The Air Wis Agreement

[BoeingBoy]

Rico,

The CRJ-900 is a possibility, both under US scope and the AWAC agreement. I don't thing they have any now, but have no idea if they have any on order or anything like that, but assume that the inclusion in the agreement wasn't accidental.

I'm not quite sure what you're refering to by "that the 50 seaters can be optioned out instead for 90 seaters". If you mean that -900's can be substituted for -700's, they certainly can, although there is also provision for them to be on top of the -700's. What the agreement actually says is that "the parties may agree" to add -900's.

There is also a maximum number of CRJ's that can fly in US colors, but the number is redacted and the motion to the court mentions 70, which is currently the number AWAC has (according to their website).

I know in my last post above, I talked about a "what if" where AWAC used US to finance a more attractive offer to UA, but that was just idle speculation. If pinned down to give a rational for this deal on both sides, I'd say that US needs the money and AWAC offered it - our side is as simple as that. For AWAC, they get both feet on banana peels (UA putting their flying out for bids & US in BK) instead of just one foot on a banana peel (the UA part) and the other foot swinging in thin air.

Jim

 

[BoeingBoy]

Rico,

Another thought. As you know, after the recent agreements with both Bombardier and Embraer we effectively have no delivery positions from either company - orders but not delivery positions because the deposits/progress payments securing those positions was used to secure delivery of the last 3 -900's and 6 -170's (if the last three have arrived yet).

I don't know that much (well, very little actually) about how getting delivery positions is done but guess it's possible that AWAC could secure some of our previous positions.

Jim

 

[Light Years]

sfb,

Just to play devil's advocate for a minute.....

One of the things that struck me about the agreement is the provision that US would pay certain "direct costs" for AWAC's entire fleet (presumably just the CRJ's, but that isn't spelled out) once a threshold number of jets are flying in US colors.

Hopefully, that threshold number is high enough to include most of AWAC's fleet, but for the sake of argument let's postulate that the number is 20. So AWAC could put 20 CRJ's over here, leaving 50 available to fly for UA (plus the Bae146's). But US is then paying such things as a/c ownership costs and hull insurance for the full 70 airplanes. AWAC could theoritically use this "cost advantage" to be the low bidder on the UA flying, at least the flying they could do with the 50 CRJ's and 16-18 Bae146's.

Just speculation....

Jim

[post="250363"][/post]​

I was thinking the same thing... so US would be paying direct costs for a large United Express operation or whatever other agreements Air Willy may get. With US footing the bill for any and all ZW ops, they get the the opportunity to offer the lowest cost product to other airlines without affecting labor costs or anything else. Are we reading that right?

At this point I think U has as many 50 seaters as it needs... it would certainly make sense to have one affiliate carrier than the three embarassments they have now. UA can easily replace that feed through the exact same three carriers ZW would replace, as they already have low-cost UAX agreements in place with them. The 146's, if I understand it, are grandfathered into UA's scope clause and are important to UA for certain mountain routes that RJs couldn't perform. I don't see a place for those four engine tanks in the US system.

US is rightfully interested in growing (or replacing) 70-100 seat flying, the perfect capacity family for the majority of the core US Airways system. It's worrying to see that contracted out though, at the expense of US (MAA, whatever). And the idea of the CRJ900 is just awful, once you get to 100 or so people and a certain flight length you need to ditch the skinny RJ cabin and service.

Let's hope the deal with them leads to fewer carriers flying the same types for US, fewer US jobs replaced by contractors, and fewer inconsistant fleet types entering the picture... it could be just alot more of all that though.

 

[Light Years]

Rico,

Another thought. As you know, after the recent agreements with both Bombardier and Embraer we effectively have no delivery positions from either company - orders but not delivery positions because the deposits/progress payments securing those positions was used to secure delivery of the last 3 -900's and 6 -170's (if the last three have arrived yet).

[post="250394"][/post]​

No 900s have been delivered to PSA, only 701s and of course 200s. There are no 100 seat "Express" planes- yet.

Air Wisconsin does not fly the CRJ700 or CRJ900 at this time, just the 200s. There was some sort of rumour about them having some deal with Bombardier which would allow them to return 50 seaters in exchange for larger variants, not sure how much truth there is to that.

 

[BoeingBoy]

I'm sorry, Light - had a "senior moment" there. I meant the -700 at PSA. Guess I got befuddled with the 90 seat thing....

The AWAC agreement does allow the -900, though.

