Just over two years since it first filed for Chapter 11, US Airways has been forced to return to the protection of the bankruptcy courts.

The return of US Airways to bankruptcy protection has focused attention on its assets, although few see many bidders for all or any of its parts. However, the prospect of break-up, which the airline says it will strive to avoid, may have ripple effects on recalcitrant unions at other airlines.

Some analysts say the US Airways decision to seek Chapter 11 protection within hours of a pilots' union rejection of another plea for further concessions could serve as a warning to unions at Delta Air Lines and other carriers seeking or about to seek wage deals, including Continental, Northwest and United Airlines. The US Airways dilemma may also force authorities to focus on the unresolved issue of pensions, if the carrier tries to end its $2 billion retirement fund liabilities.

If this is the hidden good news, a possible asset sale by US Airways or liquidation has limited benefits for an industry in which a muscular low-cost sector makes overcapacity a continuing dilemma. The long-running hope that the fall of a major carrier would solve the industry's overcapacity problem is unlikely to be realised, given US Airways' small size. The airline has shrunk to 5-6% of industry capacity, and any outcome will have regional impact, whether it emerges as a very large regional carrier or ceases operations.

Lehman Brothers analyst Gary Chase sees some combination of shrinkage and cost cuts as the most likely outcome. The gain from a shrunken US Airways would be regional if the low-cost carriers were to focus their growth on US Airways hubs, with Southwest Airlines adding a Charlotte expansion to its Philadelphia success and JetBlue Airways putting its Embraer jets into smaller US Airways markets. It will receive the first of 100 Embraer 190s in August. These are 100-seaters that are the right size for many US Airways markets.

Southwest could also buy some or all of the US Airways fleet of 114 Boeing 737-300/400s. That scenario, says Chase, could focus about two-and-a-half years of low-cost carrier growth into US Airways territory.

Other than Southwest, the few certain winners from either a shrinkage or a shutdown would be struggling Independence Air, based at Washington Dulles, which would see reduced regional competition. AirTran Airways, too, which has the largest overlap with US Airways at about 35%, can expand at the Pittsburgh hub and throughout the east. And JetBlue, which has an overlap of nearly 15% with US Airways, has begun an expansion into New York LaGuardia, a stronghold for US Airways where it has 250 slots. One certain loser is EDS, the data-services provider, which says US Airways' $16.4 million liability will hurt its results.

While the demise of US Airways may be no cure-all for the US industry's woes, neither is it likely that a white knight will step forward to save the carrier as Alabama Retirement Systems director David Bronner did in 2002, when he leant backing to the US Airways plan to exit from its previous spell in bankruptcy. As planebusiness.com analyst Holly Hegeman puts it, US Airways is burning through as much as $3.3 million a day, "and without any additional cash infusion, the airline will exhaust its cash resources between December and February. And here, of course, is the problem. The airline has very little left to mortgage."

When it filed for bankruptcy, US Airways had roughly $750 million in unrestricted cash to pay its bills, and owes $718 million on the balance of its first bankruptcy exit financing, $645 million to the government and $73 million to its lenders. The main assets include airport gates and slots, and various aircraft, engines and spare parts. An appraisal in September listed the value of these at $883 million. But if the carrier were to liquidate, the value of its appraised assets could fall sharply.

One set of highly desirable assets that US Airways will not now be able to secure for itself is the fleet of regional jets that was central to its transformation plan. Within days of the filing, Embraer, to which US Airways is liable for $1.46 billion, made it clear it was suspending deliveries. Bombardier, with a $948 million claim, let it be known it had found homes for most of the regional jets US Airways had ordered. And the remaining General Electric Capital Corp financing for the jets was cancelled within days.

So the airline's long-stated desire - to become part of a larger airline or alliance - may happen if parts of it are bought. That, sadly, is far from the sense in which US Airways executives used the phrase in the past.

US Airways timeline1939 All American Aviation begins flights in western Pennsylvania and the Ohio Valley.

1953 All American Airways changes name to Allegheny Airlines.

1979 Allegheny changes name to USAir.

1987 USAir buys both Pacific Southwest and Piedmont Airlines, in what was then the largest merger in US airline history.

1993 British Airways pumps in $300 million for a 24.6%stake

1997 Changes name to US Airways and severs ties with BA, which has linked with American Airlines.

May 2000 United Airlines plans to take over US Airways in $4.3 billion merger.

July 2001 US Airways and United call off merger in face of antirust issues.

March 2002 David Siegel becomes chief executive.

June 2002 Codeshare deal with United

11 August 2002 Reeling from the after shock of 9/11 and a $2 billion loss for 2001, US Airways files for bankruptcy.

31 March 2003 Emerges from bankruptcy in record time after cutting $2 billion in operating costs.

April 2004 Siegel leaves after failing to win labour concessions. Bruce Lakefield takes over.

May 2004 Formally joins Star Alliance.

12 Sept 2004 US Airways files for Chapter 11 bankruptcy protection for the second time.


Source: Airline Business