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Consumer Tips For US Airways Bankruptcy

Mon Sep 13, 2004 5:20 am

Experts Offer Tips for Consumers in Event of US Airways Bankruptcy

Pittsburgh Post-Gazette 09/12/2004

Sep. 12--A US Airways bankruptcy would reverberate in airline boardrooms, union halls and hangars around the country. But what about the consumer? What happens to the tickets you purchased for that fall trip to Europe, those frequent flier miles you spent years accumulating or the stock you purchased after US Airways emerged from its first bankruptcy in 2003? Are they still good? Or would all be worth less than the peanuts served in those little airline bags?

TICKETS: It should be noted up front that a Chapter 11 filing may mean that ticket-toting consumers will not be affected at all. During US Airways' last bankruptcy filing, in August 2002, the airline honored all tickets and there was no interruption of service.

Even as talk of a bankruptcy increased last week, the airline continued to make reservations and take money for future flights. Local passengers worried about finding flights out of Pittsburgh should also know that while US Airways plans to reduce its service at Pittsburgh International Airport by a third this fall, it is still promising to offer 240 daily flights to more than 50 cities.

The nightmare scenario, of course, is a Chapter 7 liquidation, with planes and routes sold to other investors. In that case, all flights would screech to a halt and ticket holders would lose money if they paid with cash or check, joining a long list of low-priority creditors.

To protect yourself against such a scenario, experts advise that you use a credit card to purchase any future US Airways tickets. The Fair Credit Billing Act requires credit card companies to refund tickets in the event of an airline collapse, although policies vary from company to company. The one catch is that consumer must dispute a charge within 60 days of the purchase date.

Ticket holders have one other protection. If US Airways suddenly shuts down, passengers en route from one city to another will not be stranded, due to the Airline and Transportation Security Act. Domestic airlines are obliged to accept tickets of a defunct carrier and return grounded customers back home on a space-available basis. So, remember to print out a copy of your reservation before you leave so you can prove you paid for your ticket.

FREQUENT FLIER MILES: Again, it should be made clear that your frequent flier miles may very well remain in good standing under a US Airways Chapter 11 bankruptcy, as they did when the carrier filed in 2002 and when it reemerged in 2003. But if the airline liquidates its assets in a Chapter 7 filing, US Airways Dividend Miles holders should know they have no protection and will probably lose their miles.

So, frequent flier experts are telling consumers to start spending their miles now, just in case. You can cash them in for yourself or a family member and trade them for tickets on United Airlines or any other carrier in the Star Alliance, an international airline group.

But be warned: Local reservation agents report that people are rushing to redeem their miles this month, creating a jam for the limited frequent flier seats typically available on each flight.

STOCKHOLDERS: In a Chapter 11 bankruptcy, the stock held prior to a filing is usually worthless. Shareholders go to the bottom of the bankruptcy pecking order and become the last to see any return on their money -- which usually means they get nothing.

The creditors, on the other hand, hold all the cards. In the last US Airways bankruptcy, the biggest creditors became the airline's biggest stockholders in 2003.

At the top of the list was the Retirement Systems of Alabama, which provided financing during bankruptcy and received 36.6 percent of the newly issued stock. Pilots got 19.3 percent and other employees received 10.8 percent in exchange for $1 billion in concessions granted during the restructuring process.

The Air Transportation Stabilization Board, a federal agency that backed $900 million in US Airways loans, got 10 percent and jet financier General Electric received 5 percent. The other 18 percent went to management and other unsecured creditors in the bankruptcy case.

This time around, stockholders would be at the mercy of creditors, and the federal government and GE are expected to be at the top of the list. Stockholders hoping to keep what they have should appeal to them, if US Airways files for bankruptcy again.


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(c) 2004, Pittsburgh Post-Gazette. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail


©The Record 2004

[Edited 2004-09-12 22:52:40]

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