:wub:

Jim

 

[Rico]

I dunno, it just seems to be a strange "stand alone" deal. But in contex of other things going on now in the background, or in the near future it might fit very well into the big picture that we have not yet been able to see.

Like I said, it might have something to do with growth, rather than replacement. More to do with large "small jets", rather than small "small jets". Could be less a loan, as instead the purchase price for one or all of the Wholly Owneds/MDA. Or could just simply be a trade of needed cash for a sweetheart deal on providing feed.

No one knows yet.

 

[Light Years]

Rico, do you think they may want to purchase the W/Os or the division? Is US interested in offloading the subsidiaries in favor of one seperate provider?

 

[Rico]

Geeze, I dunno, It just seems that in the current enviorment, to quote Jim, that U is trading control for cash. Owning your own feed is just that, control.

Basically buy the Subsidiaries, and you buy yourself additonal fee for departure flying. It is not the first time that someone has suggested that they might be sold to bring in needed capital to exit bankruptcy. I have heard the idea of U "self financing" themselves out of BK, and that seems one of only a few ways to pull off such a manuver.

But this is mere speculation. PSA would be a good fit, PDT would not be so bad either, and although MDA could not fucnction as a stand alone entity, it could be sold regardless.

Recent moves to bring MidAtlantic further under the Mainline operational umbrella might indicate a desire to maintain that flying in house, so as not to place all the "eggs in one basket". But having even only one 37/50 seat turboprop, and 50/70 CRJ operator is something the company could do without later on down the line if the need arose.

But again, it is mere speculation.

The fact is that AWAC is capable of purchasing one or more of the subsidiary carriers IF they wanted to. But at this point in the game it is best to just assume that Air Wisconsin merely took a calculated risk, and made an fairly savvy investment into US Airways. It is far too early in the game to read more into it than that.

Sorry if I made things only more confusing.... :unsure:

 

[BoeingBoy]

While it's impossible to tell (most of the "affiliated" carriers around the industry are either W/O'ed by the network partner or privately held), it's probably safe to assume that Mesa has one of the lowest operating cost structures.

Assuming that, their last quarter (it's their 1st fiscal qtr) passenger revenue per ASM was 13.3 cents. Since most of their fleet operates under fee for departure contracts (they say that 99% of their passenger revenue comes from them), that isn't really passenger revenue - it's fee for departure revenue.

There's absolutely no way to determine what what we (or their other network affiliates) pay them per provided ASM, so that 13.3 cents is all we have to go on.

The question becomes whether PSA, PDT, or MDA could provide the ASM's at the same or lower price (or AWAC for that matter). If so, the flying should definitely be in-house because it would be cheaper. If not, then how much more is it worth to have the control (quality and otherwise) that having it in-house would provide.

Of course, right now it's an academic discussion - we couldn't afford the planes to bring the flying in-house even if we wanted to.

Jim

 

[Rico]

Oh man, you will get no argument from me on the merits of keeping things in house Jim, rather the opposite. I am just pointing out that the climate at U is ripe for changes that would not have been considered otherwise.

IMO it is possible, but unlikely that the company would transfer ALL the express flying under AWAC. It seems pretty far fetched, based upon what little we know of this deal, that things could turn out that way. I meant only to bring up the possibility to widen the discussion, not vocalize support for such a thing.

I still think that AWAC's priority is to position itself for future large "small jet" growth at US Airways. And behind that provide a safe harbor for their current RJ fleet if the need arises. Further expansion by outright acquisition seems a distant option vs. the easier route of just adding new aircraft to their fleet.


Peace B)

 

[sfb]

Geeze, I dunno, It just seems that in the current enviorment, to quote Jim, that U is trading control for cash. Owning your own feed is just that, control.

Well, it's not just about control -- it also keeps the profits made by your regionals under the corporate umbrella. And I think that if labor relations weren't so contentious in the industry, it would make a lot of sense for all the network carriers to own their regionals. Delta got burned by the Comair pilots in 2000, though, which I think is what precipitated Continental and Northwest to consider spinning off their regionals. With the calamitous state of the industry and facing huge pension funding deficits, it was fortuitous for CO and NW to be able to use shares of their spun-off regionals to help meet pension funding requirements.

Basically buy the Subsidiaries, and you buy yourself additonal fee for departure flying. It is not the first time that someone has suggested that they might be sold to bring in needed capital to exit bankruptcy. I have heard the idea of U "self financing" themselves out of BK, and that seems one of only a few ways to pull off such a manuver.

