More bankruptcies feared after US Airways failure

The American aviation industry was tackling fresh turbulence yesterday after US Airways, the nation's sixth-largest carrier, said it had filed for bankruptcy protection because dwindling passenger revenue could no longer keep up with mounting debt.

It is the first bankruptcy filing by a major American carrier since the terror attacks of last September. The move stirred instant speculation that a much larger operator will soon find itself forced to follow suit in seeking protection from its creditors.

Hobbled by the fallout of last September, airlines in the United States lost $1.4bn (£914m) in the last quarter and $11bn last year. Among the major carriers, only Southwest Airlines, with its pioneering no-frills philosophy, has escaped tides of red ink.

Shares in airlines were pummelled on Wall Street yesterday. UAL Corp, the parent of America's second-largest carrier United Airlines, plunged 27 per cent to $3.80, while AMR Corp, owner of the US number one, American Airlines, fell 13 per cent to $8.36. Trading in US Airways was delayed.

There was no interruption in services on US Airways yesterday although analysts predicted that its restructuring would mean significant cuts in its routes and fleet. The carrier has dominated traffic up and down the eastern seaboard of the US.

Ironically, the company had been making some progress to stay aloft. It recently won major concessions from its workforce as well as conditional approval of a $900m loan guarantee from a federal fund set up after 11 September. But it enters bankruptcy with $7.81bn in listed assets and $7.83bn in liabilities.

US Airways yesterday gained approval in a bankruptcy court for $75m in emergency financing. It has commitments for $500m in debtor-in-possession financing from a group led by Credit Suisse First Boston, Bank of America and Texas Pacific Group. Texas Pacific will hold 38 per cent of the carrier if it emerges from bankruptcy.

The troubles at US Airways will have only limited impact on the cut-throat transatlantic business. The carrier currently flies to Gatwick from its main hubs at Philadelphia and Charlotte in North Carolina and Pittsburgh. The ripples would be far bigger from a bankruptcy filing by Chicago-based United, a big competitor of British Airways.

Crucially, United is also seeking help from the government in the form of $1.8bn in loan guarantees. But the mega-carrier, which has lost $850m this year, has met resistance both in Washington and from its rivals. Most observers predict that United will seek bankruptcy protection soon if the loan guarantee is not forthcoming. US Airways tried to assure passengers that it intends to emerge from bankruptcy swiftly. Historically, US airlines have ducked into bankruptcy regularly, often emerging stronger. The airline will use the court protection to renegotiate deals with its lenders and lease partners and reorganise inefficient hubs.

The company, like most of its competitors, was deep into a slump well before 11 September. But the attacks hit its revenues especially hard, because it has a concentration of connections at Reagan National airport in Washington DC.