The company noted that all of the airline's labor contracts contain a provision that allows it to implement a 5 percent pay deferral for up to 18 months for all union, management and administrative employees, in conjunction with a force majeure situation. The company said that it would disclose shortly cost-reduction or deferral initiatives, and that pay deferral and capacity reductions are among the actions being considered.

The company said that its passenger bookings had dropped almost 40 percent on Wednesday, March 19, 2003, compared to the previous Wednesday, March 12, 2003, as customers are delaying or canceling their travel plans. Transatlantic bookings are more heavily impacted, and total traffic is expected to drop by up to 20 percent for the near term. The disclosure was made to Judge Stephen S. Mitchell of the U.S. Bankruptcy Court for the Eastern District of Virginia in Alexandria, at the monthly omnibus hearing of US Airways' Chapter 11 reorganization.

"Our short-term survival and long-term success after we emerge from Chapter 11 are conditioned on our taking decisive, proactive steps to limit the airline's financial exposure from the war," said Dave Siegel, president and chief executive officer. "The entire airline industry is facing a dramatic drop in demand that will only further erode the financial standing of the major carriers. While we look to the Bush Administration and Congress to provide some relief from the war's impact, that relief will only be forthcoming if we first take steps of our own."

US Airways notified Retirement Systems of Alabama (RSA) today that the company failed to meet a critical financial covenant under its debtor-in-possession (DIP) facility. Under the terms of the DIP, RSA has certain remedies that it could exercise upon the occurrence of this default, including a cancellation of its commitment to lend under the facility, as well as the right, upon five business days' notice, to recover the collateral for the loan. To date, RSA has loaned US Airways $369 million under the DIP facility. US Airways is in discussions with RSA concerning a potential waiver of this default or a standstill agreement.

US Airways also reported that it did not make certain payments due today on its 2001-1 pass through trust certificates related to 14 Airbus aircraft totaling approximately $27 million. US Airways is currently in discussions with certain interested parties regarding these payments. The company anticipates reaching agreement on these payments during the five-business-day cure period allowed for these payments.

US Airways made previously missed payments on its 2000-1 and 2000-3 pass through trust certificates related to Airbus aircraft on March 7, 2003. These payments, totaling $67 million, were due on Feb. 20, 2003, and March 3, 2003, respectively, and were made prior to the end of the applicable cure periods. In connection with these previously missed Airbus aircraft payments, US Airways reached an agreement with the RSA DIP financing facility and drew down $69 million of the DIP to cover these payments. The remaining $131 million of the RSA DIP remains subject to applicable closing conditions.

US Airways told the Court that the company had rejected the latest proposal from the Air Line Pilots Association (ALPA) as part of negotiations over a replacement pension plan, following the Bankruptcy Court's approval earlier this month of a distress termination of the existing pension.

The airline industry, already suffering from a big drop in bookings before the U.S. war with Iraq started, has begun announcing cuts in flying schedules and staffing levels.

United Airlines warned its employees on March 20 that a move to place employees on authorized no-pay status could come as early as March 21 as a result of the war. United's Machinists' union said more than 1,100 mechanics at the carrier's Indianapolis maintenance center were being put on temporary leave. United also plans to put about 2,300 flight attendants on leave April 1, the Association of Flight Attendants said.

Elsewhere, Continental Airlines announced it will cut its work force by about 1,200 people by the end of the year to save $500 million. More layoffs are planned if war with Iraq is prolonged and air travel remains soft. Continental also announced temporary capacity reductions on certain transatlantic and transpacific routes due to a drop in bookings.

And American Airlines said yesterday it will cut international flights by 6 percent in April to meet a downturn in travel bookings and could make additional reductions if traffic remains slow.

This is Roy Freundlich with US Airways MEC update for Friday, March 21, with one new item.

The MEC reconvened its special meeting in Herndon, today, and received reports from the Negotiating Committee throughout the day on the status of proposed LOA 85, Pilots Defined Contribution Plan and proposed LOA 86, Adjustments to Restructuring Agreements. Most issues in both proposed letters of agreement have been tentatively agreed to in principle; however, a final tentative agreement has not yet been reviewed by the MEC.

The PBGC has agreed to be available over the weekend to review an agreed to follow-on plan and advise of its acceptability. Recall that the PBGC reviews follow-on pension plans to determine if they are considered "abusive" according to their standards.

The proposed agreements stipulate MEC ratification prior to PBGC review. The MEC has not voted on the issue, but is expecting to consider the tentative agreement and MEC ratification this evening as soon final tentative agreement documents are reviewed.

Expect an update on this issue as soon as additional information becomes available.