Well, you get the fee for departure flying as long as your contract with the mainline partner stays valid and isn't rejected through bankruptcy -- and as long as that partner remains flying. Until US Airways successfully reorganizes, the wholly-owneds are unattractive purchase prospects. No one wants to drop millions of dollars on the purchase of a regional when there's so much speculation that its network partner might go out of business.

The fact is that AWAC is capable of purchasing one or more of the subsidiary carriers IF they wanted to. But at this point in the game it is best to just assume that Air Wisconsin merely took a calculated risk, and made an fairly savvy investment into US Airways. It is far too early in the game to read more into it than that.

I think this observation is quite astute, and I suspect it explains why the US Airways-AWAC deal was structured in the way it was. Assume that AWAC had bought PSA from US and obtained a similar agreement that US would shift additional regional flying to AWAC at AWAC's option. AWAC would have no way to recoup its investment in the event that US were to fail to reorganize under Chapter 11, and if they were to lose the UA contract flying as well, having inherited even more CRJ's from PSA would just make matters worse. This structure gives AWAC a lot more wiggle room, and it potentially gives US Airways part of the equity investment needed to reorganize. I'm still a bit skeptical that $250 million will be enough unless industry fundamentals improve dramatically in the next six months.

Selling one of the wholly-owneds probably wouldn't help with the reorganization, since the proceeds would likely have to be applied to reduce the outstanding amount of the ATSB-guaranteed loan. It probably wouldn't make more of the cash collateral available, either, since presumably the wholly-owneds are part of the additional collateral on which the ATSB holds liens.

 

[Rico]

Selling one of the wholly-owneds probably wouldn't help with the reorganization, since the proceeds would likely have to be applied to reduce the outstanding amount of the ATSB-guaranteed loan. It probably wouldn't make more of the cash collateral available, either, since presumably the wholly-owneds are part of the additional collateral on which the ATSB holds liens.

Yeah, I wondered about that very thing. Jim pointed that out a long time ago the first time someone mentioned selling PDT/PSA/MDA.

But then I thought about it, if you sell the carriers, and apply the proceeds to the paying off the loan, that essentially frees up that same amount in what you have of remaining cash, right...?

I know it seems too simple minded to be correct, but if they got 200 Million from a sale (let's say), and then take the 200Big and pay down the ATSB loan by that amount... Would they then be able to use 200 Million of the cash (on hand) that U previously would have to had to leave be, under the ATSB Agreement...?

Just curious, probably mistaken, but thought I should ask.

 

[BoeingBoy]

I think the short answer is "no" because all the cash is collateral.

However, it is entirely possible that the ATSB could agree to lower the minimum amount of cash collateral that had to be kept on hand. Whether they would lower $1 for every $1 paid on the principal is another question.

Jim

 

[Light Years]

Every time US pays Mesa, Chautauqua and Trans States guaranteed profit, that funds more RJs that will fly for Delta, United, America West, or American. Indirectly US has been buying thier competition RJs which have mostly been used in US Airways territory. Not to mention the loss of revenue and quality control that could have been kept within the company.

But this is totally different- paying for all direct costs for an airline to provide lift to a competitor? That can't be right, can it?

 

[sfb]

But then I thought about it, if you sell the carriers, and apply the proceeds to the paying off the loan, that essentially frees up that same amount in what you have of remaining cash, right...?

I know it seems too simple minded to be correct, but if they got 200 Million from a sale (let's say), and then take the 200Big and pay down the ATSB loan by that amount... Would they then be able to use 200 Million of the cash (on hand) that U previously would have to had to leave be, under the ATSB Agreement...?

Well, look at it this way: The ATSB (or rather, its agents) came up with some valuation for all of the pieces of the enterprise which are considered collateral for the loan along with the "cash collateral." Even if you pay down the loan partially, you've reduced the amount of non-cash collateral available to be sold to help pay back the loan in the event of a liquidation. The targets the company has to meet are likely based on the distress values of the non-cash collateral (i.e. if things had to be sold quickly in a bankruptcy auction).

That said, if the company got a fairly good price for a certain asset or assets sold, the ATSB might agree to allow the company to use part of the proceeds for general corporate purposes, rather than for paying back the loan -- for example, if the sale price were significantly higher than if the asset's distress value. But some part of that money would have to offset what the assumed value of a wholly-owned was as part of the collateral beforehand.

I'm not sure PDT would have much value, to be honest. It looks like Chicago Express, for example, will be a complete write-off for ATA in its bankruptcy reorganization.