incentive to stay.

The new executive employment contracts call for executive vice presidents and senior vice presidents, who would earn up to $317,000, to receive severance of double their annual salary and bonus as well as health care for a year and a half and lifetime travel benefits.

If those leaders were offered a job at America West's headquarters in Arizona but chose not to accept, they would receive only one year's salary and bonus and the other benefits.

Vice presidents, who would earn up to $251,000 a year, would receive one year's pay and bonus as severance. If they were offered a job in Arizona and chose not to accept, they would receive no severance.

The severance plan for salaried workers would guarantee they would receive at least three months' pay, in the event their jobs are eliminated. Depending on experience, managers could receive up to one year's pay, and other salaried workers could receive up to six months' pay.

A $5 million discretionary fund would allow the airline to pay up to $50,000 apiece to certain workers as an added incentive to stick with the company.

We Recommend