ALEXANDRIA, Va. (AP) – US Airways received final approval Friday to exit bankruptcy protection for the second time in three years and merge with America West Holdings Corp.

The ruling allows the airline to be purchased by America West, the nation’s eighth-largest airline, as soon as Sept. 27.

U.S. Bankruptcy Judge Stephen Mitchell’s approved the airline’s reorganization plan – of which the merger is the centerpiece – after allowing the airline to provide $12 million in severance pay to 11 executives who will not be given jobs at the merged airline. Unions had said the package was excessive given the cut in pay and benefits absorbed by rank-and-file workers.

US Airways Chief Executive Bruce Lakefield said after Friday’s hearing that US Airways’ management team salvaged an airline and 29,000 jobs that many people had written off when the carrier filed for bankruptcy in September. He said US Airways is now well positioned in an industry that he believes has finally come to grips with the need to increase ticket prices to counter the rising price of jet fuel.

“The airline industry is rationalizing,” he said. “The consumer will have to pay for the product sooner or later.”

Kenneth Button, a public policy professor at George Mason University who studies the airline industry, said he does not believe bankruptcy reorganization or the pending merger fixes the fundamental problem faced by US Airways: excess capacity in the industry that forces airlines to chase passengers at unprofitable prices.

He also said merging two airlines with different cultures and business practices can be more difficult than anticipated, even though the airlines are a good fit in terms of routes – matching America West’s east-west routes with US Airways’ north-south routes.

“The big problem with US Airways all along is that it’s a collection of smaller airlines that merged” into a hodgepodge of routes and fleets, he said. “Adding another airline, it will be interesting how they’re going to handle it.”

America West and US Airways say their merger will be successful in part because US Airways – which just four years ago had the highest labor costs in the industry – pays salaries equivalent to those at low-cost carriers like Jet Blue and America West.

It took two bankruptcy reorganizations since August 2002 for US Airways to squeeze billions of dollars in cost cuts from its labor groups. But as labor costs have dropped, fuel costs have risen rapidly.

When the two airlines announced their merger plans in May, they said their business plan would allow them to be profitable even if oil remained above $50 a barrel. Since then, oil prices have climbed as high as $70 a barrel and now hover around $63 a barrel.

The airline will emerge with roughly $2.5 billion in cash, providing the airline with a cushion to weather short-term fuel costs. The new airline is expected to be the nation’s fifth largest, with headquarters in Tempe, Ariz. America West chief executive Douglas Parker will run the merged airline, which will keep the US Airways name.

America West stockholders will hold a 37 percent stake in the new company; outside investors who are supplying $565 million in financing will get about 52 percent of the shares, and US Airways’ unsecured creditors will get 12 percent.

Existing US Airways shares will be wiped out, meaning the Retirement Systems of Alabama, a pension fund for some public employees in that state, will lose its entire $240 million investment, which financed the company’s first bankruptcy reorganization in 2003.

The first Chapter 11 filing came in August 2002 after federal regulators rejected a proposed merger with UAL Corp.’s United Airlines, followed by the industrywide downturn caused by the Sept. 11 attacks.

US Airways failed to anticipate rising fuel costs and rapidly increasing competition from low-cost carriers like Southwest Airlines, which began flying at US Airways’ hub in Philadelphia.

Mitchell, who approved the reorganization plan on Friday, had also presided over the first restructuring.

“I have every hope and confidence that the airline will prosper in the future,” Mitchell said.

US Airways is one of four major U.S. carriers in bankruptcy protection, along with United Airlines, Delta Air Lines Inc. and Northwest Airlines Corp. Delta and Northwest filed for Chapter 11 in New York on Wednesday. United Airlines filed for bankruptcy protection in 2002.

AP-ES-09-16-05 1627EDT

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