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US Airways 'side' dispute lingers

Hearing planned today over agreement's value

Friday, July 25, 2003

By Mark Belko, Post-Gazette Staff Writer

US Airways and the Allegheny County Airport Authority are trying to settle a dispute over the value of an operating agreement rejected by the airline at Pittsburgh International Airport in March.

The parties are trying to reach a deal in time for a scheduled hearing over the dispute this afternoon before Judge Stephen Mitchell of U.S. Bankruptcy Court for the Eastern District of Virginia.

"We're talking," said Eric Smith, a lawyer with Schnader Harrison Segal & Lewis who is representing the airport authority in the dispute. "There's a dialogue going on."

"We've had numerous discussions with the county," US Airways spokesman David Castelveter said. "Ultimately, if we cannot reach an agreement outside of the courts, the issue will have to be resolved in the courtroom."

The two sides have vastly different ideas about the worth of the agreement, which sets the rates and charges and spells out terms for the airlines operating at Pittsburgh International.

The authority believes the agreement, canceled by the airline effective Jan. 5, is worth $1.4 billion.

US Airways contends the agreement has no value because the airline has the right under U.S. bankruptcy law to reject leases if it so desires. Under law, there is no obligation to pay under those leases once they have been canceled, the airline contends.

In a brief filed in preparation for today's hearing, however, the airport authority maintains that the operating agreement cannot be treated as a standard lease. It describes the agreement as a "unique hybrid document that sought to address a multitude of interests held by a wide variety of parties."

"Having aspects of a license, a financing agreement, a management agreement, and perhaps possessing aspects of what is traditionally understood to be a lease, this document defies precise definition. However, what is certain is that the [agreement] does not, in any sense, constitute a mere lease of real property," it continues.

Even if the airport authority were to prevail in the dispute, it is unlikely that it would receive full value for the agreement.

Any damages would be paid in US Airways stock.

About $11 million worth of stock -- or 1.3 cents to 1.8 cents on the dollar -- has been set aside for unsecured creditors, to be divided on a pro rata basis.

Moreover, the entire issue could end up being moot if US Airways and state and local politicians are able to reach agreement to reduce the airline's costs at Pittsburgh International Airport before the Jan. 5 drop-dead date.

Mark Belko can be reached at mbelko@post-gazette.com or 412-263-1262.

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