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Judge Orders Liquidation of Midway

October 30, 2003

RALEIGH, N.C. (AP) _ A federal bankruptcy judge ordered the liquidation of the assets of Midway Airlines on Thursday, a regional carrier for US Airways that had fought to stay in business despite filing more than two years ago for court protection from its creditors.

``Sometimes despite the best efforts, reorganization efforts don’t work out,″ Judge A. Thomas Small said. The judge later signed a liquidation order.

Gerald Jeutter Jr., an attorney representing Midway Airlines, said the carrier had been unable to reach an agreement with its 85 pilots and was converting its attempted bankruptcy reorganization into a liquidation plan. Midway had 188 employees, including the pilots.

``Midway surrenders,″ Jeutter said. The airline had filed court papers clearing the way for converting the airline’s reorganization effort into a liquidation before the hearing, Jeutter said.

Jack Butler, an attorney representing US Airways, said the company had loaned Midway $8.6 million since December to keep Midway flying as a commuter feeder airline for US Airways. But Midway is running out of money and has been unable to operate its entire flight schedule in the past month, Butler said.

Midway, which flew 30 daily round trips, parked its eight aircraft Wednesday night, pending the bankruptcy hearing. Customers were being rerouted onto other flights, US Airways spokesman David Castelveter said Thursday.

``We will accommodate customers on other US Airways flights or those of other airlines,″ he said. ``There are other options for customers to get to their destinations.″

Midway chief executive Robert Ferguson said the airline’s remaining assets total almost $50 million, primarily two jets owned by Midway and spare parts.

He said he expected the assets to be sold within three or four months.

Employees will receive distributions from their 401(k) retirement plans, Ferguson said. The bankruptcy trustee appointed to oversee the liquidation will decide whether workers receive any continuing health care coverage, he said.

``It’s unfortunate after all this time and all the effort the parties have spent that we’re in this position now,″ said Bruce Levine, an attorney representing the Air Line Pilots Association.

Three weeks ago, Small postponed a decision on whether to convert the company’s Chapter 11 reorganization case to Chapter 7 bankruptcy, which would require Midway to shut down and sell off its assets.

At the time, Midway said it made a last-minute deal with members of the Air Line Pilots Association on concessions demanded by an unidentified investor who had expressed interest in investing more than $5 million in the airline. Midway would use the money to pay off creditors when it exited bankruptcy.

The deal has been rejected by the investor, the pilots said.

Ferguson said in September that the union needed to agree to extend its contract from six to 10 years and agree to fly planes larger and smaller than the current fleet of 50-seat Canadair regional jets. Pilots subsequently agreed to fly different planes but not to extend their contract.

A new proposal was offered to the pilots union over the weekend, but it failed to include a detailed business plan explaining how the proposed concessions by pilots would result in the airline’s survival, Capt. Mark Stewart, chairman of the Midway pilot’s unit of the ALPA, said in a recorded message to members.

``Once again, management, US Airways and the mysterious investor are dictating terms″ for a third round of concessions in less than two years, Stewart said.

In a required monthly report to the bankruptcy court, Midway said it lost $144,000 in September due to $269,000 in interest and reorganization expenses.

The airline formerly had a 40-plane fleet and 130 daily departures from Raleigh-Durham International Airport.

Midway filed for bankruptcy protection in August 2001, listing assets of $318 million and liabilities of $232 million. The company posted losses of $15 million in 2000 and another $15 million in the first six months of 2001.

Midway continued flying until Sept. 12, 2001 _ the day after terrorist attacks in the United States _ and the company laid off 2,400 workers.

The airline returned to the air two months later thanks to $10 million from the national airline bailout program passed by Congress in response to the attacks.

The airline was grounded again and ended its days as an independent carrier in July 2002. It received a cash infusion from US Airways and began operating a year ago under the US Airways Express banner.


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